Strategic trade
Trade view / 13 April 2015 at 1:19 GMT

Today's Trade: S&P/ASX 200 breakout near, ore price claims a victim

Trading Desk / Saxo Capital Markets
Australia
Instrument: ASXSP200.I
Price target:
Market price:
  • The S&P/ASX 200 is ready to break through resistance at 6,000 points
  • The AUSUSD has been outperforming in relative terms
  • The ore price slide has claimed a victim – Atlas Iron has suspended production

By Saxo Capital Markets Australia

Overseas markets/early trade

Shares push higher in early trade as the bullish global mood spills onto the local exchange with energy names continuing to push higher as oil recovers.

At 10.26am, the ASX 200 was 15 points up, or 0.3% at 5983.8 with banks helping the rally, while miners and the companies servicing them are rocked by the continuing fallout of the plunging iron ore price.

World equity markets tested record highs on Friday on hopes of more stimulus from top central banks, while the US dollar strengthened on favourable government debt yields compared to those of most other developed countries.

The Dow topped 18,000 for the first time since April as investors looked ahead to the official start of earnings season next week. The Dow Jones Industrial Average closed up 98.92 points, or 0.55%, at 18,057.65, with General Electric leading advancers and Nike the greatest laggard. The index briefly added more than 100 points in afternoon trade.

The S&P 500 closed up 10.88 points, or 0.52%, at 2,102.06, breaking the significant resistance levels of 2,090 and 2,100. Industrials gained 1.8 percent to lead all 10 sectors higher.
The Nasdaq closed up 21.41 points, or 0.43 percent, at 4,995.98.


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Low prices have made Atlas Iron cease mining iron ore, and a few other well know names may have to make some mines maintenance only until the ore price rebounds. Photo: iStock

 
US crude posted its fourth positive week in a row, settling up 85 cents, or 1.7%, at $51.64 a barrel after a report that the weekly oil rig count had its largest drop in a month.

European stocks also clocked gains with technology stocks leading the gains. The tech sector was lifted by enthusiasm over major Apple and Samsung product launches, as well as media reports that Finland's Nokia was considering selling its HERE maps business. Nokia shares closed nearly 4% higher.

The Stoxx Europe 600 climbed 0.9%, closing at an all-time high for the second day in a row. Germany’s DAX index was 1.7% higher, and France’s CAC 40 rose 0.6%. Outside the Eurozone, the U.K.’s FTSE 100 was up 1.1%, hitting a record high.

Local markets

  • S&P/ASX 200 Index futures contract rose 0.4% to 5,975; futures relative to estimated fair value suggest an early gain of 0.3%.
  • Bank of New York Australia ADR Index +0.2% on Friday; BHP Billiton ADR little changed, Rio Tinto ADR -1.6%
  • Spot gold rose a nice 1.1% to US$1,208 Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SLR
  • Oil rose on Friday night with WTI and Brent both up 1.8% and 2.1% to US$51.64 and US$57.87. In an interesting sign of potential oil prices turning around, the U.S. saw the strongest lift in long positions for non-commercial use since 2011. What this means is that if you take out businesses who use futures to hedge their positions, the total number of contracts traded were clear long positions (from speculators/investors). However, although there has been a strong change last week from short to long positions clients do need to be aware of the fundamentals within the market place. Two points that do not support a strong long conviction include: U.S. inventories are continuing to grow, now at some 480m barrels and; Saudi Arabia is producing at record levels. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore fell 1.7% to US$47.53. Atlas Iron (AGO) also announced that they will cease mining and exporting given the current price. AGO is no doubt the first victim of a few well know names that will exercise their option to turn their mines on ‘maintenance only’ and wait for a revival of iron ore prices. China has cut taxes for their domestic miners to help support local industry. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were up across the board following energy prices. Copper rose 0.7% to US$6,039 and will be watched in particular as the World Copper Conference is to start. Their analysis of Chinese demand for copper will give a good indicator on what to expect for industrial metals. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • Atlas Iron (AGO): Suspends production in response to low iron ore price: NOTE: Shares suspended since April 2 pending outcome of review
  • BHP (BHP): X2 Resources mulling bid for co.’s spinoff South32
  • Fortescue (FMG): Chairman Andrew Forrest says will maintain output at 165 million tons/yr: AFR
  • Oil Search (OSH): Macquarie said company looks like “most likely takeover target” in Australia

Data points

Monday
  • JPN: Core Machinery Orders m/m, Monetary Policy Meeting Minutes, M2 Money Stock y/y, PPI y/y (9:50am)
  • CNY: Trade Balance
  • EUR: Italian Industrial Production m/m
  • US: Federal Budget Balance
Tuesday
  • AUS: NAB Business Confidence (11:30am)
  • CNY New Loans & M2 Money Supply y/y (Tues-Thurs)
  • GBP : CPI y/y, PPI Input m/m, RPI y/y, HPI y/y
  • EUR: Industrial Production m/m
  • US: Core Retail Sales m/m, PPI m/m, Retail Sales m/m, Core PPI m/m, NFIB Small Business Index, Business Inventories m/m
  • US Earnings: JP Morgan Chase, Wells Fargo, Johnson & Johnson, Intel, CSX, Linear Tech, JB Hunt Transportation, Fastenal
Wednesday:
  • AUS: Westpac Consumer Sentiment (10:30am)
  • CNY: GDP q/y, Industrial Production y/y, Fixed Asset Investment ytd/y, NBS Press Conference, Retail Sales y/y
  • JPN: Revised Industrial Production m/m
  • EUR: German Final CPI m/m, French CPI m/m, EUR Trade Balance, German 10-y Bond Auction, EUR Minimum Bid Rate, ECB Press Conference
  • US: Empire State Manufacturing Index, Capacity Utilization Rate, Industrial Production m/m, NAHB Housing Market Index, Crude Oil Inventories, Beige Book, TIC Long-Term Purchases
  • CAD: BOC Monetary Policy Report, BOC Rate Statement, Overnight Rate, BOC Press Conference -
  • US Earnings: Bank of America, US Bancorp, Burberry, Charles Schwab, PNC Financial, Netflix, SanDisk, Universal Forest Products, Progressive, ASML Holdings

Thursday
  • AUS: MI Inflation Expectations (11am), Employment Change, Unemployment Rate & New Motor Vehicle Sales m/m (11:30am)
  • CNY: Foreign Direct Investment ytd/y (Thurs – Sund)
  • EUR: Italian Trade Balance, Spanish 10-y Bond Auction
  • G20 Meetings
  • US: Building Permits, Unemployment Claims, Housing Starts, Philly Fed Manufacturing Index, Natural Gas Storage
  • FOMC Member Lockhart speaks about the US economic outlook and monetary policy at the Palm Beach County Convention Center.
  • FOMC Member Fischer speaks in a panel discussion titled "The Elusive Pursuit of Inflation" at the International Monetary Fund Spring Meetings, in Washington DC
  • US Earnings: BlackRock, Citigroup, Goldman Sachs, Blackstone, American Express, Schlumberger, Celanese, Crown Holdings, UnitedHealth, Taiwan Semiconductor, Philip Morris, First Republic Bank, KeyCorp, Mattel, Sherwin-Williams, Sonoco Products, PPG Industries, WW Grainger
Friday
  • EUR: Current Account, Final CPI y/y, Final Core CPI y/y
  • GBP Average Earnings Index 3m/y, Claimant Count Change, Unemployment Rate
  • G20 Meetings
  • CAD: Core CPI m/m, Core Retail Sales m/m, CPI m/m, Foreign Securities Purchases, Retail Sales m/m
  • US CPI m/m, Core CPI m/m, Prelim UoM Consumer Sentiment
  • US Earnings: GE, Honeywell, Synchrony Financial, Comerica

Current ASX trades

  • Flightcentre (Ticker: FLT:xasx): Entered short position on March 9 at $43.05. Stop loss has been trailed now to our open price of $43.05 (-0.0%). First profit target was reached on Mar 11 at $40.56 (+5.8%), second profit target was reached on March 16 at $39.74 (+7.6%) and final profit target is $38.40 (+10.8%).

  • AMP Limited (Ticker: AMP:xasx): Entered long position on February 6 at $6.10. First profit target was reached on February 18 at $6.49 (C +6.4%) and second profit target at $7.12 (C +16.7%) and third and final profit target at $8.00 (C +31%) remains in place. Stop loss trailed to entry price of $6.10

Broker upgrades

  • Alumina (AWC): Deutsche Bank has a ‘buy’ rating on company with $2.50 PT.
  • Independence Group (IGO): Raised to outperform at Credit Suisse
  • Sirius (SIR): Raised to outperform vs underperform at Credit Suisse


Broker Downgrades:
   
  • BC Iron (BCI): UBS has a ‘sell’ recommendation with a $0.36 PT.
  • Beach Energy (BPT): Cut to sell vs hold at Canaccord Genuity
  • Drillsearch (DLS): Cut to hold vs buy at Canaccord Genuity
  • Newcrest Mining (NCM): Credit Suisse has an ‘underperform’ but lifted its PT to $11.50

Currencies

The EURUSD continued its sell off for a fifth straight session last Friday to a three and a half week low, while cable (GBPUSD) plunged to a five-year low on the back of disappointing construction output and industrial production. However the AUDUSD has been relatively outperforming and maintaining its resilience despite recent heavy fall in iron ore prices. The resistance level is at 0.7700 and we would not be surprised if AUDUSD gets back up to this level.

Please see trade from set up from our Saxobank FX strategist John J Hardy, on the following video link (entitled #SaxStrats: Why I’m shorting AUDUSD).

AUDUSD proves resilient

AUDUSD DO






















EURUSD sells off
EURUSD






















Watch for
ASXSP200.I breakout

Our long trade on the S&P/ASX 200 on Friday was filled at 5,929 and as per our prediction, the big resistance level at 6,000 is just around the corner. We expect to see the breakout today as global stock markets are carrying with very bullish momentum at the moment.

China's trade balance comes out today, and if it comes out strong, then it could be that catalyst to break the 6,000 level.


ASXSP200.I edges close to 6,000

SP200 DO






















Sources: AFR, SMH, CNBC, BBG, WSJ

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– Edited by Robert Ryan

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.


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