Article / 06 February 2018 at 23:23 GMT

Today's Trade: S&P/ASX200 bounces back on Wall St rally

Trading Desk / Saxo Capital Markets
Australia
  • The Dow Jones Industrial Average climbed 2.3%, to 24913
  • The S&P 500 gained 1.7%, and the Nasdaq Composite rose 2.1%
  • The swings in the S&P 500 resemble an overdue correction
  • The Stoxx Europe 600 had its sharpest fall since the June 2016 Brexit vote
  • Bulk commodities bucked the trend and ended in positive territory
Overnight and early trading
  • The S&P/ASX200 rebounded in early trading; it was up 1.67% to 5,930.70 at 1017 AEDT (2317 GMT).
  • U.S. stocks rebounded from a violent selloff to post the biggest rally in 15 months as investors poured back into some of the most beaten-down sectors.
  • Technology, materials and consumer shares paced a 1.7% gain in the S&P 500 Index, while DowDuPont and Home Depot led a 567 point surge in the Dow Jones Industrial Average, the biggest gain in two years. The ride wasn’t straight up, though. The Dow plunged more than 500 points at the open, adding to anxiety after Monday’s rout -- the worst in almost seven years. Stocks swung between gains and losses no fewer than a dozen times before a late-session rally.

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Iron ore futures inched higher, but gains were limited, and activity is muted as traders in China eye the impending Lunar New Year shutdown. Photo: Shutterstock 


  • The benchmark for U.S. share volatility went through wild gyrations after hitting a two-year high. Treasury yields swung before nudging higher. The greenback was little changed after two days of gains.
  • The Dow Jones Industrial Average climbed 567 points, or 2.3%, to 24913, after it dropped nearly 1,600 points at one point Monday and erased its gains for the year. The S&P 500 gained 1.7%, and the Nasdaq Composite rose 2.1%.
  • As U.S. stocks swung between gains and losses, traders described some degree of calm returning, although steep pullbacks in Europe and Asia earlier kept many from calling the end of the rout.
  • The Stoxx Europe 600 fell 2.4% on Tuesday, posting its largest one-day decline since June 2016, shortly after the surprise U.K. vote to leave the European Union.
  • Japan’s Nikkei Stock Average lost 4.7%, or 1,072 points, in its biggest daily point drop since the U.K. referendum in June 2016, bringing it down 10% from a high in January. Hong Kong’s Hang Seng fell 5.1%, or 1,650 points, its biggest point decline since January 2008.
  • Meanwhile, government bonds extended a rally, with the yield on the benchmark 10-year U.S. Treasury note recently at 2.758%, according to Tradeweb, compared with 2.794% late Monday, following its biggest daily decline since September. Yields fall as bond prices rise.
  • The Cboe Volatility Index—known as Wall Street’s fear gauge—was recently down 0.8% after surging 115.6% Monday in its biggest one-day jump on record.
  • Meanwhile, exchange-traded products betting on low-volatility came under pressure.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
Local markets
  • Bank of New York Australia ADR Index is up 1.5% to 286.5, BHP Billiton ADRs are up 2.5% to $A30.20 equivalent, a 3.0% premium to last Sydney close, Rio Tinto ADRs are up 3.4% to $A69.86 equivalent, a 7.4% discount to last Sydney close.
  • Gold prices slipped on Tuesday, weighed down by a firmer dollar and as some investors were squeezed by falling stocks and cashed in long positions in bullion. The dollar climbed to the highest levels in over a week as world stock markets extended their sell-off for a fourth day. A stronger dollar makes commodities priced in the greenback more expensive for buyers using other currencies. Spot gold was down 0.88% at $1,327.41 per ounce, erasing Monday's 0.5% gain. U.S. gold futures for April delivery shed 0.47% to $1,330.20/oz on Tuesday. "Gold has traded relatively calmly during the bond and stock market turmoil this past week," Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen, said in a note. "Gold, however, is not immune following seven weeks of fund buying." Please see Ole Hansen's article: Gold does what it says on the tin – #SaxoStrats. Gold stocks in Toronto fell sharply overnight by 2.67%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil slid to the lowest level in two weeks, pulled along in the tracks of broader markets. Futures closed 1.2% lower in New York after switching between gains and losses earlier in the session. Crude oil mimicked the movement of equities, which were still down heading into the final hours of trading on Tuesday, following Monday’s selloff. At the same time, traders were gearing up for data on U.S. stockpile changes from the industry-funded American Petroleum Institute. Forecasts suggest crude supplies could rise. West Texas Intermediate for March delivery dropped $0.76 to settle at $63.39/barrel on the New York Mercantile Exchange. Total volume traded was about 26% above the 100-day average. Brent for April settlement slid 76 cents to end the session at $66.86 on the London-based ICE Futures Europe exchange, the lowest since early January. The global benchmark crude traded at a premium of $3.75 to April WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Bulk commodities bucked the trend and managed to end the volatility session in positive territory. Iron ore futures inched higher, although the gains were limited. Activity in the physical markets was muted, as traders in China eye the shutdown over the upcoming Chinese New Year and Spring Festival holidays. Investor sentiment was also supported by some positive trade data. Port Hedland reported exports of iron ore hit 41.1mt in January, up 2% y/y and a record high for that month. Spot iron ore added 0.3% or $0.22 to close at 74.57. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Benchmark copper on the London Metal Exchange closed down 1.3% at $7,076 a tonne, still close to a four-year high of $7,312.50 hit in December. “The thing to gauge now is whether the selloff will impact things like consumer confidence and the broader economic outlook,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by phone from Copenhagen. “So far copper’s saying definitely, maybe.” In company news, Codelco produced 519,600 tons of copper in the fourth quarter, the most since the same period 2012, according to monthly data released by the Chilean government copper commission, Cochilco. Copper stocks: OZL, SFR.
  • LME nickel ended 2.6% lower at $13,385 a tonne, down from a 2-1/2-year peak of $14,040 reached on January 29. LME zinc finished down 2.6% at $3457 after reaching $US3584 on January 29, the highest since 2007. LME aluminium closed down 1.9% at $US2170 a tonne, lead lost 1.2% to $US2621 and tin ended 0.9% lower at $US21,725. Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • In early reporting, Commonwealth Bank of Australia says overall growth trends positive; market volatility remains a risk and they are facing a period of effort to fix their mistakes. H1 cash profit came in at $A4.87bn including provision for Austrac; Adj. net income est. $A5.2b (4 analysts, range $A5.124bn-A$5.243bn). Pro-forma cash profit $A5.11b, up 5.8%; H1 net continuing operations A$4.735b, down 1.9%. Austrac provision $A375mln; Also taking $A200mln charge for expected costs on banking sector inquiry. 3 buys, 8 holds, 3 sells; avg PT $A79.92: Bloomberg data.
  • BWP Trust (BWP) also reported this morning: income of $76.9 million for the six months, up 1.6% on the previous corresponding period. Distributable profit of $56.4 million for the six months, up 1.7% on the previous corresponding period. Interim distribution of 8.78 cents per unit, up 1.7%. LFL rental growth of 2.4% for the past 12 months. Cost of debt of 4.7% per annum as at 31 December 2017. The underlying NTA backing of the Trust’s units increased by 8 cents per unit during the period, from $2.74 per unit at 30 June 2017, to $2.82 per unit at 31 December 2017..
  • Ex-Dividend: Resmed.
  • ANZ Bank (ANZ), National Australia Bank (NAB : Australia Bank Competition Is Inadequate, Government Report Says.
  • South32 (S32 AU): To Spin Off South African Coal Assets: Reuters.
Broker upgrades, downgrades
  • APA Group (APA AU): Reinstated at UBS With Neutral; price target $A8.55.
  • Ardent (AAD AU): Upgraded to Buy at Citi; PT $A2.40.
  • Aurizon (AZJ AU): Upgraded to Neutral at Credit Suisse; PT A$4.75.
  • Australian Unity (AOF AU): Raised to Outperform at Credit Suisse.
  • Charter Hall (CHC AU): Cut to Underweight at Morgan Stanley; PT $A5.85.
  • Galaxy Resources (GXY AU): Rated New Overweight at JPMorgan.
  • Treasury Wine (TWE AU): Upgraded to Neutral at Goldman; PT $A16.20.
  • Vicinity (VCX AU): Upgraded to Overweight at Morgan Stanley; PT $A2.90.
  • Westpac (WBC AU): Upgraded to Buy at Morningstar.
  • Stockland (SGP AU): Upgraded to Buy at Morningstar.
  • Kidman Resources (KDR AU): Rated New Overweight at JPMorgan.
  • Macquarie Group (MQG AU): Raised to Add at Morgans Financial; PT $A109.33.
  • Magellan Financial (MFG AU): Raised to Add at Morgans Financial.
  • Mineral Resources (MIN AU): Rated New Overweight at JPMorgan.
  • Mirvac Group (MGR AU): Cut to Underweight at Morgan Stanley; PT $A2.20.
  • NIB Holdings (NHF AU): Downgraded to Neutral at JPMorgan; PT Set to $A6.40.
  • Orocobre (ORE AU): Rated New Overweight at JPMorgan.
  • Pilbara Minerals (PLS AU): Rated New Neutral at JPMorgan.
  • Rhipe (RHP AU): Downgraded to Hold at Morgans Financial; PT $A1.04.

US500 and JP225

Both the S&P 500 (US500) and the Nikkei 225 (JP225) made a sharp reversal off 200 day moving averages to recover heavy losses from the previous day. The VIX fell 20%, after briefly breaking 50, which has been acting as a key resistance level since tthe 2008 global financial crisis.

Tuesday’s low on JP225 was 61.8% retracement between its August 2017 low of 19,172 and its January 2018 high of 24,161. The swing low in the US500 coincided with 100% extension of the previous range that was formed during 2015 to 2016. If this 200DMA holds, then we would confirm this week’s sell off as a correction that has been due for some time.

S&P 500 chart

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Nikkei 225 chart
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Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Robert Ryan

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