Article / 09 November 2017 at 23:43 GMT

Today's Trade: S&P/ASX 200 retreats on global volatility in equities

Trading Desk / Saxo Capital Markets
Australia
  • The Nikkei 225 clocked bullish gains before plunging by a massive 3.6%
  • Wall Street’s CBOE Volatility Index fear gauge was up 12%
  • Crude resumed its rally on tensions in Saudi Arabia and across the Middle East
  • The weaker dollar pushed gold prices to a three-week high on Thursday
  • Nickel fell more than 3% on Thursday, after hitting a two-year plus high last week

By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX 200 was down 0.47% to 6,021.10 at 1042 AEST (2342 GMT, on Thursday evening). 
  • Major indexes pared declines in the second half of the trading day, after the Dow Jones Industrial Average had fallen as many as 253 points while investors considered developments in a tax overhaul they have been anticipating since the election of President Donald Trump.
  • The Dow Jones Industrial Average shed 101 points, or 0.4%, to 23462. The S&P 500 fell 0.4%, while the Nasdaq Composite dropped 0.6%.
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 Tokyo skyline ... Puzzling wild swings in Japan's Nikkei 225 late yesterday, which soared before plunging by a massive 3.6%, has made share investors nervous. Photo: Shutterstock


  • Technology stocks in the S&P 500, the best-performing sector of the year so far, fell 0.9% Thursday. The group is still up 37% this year. Chip makers were among the biggest decliners, with Advanced Micro Devices down 5% and Nvidia off 1.8%. Google parent Alphabet fell 1%.
  • Wall Street’s “fear gauge,” the CBOE Volatility Index, was up 12%.
  • The Russell 2000 index of small-capitalization companies fell roughly 0.6%, paring earlier declines. Analysts say they have been tracking the index as a proxy for investors’ reactions to the tax plan since they expect the proposal to benefit smaller, more domestically focused companies rather than larger multinationals.
  • Another batch of quarterly profit reports were also contributing to individual stock moves, with mixed results coming from some retailers.
  • Shares in the retaliers Macy’s rose 11% after the retailer beat profit estimates on lower revenue. Kohl’s rose 0.9% after it fell short of profit expectations even though it had grown its same-store sales.
  • Dish Network gained 3.2% after reporting a lower profit and saying it added fewer new subscribers compared with the same period a year earlier.
  • Elsewhere, the Stoxx Europe 600 fell 1.1%, with technology and mining stocks among the biggest laggards.
  • Japan’s Nikkei stock average reversed a 2% gain to end the session 0.2% lower, after breaching 23,000 for the first time since January 1992. The market’s shift lower came as the yen rebounded.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
Local markets
  • Bank of New York Australia ADR Index is down 0.4% to 276.5, BHP Billiton ADRs are down 2.2% to A$27.87 equivalent, a 2.7% discount to last Sydney close, Rio Tinto ADRs are down 3.0% to A$63.80 equivalent, a 14.5% discount to last Sydney close
  • A weaker dollar pushed gold prices to a three-week high on Thursday, the second such climb in successive days. Spot gold was up 0.44% at $1,286.60/oz after touching $1,288.13, the highest since October 20. U.S. gold futures for December delivery added 0.27% to $1,287.20. Putting a damper on gold's advance, data from the World Gold Council showed gold demand slid to its lowest in eight years in the last quarter as jewellery buying fell and inflows into bullion-backed exchange-traded funds dried up. Gold stocks in Toronto were relatively unchanged, edging lower by 0.06%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Crude resumed its rally as escalating tensions in Saudi Arabia and throughout the Mideast raised concerns about stability in the oil-rich region. Futures edged higher by 0.6% in New York. Saudi Arabia’s elite were said to be scrambling to shift assets out of the region amid an expanding anti-corruption crackdown that’s ensnared dozens of royals and investors. Separately, the kingdom advised its nationals to leave Lebanon, which is in the cross hairs of intensifying tension between Saudi Arabia and Iran.
  • At the same time, stored crude supplies at a key US pipeline hub dropped by more than 1 million barrels, giving further impetus to rising prices. West Texas Intermediate for December delivery climbed 36 cents to settle at $57.17/barrel on the New York Mercantile Exchange. Prices have climbed more than 5% so far this month. Brent for January settlement edged higher by 44 cents to end the session at $63.93/b on London's ICE Futures Europe exchange. The global benchmark crude was at a premium of $6.54 to January WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Spot iron ore prices remained steady, while futures fell slightly as traders remained cautious on demand as the winter curbs start to bite. The weaker than expected imports into China have kept investors on edge. However, the holiday interrupted month has tempered some of those concerns. Data showing exports from a major port in Australia to China also eased concerns of weaker demand for high grade ore. Exports from Port Hedland fell from 36.7mln tonnes in September to 35.2mln tonnes in October. This fall was much lower than the overall fall in Chinese ore imports. Spot iron ore added 0.1% or $0.07 to close at $62.32. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Nickel fell more than 3% on Thursday, slipping further from the more than two-year high it hit last week on speculation that an expected electric vehicle boom would drive up demand. Nickel prices surged almost 10% during the annual London Metal Exchange Week industry gathering on expectations that nickel demand for use in lithium ion batteries would increase as electric car buying ramped up. Nickel stocks: IGO, WSA;
  • Copper dropped 0.4%, aluminium shed 0.6% whilst zinc edged higher by 0.1%. Copper stocks: OZL, SFR;  Aluminium stock: AWC.
  • Early reporting saw News Corp release Q1 Revenue $2.06bn, EST. $1.98bn with Q1 ADJ EPS coming in at 7c, EST. 2c.
  • Companies trading ex-dividend today: CSR, Whitehaven
  • BHP Billiton (BHP), Rio Tinto (RIO): Top Iron Miners’ Exports to Edge Higher This Quarter: Bernstein.
  • CSL (CSL): CSL Behring’s Hizentra PATH Study Met Primary Endpoint.
  • Iluka (ILU): Scheduled to Host Investor Day.
  • Mineral Resources (MIN): Acquires Assets of Empire Oil & Gas.
Broker upgrades, downgrades
  • Altium (ALU): Downgraded to Neutral at Credit Suisse; price target $A12.
  • James Hardie (JHX): Outlook Cut to Stable vs Positive on ’BB’ Rating: S&P.
  • Murray River Organics (MRG): Cut to Hold at Morgans Financial.
  • Decmil (DCG AU): Reinstated at Argonaut Securities With Buy; PT $A1.40.
  • HiTech Group Australia (HIT): Reinstated Buy at APP Securities; PT $A1.
  • Santos (STO): Exxon’s Pacific LNG Partner Sees PNG Expansion Delay to 2020; Downgraded to Neutral at Evans and Partners; PT $A4.60  Westfield (WFD AU): Third Point Said to Have Built Stake in U.S. Mall REIT Peer Macerich; Downgraded to Hold at Morningstar.
Australian earnings
  • Friday: Nine Entertainment Co Holdings Ltd, Breville Group Ltd, Medibank Pvt Ltd. Earnings: News Corp

Volatile Nikkei 225

The Nikkei 225 has enjoyed enormous gains since since breaking above the upper trendline which had capped gains from 2007 through to 2015. Yesterday’s session saw the Nikkei clock yet another session of bullish gains before plunging by a massive 3.6% in little more than an hour from its session high to its low for the day. The index has not been this overbought as measured by the RSI since 2013, which in hindsight signalled an imminent pullback.

The market is likely to remain cautious, especially after a volatile session as experienced yesterday and provided the BPT remains under pressure, the Nikkei could retrace towards the original resistance trendline it successfully broke above this year, before the upward trend resumes.

Japan's volatile Nikkei 225
1
 
CBA rally looks genuine


Two days ago, shares in the big four bank Commonwealth bank (CBA) spiked above $80 as the bank reported a decent first quarter profit rise. The volume on the day was triple the 30 day average., so the rally seemed genuine.

Yesterday’s price action was interesting as it broke through both ascending channel and 61.8% retracement (from the July 17 high of $85.12 and and September 17 low of $73.20). However the 200 day moving average is lurking near $81.20, which could act as an interim resistance level. Furthermore the downtrend (from 2017 high of $87.74) is not far from where CBA closed yesterday.

We prefer to maintain a bullish exposure and we look to buy on any pullbacks rather than buy at the current price.

CBA chart

























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

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

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