Article / 02 May 2016 at 0:45 GMT

Today's Trade: S&P/ASX 200 slumps as banks take a dive

Trading Desk / Saxo Capital Markets
  • Chinese manufacturing PMI figures came out just above the expansionary 50 level
  • We won't see much reaction yet, with China stockmarkets closed today
  • Stockmarkets in Singapore and Thailand are also closed for a holiday today too
  • The banks pushed the S&P/ASX 200 sharply lower at the open
  • Iron ore rallied has 5.3% after traders jumped back in to the market
  • Base metals were up across the board due to a weaker US dollar

By Saxo Capital Markets Australia

Overnight and early trading

  • S&P/ASX 200 took a share tumble at the start of trading. The benchmark index was down 0.95% to just 5,202.30 at 1035 AEST (GMT 0035 GMT).
  • US stocks closed with losses on Friday but managed to hang on monthly gains.
  • The Dow Jones Industrial Average fell 57.12 points, or 0.3%, to 17773.64 after falling as much as 178 points. The tech-heavy Nasdaq Composite lost 29.93 points, or 0.6%, to 4775.36. The S&P 500 declined 10.51 points, or 0.5%, to 2065.30. Friday’s decline left the tech sector with a weekly loss of 3.6% after falling 2% the week before.
  • Both the S&P500 and the Dow industrials lost 1.3% last week which marked their biggest losses since the weeks ended February 5 and February 12, respectively.
 Gloom lifts ... Iron ore rallied after traders jumped back in to the market, while the weaker US dollar has given base metals a lift.Photo: iStock

  • Health-care stocks fell the most in the S&P500 Friday as biotechnology shares posted big declines. The Nasdaq Biotechnology Index fell 2.6%, putting its yearly drop at 21%. Gilead Sciences, one of the index’s worst performers, fell $8.79, or 9.1%, to $88.21 after it said late Thursday that revenue from its hepatitis C drugs fell in the first quarter.
  • was a rare bright spot Friday, as its shares rose $57.59, or 9.6%, to $659.59, its highest close of the year, after it reported its most profitable quarter ever late Thursday.
  • Chevron posted a greater-than-expected loss of 39 cents a share, while revenue beat expectations at $23.55 billion. That marked a roughly 32% decline in sales from the comparable year-ago figure of $34.56 billion. The stock closed 0.2% lower but are still up more than 13% year-to-date.
  • Exxon Mobil reported quarterly earnings and revenue that beat analysts' expectations. Shares posted a 0.4% gain and are up more than 13% for the year so far US crude oil futures settled 11 cents lower, or 0.24%, at $45.92 a barrel after topping $46 Thursday for its highest close since early November. Gold for May delivery rose 1.9% to $1,289.20 an ounce. The yield on the 10-year Treasury note fell to 1.821% from 1.838% on Thursday.
  • The CBOE Volatility Index (VIX) spiked more than 10% to briefly hit 17.09, its highest since March 15.
  • Over in Europe the Stoxx Europe 600 declined 2.1%. The Dax tanked 2.73% and the CAC lost 2.82%. The FTSE dropped 1.27%.
  • Mixed data out of Europe did little to alleviate stock markets. For the euro zone as a whole, gross domestic product (GDP) rose 0.6% quarter-on-quarter in the first three months of the year. Unemployment in the single currency bloc fell to 10.2% in March, down from 10.4% recorded in February. And an initial inflation estimate showed the price of goods fell 0.2% in April.
  • Shares of Vestas rallied 4.5%, after the wind energy firm said its first-quarter core earnings hit 85 million euros, beating market expectations.
  • Basic resources which closed with losses still outperformed other sectors, as several metals saw a sharp price pick-up—such as copper, lead and gold—which helped push some stocks higher, including Glencore and Randgold Resources, which both closed above 3.5%.
  • British Airways-owner International Airlines Group said its outlook for the second quarter has been affected because of the Brussels attacks and "some softness in underlying premium demand". The airline group said it has "moderated" its short-term plans to fly more routes. The news sent shares in IAG to end sharply lower, off 4.7%, along with German airline Lufthansa, which slipped 5.6%.
  • One bright spot in the banking sector was Danske Bank, which saw shares rally over 3.5% after it reported a pre-tax profit of 6.27 billion Danish krone, beating expectations, with chief executive Thomas Borgen saying the company has had a "satisfactory" start to the year.
  • Royal Bank of Scotland however said its losses widened in the first quarter to £968 million ($1.42 billion), up from £459mln in the same period last year. Shares slumped 6%.
  • Overall banks closed down 3.2%, with Italian banks weighing the sector down significantly. Unicredit saw its shares suspended during trade, finishing over 5%. Banco Popolare, BMPS and Intesa Sanpaolo all closed sharply lower, dragging the FTSE MIB index to close 2% down.
  • Reinsurer Swiss Re reported first-quarter net income of $1.2 billion, beating market expectations, but warned on challenging market conditions ahead, sending shares down 3.7%.
Local markets

  • Bank of New York Australia ADR Index +0.9%. BHP Billiton ADR +0.8%. Rio Tinto ADR +0.8%.
  • Spot gold has surged for the second day in a row, up 2.1% to $1,294 and now at highs not seen since January 2015. A weaker USD, stronger Yen and mediocre earnings season has seen investor demand for the precious metal rally. Interestingly the volume of gold calls at $1,350 soared and has tripled in price. ETF holdings stayed flat last week. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil pulled back a little, with WTI and Brent down 0.2% and 1.6% to $45.92/barrel and $47.37/b respectively. A weaker US dollar was not enough to lift demand as Bloomberg data suggests Opec crude production climbed 484,000 barrels to 33.217 million barrels a day for April. According to the Baker Hughes oil rig count, the U.S, has had 11 rigs pulled, leaving 332 active. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore rallied 5.3% to $66.24/tonne as traders jumped back in to the market following last week’s sell off. Iron ore miner Fortescue, which was trading just under $1.50 in January, has performed brilliantly from the rally in the New Year, closing on Friday at $3.41. FMG was one of the markets most shorted stocks at 12% this time last year, which is substantial given executive Andrew Forrest's 30% holding couldn’t be touched. As of last week FMG shorts are now at 4.2%, down from 8.8% a month earlier. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were up across the board due to a weaker US dollar. Aluminium is now at 9 month highs after lifting 0.9% to $1,679. Gains of 10.3% were seen in April and were the greatest monthly gain since September 2012. Aluminium is seeing a large number of producers hedge their positions from this rally. The buying of aluminium contracts last week all appeared to be on a speculative basis with Commodity Trading Advisors running the price higher and not consumers themselves. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • BHP Billiton (BHP): Samarco restart threatened by environmental petition.
  • Broadspectrum (BRS): Investor Allan Gray to accept Ferrovial Bid.
  • Crown Resorts (CWN): Macau April casino rev. falls 9.5% y/y; Est. 13.5% drop.
  • Downer EDI (DOW): Reliance Rail seeking A$2b debt refinancing: Australian.
  • Graincorp (GNC): Sumitomo said to consider possible sale of Emerald Grain: AFR.
  • Nine (NEC), Southern Cross (SXL): Sign regional television affiliation pact.
  • Telstra (TLS): Hosts investor day; Webcast; NOTE: Co. forecast mid-single digit rev. growth, low single digit EBITDA growth for the 2015-16 financial year.
  • Westpac (WBC): Scheduled to release first-half results; NOTE: Adjusted net income est. $A4.025bn (four analysts); Bank preview.
US earning results due out this week

  • Monday:AIG, Anadarko Petroleum, Sturm Rogers, Sysco, Helmerich and Payne, Diamond Offshore, Chemours, Lowes, CNA Financial.
  • Tuesday:Pfizer, UBS, Clorox, Archer Daniels Midland, Sprint, CVS Health, Halliburton, Estee Lauder, Encana, Cummins, Devon Energy, CBS, Newfield Exploration, Etsy, Western Union, Match Group, Zillow, Duke Energy, Emerson, BNP Paribas, HSBC, Starwood Hotels, Valero Energy, Brink's, The New York Times Company, Pitney Bowes
  • Wednesday: Time Warner, Tesla, Fitbit, GoDaddy, Yamana Gold, Zynga, Siemens, Priceline, Royal Dutch Shell, HollyFrontier, AB InBev, Delphi Automotive, 21st Century Fox, Virtu Financial, Kate Spade, Generac, Shopify, Humana, MetLife, Allstate, CF Industries, Chubb, Kraft Heinz, Performance Food, Zoetis, Whole Foods, Weight Watchers.
  • Thursday:Alibaba, DreamWorks Animation, SeaWorld, Fortress Investment, Kellogg, Activision Blizzard, Time Inc, News Corp, Fiserv, Apollo, WageWorks, El Pollo Loco, FireEye, GoPro, Motorola Solutions, AMC Networks, Merck, Regeneron, Discovery Communications, Wingstop, Herbalife, Church & Dwight, News Corp
  • Friday: Cigna, ArcelorMittal, Weyerhaeuser, Willis Towers Watson, Buckeye Partners, Dentsply, Exelon

Broker upgrades, downgrades

  • Independence Group (IGO AU): Downgraded to accumulate from buy at Hartleys

AUDUSD under pressure

The USDJPY made a breakout below the key support level 107.60 and now only 100 pips away from the next support level ¥105.30 where we expect some retracements. The US dollar index (DX) continued selling and it is now approaching the last year’s August low 92.52. This US dollar weakness pushed both EURUSD and gold (XAUUSD) into a fresh high territory above the recent swing high.

However AUDUSD remains under selling pressure ahead of tomorrow’s much anticipated RBA decision (1430 AEST; 0430 GMT) and the annual budget (1930 AEST; 0930 GMT). The uptrend of AUDUSD is still intact and the support level 0.75 handle needs to be broken in order to confirm the reversal has begun.

AUDUSD trenda
Materials, energy prop up S&P/ASX 200

Over the weekend, the Chinese manufacturing PMI figures (50.1) came out just above the expansionary level 50, but since China is on public holiday today, we do not expect any significant reactions in the Asian equity indices.

Today’s focus would be on the speech by European Central Bank president Mario Draghi and the US ISM manufacturing PMI, due out at midnight. The volume of the e-mini S&P500 has been increasing in the last two days as the downward momentum appears to be accelerating.

S&P/ASX 200 (AUS200.I) is currently outperforming the S&P500, as the markets cautiously await reporting by the banks over the next couple of days. The material and the energy sectors are also driving the resilience of the AUS200 on the back of the recent strength from both copper and crude. The key resistance levels would be 5,260-5,300 and the support level sits at 5,200.

Chart: 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

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



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