Article / 24 April 2015 at 1:09 GMT

Today's Trade: S&P/ASX 200 rebounds, miners gain, NZDEUR opportunity

Trading Desk / Saxo Capital Markets
Australia
  • The pattern of the past week indicates upside momentum for the S&P/ASX 200
  • Higher iron ore prices have given both BHP and Rio a boost
  • China's aluminium supply glut is likely to affect global prices and equities


By Saxo Capital Markets Australia

Overnight / early trade

Equities kicked off to a robust start today, with most leading S&P/ASX 200 stocks making gains. Mining and energy shares were higher soon after the start of trading on the ASX. Iron ore prices rose overnight, giving the share prices for both BHP Billiton and Rio Tinto a boost. The big four banks all moved higher as well. At 10:39am, the ASX 200 was 59 points higher, or up by 1.o per cent, at 5904.00

US stocks closed near highs on Thursday, with the Nasdaq at a record, as investors cheered corporate reports. The Nasdaq Composite outperformed the major indices to set a new, all-time closing record, topping the previous high of 5,048.62 set in March 2000. Apple closed up nearly 1% to lead the Nasdaq higher ahead of the release of the Apple Watch on Friday.


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The welcome rise in ore prices will lend weight to the view that last year's sell-off may be coming to an end. But no sharp ore price bounce is likely. Photo: iStock


The S&P 500 closed up 4.97 points, or 0.24% higher, at 2,112.93, with telecommunications leading eight sectors higher and consumer staples and industrials the only two lagging sectors. Earlier, the index briefly gained to above its intraday record of 2,119.59, after earlier topping its record close of 2,117.39 set in March. The Dow Jones industrial average closed up 20.42 points, or 0.11%, or 18,058.69, with IBM leading advancers and 3M the greatest laggard. The blue chip index came within 1 percent of its record close in intraday trade before paring gains.

European stocks slipped in response to figures showing that the region’s economy slowed in April, coupled with lasting concerns over the future of Greece. The Stoxx Europe 600 index closed 0.4% lower, after quickly surrendering early gains. Germany’s DAX led declines, falling 1.2%, while France’s CAC 40 lost 0.6%.

Markit’s composite purchasing managers index – a measure of activity in the manufacturing and services sectors – for the region fell to 53.5 in April from 54.0 in March, against expectations of a slight increase to 54.4. A reading below 50 indicates a contraction, while a reading above that level indicates activity is increasing

Crude oil futures settled up $1.58, or 2.81%, at $57.74 a barrel on the New York Mercantile Exchange. Gold futures ended up $7.40 at $1,194.30 an ounce.

Local markets

  • The S&P/ASX 200 Index futures contract rose 0.5% to 5,862; futures relative to estimated fair value suggest an early gain of 0.6%.
  • Bank of New York Australia ADR Index +1.4%; BHP Billiton ADR +3%, rises for second day; Rio Tinto ADR +3.4%
  • Spot gold rose 0.6% to US$1,194, maintaining its trading range for the past month. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SLR
  • WTI climbed 2.1% to US$ 57.46 but it was Brent who stole the show, up 3.1% to US$64.76. Saudi Arabia took out 20 airstrikes against Yemen yesterday, limiting their supply of oil to the global economy. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore traded 1.4% higher at $54.82 on added sentiment the last years sell-off may be drawing to an end, although no sharp bounce is expected according to PIMCO. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were mixed with copper up 0.8% to $5,960. Aluminium on the other had was hit hard, down 1.4% and falling again below $1,800 to US$1,782. The AFR yesterday reported that China, which produces 50% of the world’s aluminium, has scrapped an export tax on the lightweight metal for bars and rods. This will encourage the supply glut in China to flow over its borders and put downward pressure on prices on the LME. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • Fortescue (FMG): Targeting ~$2b additional debt repayments senior unsecured rating cut by Moody’s after bond sale
  • ResMed (RMD): 3Q adj. EPS 65c vs est. 65c; NOTE: ADRs -3.9% post-mkt
  • Slater & Gordon (SGH): Raises ~A$120m in retail component of entitlement offer
  • Suncorp (SUN): Responding to more than 7,500 claims after severe and deadly storms hit the Australian state of New South Wales this week
  • Telstra (TLS): In talks with Netflix on hosting service: AFR
Data points

See week ahead for this week, by our Asia Macro Strategist, KVP (KVP's Macro Take: China eases rates - so it's equities risk-on).

Friday
  • German Ifo Business Climate, Eurogroup Meetings,
  • Core Durable Goods Orders m/m, Durable Goods Orders m/m

Current ASX trades

  • 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
  • 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%).
  • Stopped out of AAC yesterday @ 1.58.

Broker upgrades

  • Platinum Asset (PTM): Raised to buy vs hold at Morningstar
  • Spotless (SPO): Raised to hold vs sell at Morningstar
Broker downgrades
   
  • Whitehaven (WHC): Cut to sell vs hold at Morningstar
  • Computershare (CPU): Cut to hold vs buy at Morningstar

Upside momentum for ASXSP200.I:

Despite the fact that PMIs from Europe and US disappointed, the S&P500 was up overnight. Meanwhile the DAX dropped by more than 1%. SPI futures jumped more than 50 points as iron ore and crude oil continues to strengthen.

This week’s price moves have been choppy and the S&P/ASX200 has traded sideways, however whenever it made an intraday low, the S&P/ASX200 was able to rebound to a strong close. This indicates that the upside momentum still exists and we expect to see a positive day today trading above the support level 5,867.
 

SP200 DO






















NZDEUR opportunity

The NZDUSD sold off yesterday after Reserve Bank of New Zealand assistant governor John McDermott said the central bank isn't considering a rate hike, suggesting next week's official cash rate review may be more dovish than expected. In contrast, the EURUSD rallied to test the previous swing high 1.0848. This overnight divergence between NZD and EUR provided a good long term opportunity to set up a long term buy trade on NZDEUR.

The NZDEUR has already made a break out of the bullish flag pattern a couple of weeks ago. The NZD has been one of the strongest currencies against both USD and AUD , as it correlates on GDT dairy auction prices, which have been more resilient than other commodities such as iron ore. Also New Zealand has one of the highest cash rates in the world, and it is currently 3.5%. So it is a good carry trade that can earn daily interest swaps against EUR, as the euro’s cash rate is at its lowest point of just 0.05%, and it is expected to remain low in line with the current QE program.

We would not be surprised if NZD continues the current bearish momentum (EUR strengthen) by another 50 pips or so in the near term. However we prefer to enter at 0.7000, which has previously been strong resistance level as we expect NZD to outperform against EUR for the next three to 10 months.

Long NZDEUR

Entry: Market (currently 0.70056 as of this morning)

Target: 0.7224, 0.7420, 0.7500

Stop loss: 0.6925
 
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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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