Article / 21 January 2016 at 23:53 GMT

Today's Trade: S&P/ASX 200 rallies on hefty turnaround for top miners

Trading Desk / Saxo Capital Markets
  • The S&P/ASX 200 headed into the green at the start of trading
  • The banks are showing signs of weakness that could drag on the S&P/ASX 200
  • Copper and nickel prices have risen on hopes of EU and China stimulus moves

By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX 200 moved strongly higher at the open; it was up 0.63% to 4,894.60 at 1044 AEST.
  • BHP was a standout performer. The ASX-listed miner's share price surged at the open; its share price was up 7.32% to $A15.24 at 1025 AEST.


Resources-led rally ... mining is back in fashion, with a share price surge at the start of trading for leading Australian miner BHP Billiton. Photo: iStock

  • US stocks ended higher however off session highs, as a recovery in oil prices and hopes of more stimulus from the European Central Bank helped extend Wednesday's late-session recovery.
  • The Dow Jones Industrial Average climbed 84 points, or 0.5%, to 15849, after earlier rising as much as 272 points. The S&P 500 recently gained 0.2%, while the Nasdaq Composite slipped 0.1%.
  • WTI settled up $1.18, or 4.2%, at $29.53 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained $1.37, or 4.9%, to $29.25 a barrel on ICE Futures Europe.
  • Energy stocks posted some of the widest gains following the jump in oil prices. Energy companies in the S&P 500 gained 2.89% to lead S&P 500 advancers.
  • Chevron Corp. climbed 2.6% and Home Depot Inc. surged 3.3% as energy and consumer discretionary companies paced the rebound from yesterday’s selloff.
  • Verizon Communications Inc. gained 3.3% after its profit beat estimates.
  • Banks in the S&P 500 slumped, with Bank of America Corp. falling 2.4%.
  • Union Pacific Corp. lost 3.6% after its earnings missed forecasts.
  • The Nasdaq composite underperformed, briefly turning negative during afternoon trade and never fully recovered earlier gains. The Russell 2000 ended mildly lower, while the iShares Nasdaq Biotechnology ETF (IBB) fell over 2%.
  • Also weighing on the Nasdaq was a 5% decline in Netflix and a 0.5% decline in Apple
  • The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, held above 26.
  • European markets also enjoyed strong gains on the back of Draghi’s comments of further stimulus. The Stoxx Europe 600 rose 1.9%, the Dax lifted 1.94%, the FTSE rose 1.77% and the CAC was up 1.97%
  • Banks were again in the spotlight with Italian banks finishing sharply higher after a week of freefall on fears that the ECB had asked for data on their bad loan portfolios. BMPS jumped 43% by the close, with Unicredit and Banco Popolare ending up 7.9 and 10.3% respectively.
  • Stocks in the banking sector rose following Mario Draghi's comments saying that a recent ECB investigation was never meant to affect the Italian banks so negatively.
  • Deutsche Bank lost close to 6% before paring losses after the bank issued a profit warning alongside its fourth-quarter results. Shares closed 3.4% down.
  • Oil stocks in Europe were positive, with Seadrill clawing back from Wednesday's dramatic falls, recovering 16.3%. Subsea 7, Tullow Oil and BP all closed over 4%  Miners were some of Europe's top performers, as copper and lead prices traded higher. Glencore jumped 15.5%, with BHP Billiton, ArcelorMittal and Anglo American all posted strong gains above 10%.

Local markets
  • The S&P/ASX 200 Index futures +0.4%; futures relative to estimated fair value suggest an early advance of 0.7%
  • Bank of New York Australia ADR Index +3.1%. BHP Billiton ADR +8.1%, most since November 2011, to $A14.97 equivalent, 5.4% premium to last Sydney close. Rio Tinto ADR +5% to $A34.13 equivalent, 11% discount to last Sydney close
  • Spot gold is holding at its 100DMA, down just 0.3% to $1,101. We patiently wait for the descending wedge to break and see gold rally on the weekly chart. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Crude oil has bounced off its 12 year lows with WTI and Brent up 4.6% and 5.6% to $29.62/barrel and $29.36/barrel respectively. The EIA last night reported an increase in US stock piles of 4mln barrels, while there was a fall in inventories of 1 mln barrels of distillate fuel. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore has been one of the few commodities not to rise, down 0.8% to $41.29. The battle for seaborne iron ore to China is impacting prices and if continues will only look to drive prices lower until more players fall away. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals have seen relief with copper up 1.2% and nickel up 2.3% as speculation of additional EU stimulus and Chinese investment. Draghi has commented that the ECB might easy policy further while State Grid Corp of China (worlds individual largest consumer of copper) plans to invest 28% more in the next 5 years. Keep in mind that State Grid is reducing Cap Ex this year by 3% as reported yesterday. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • Dick Smith (DSH): Creditors’ meeting may be delayed until August: AFR
  • Fortescue (FMG), BHP Billiton (BHP): Bernstein says no further Roy Hill shipping activity seen so far.
  • Graincorp (GNC): World’s 2nd-largest wheat crop at risk as El Nino lingers
  • Resmed (RMD): Scheduled to release 2Q results in U.S.; NOTE Adj. net income est. $91.4mln (6 analysts); GAAP est. $91.9mln (10 analysts)
  • Santos (STO): Scheduled to release 4Q output, sales; NOTE: Oct. 23: Narrows 2015 output guidance to 57-59 mmboe; Trims capex forecast 10%.
  •  Treasury Wine (TWE): Says six-month Ebit was in range of $A140mln- $A150mln; NOTE: Year ago 1H Ebit was $A85.2mln.

Stock to watch

We are revisiting ASX-listed electronics retailer JB Hi-Fi (JBH), which was first flagged last Thursday. JBH yesterday surged 5.5% to create new highs on a daily and weekly chart. In volatile times, JBH has had an exceptional run on no company announcements.

Now including the monthly chart of JBH, we see its all-time high in 2009 as possibly the last ceiling of resistance. However on the daily chart JBH is now trading above an RSI of 70 which indicate an ‘overbought’ signal.

JB Hi-Fi's share price trend, monthly1

JB Hi-Fi's long-term share price trend2
Data points

Open positions

Broker upgrades, downgrades

  • Iluka (ILU): Raised to positive vs neutral at Evans & Partners, versus cut to underweight vs neutral at JPMorgan.
  • Rio Tinto (RIO): Raised to buy vs hold at SBG Securities.
  • Wellard (WLD): Rated new buy at UBS; PT $A1.80.
  • South32 (S32): Cut to underweight vs equal weight at Morgan Stanley.

AUDUSD breaks out

AUDUSD made a break out above the $0.70 handle on the back of the commodity rally and the return of the risk on sentiment. The next resistance level is $0.7077, which is a 50% retracement level between the December 31, 2015, high of $0.7328 and this month's low of $0.6827.

Note also that $0.7120 is also the key resistance level where the previous support level of the pennant would meet.

AUDUSD trend5

Wild swings in S&P/ASX 200

Price actions hasbeen wild and choppy this week, as the S&P/ASX 200 (AUS200.I) is looking for its next directional move, although the current market conditions still look weak. When the US market opened, the AUS200 reversed the losses from yesterday’s Asian session as copper and crude oil made a huge rally.

Even though big mining stocks should see a relief rally, the banks are showing signs of weakness, therefore we would look to sell any rallies near the resistance level 4,950 while the support level is at 4,840

S&P/ASX 200 looks for direction6

Charts: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more. 

Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

Edited by Robert Ryan

For more on forex, click here.

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch our daily morning call on Periscope at 0945: #SaxoAPAC


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