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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 22 September 2017 at 0:19 GMT

Today's Trade: S&P/ASX200 defies gloom with an opening surge

Trading Desk / Saxo Capital Markets
Australia
  • The DJIA and the S&P 500 ended their winnings streaks on Thursday
  • Tech stocks are under pressure; Apple fell following problems with its smartwatch
  • Investors took stock of the Fed's  commitment to raise rates again this year
  • Gold fell about 1% to its lowest in nearly four weeks on Thursday
  • Copper hit its lowest in more than a month and nickel slid 6%
By Saxo Capital Markets Australia

Overnight and early trading

  • The S&P/ASX200  was up 0.34% to 5,674.90 at 1017 AEST (0017 GMT).
  • Stocks in Asia are set to come under pressure as investors weigh fresh North Korea sanctions, and after Wall Street retreated from record highs. The Australian dollar maintained losses after tumbling as iron ore plunged, and the yen was trading near a two-month low.
  • Asian equity-index futures were broadly lower, with contracts in Japan, Hong Kong and China dropping. While the Federal Reserve’s signal of a potential December interest-rate hike boosted the dollar and Treasury yields, those moves faltered Thursday as investors discounted the likelihood that further increases will come in 2018, given weak inflation. There was muted reaction overnight to S&P Global Ratings cutting China’s sovereign credit rating.


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Steel output cuts in China, above, will hurt demand for iron ore, adding to falls for the steel-making raw material following a rise in global supplies. Photo: Shutterstock


  • The Dow Jones Industrial Average and the S&P 500 ended a streak of record closes Thursday, as investors took stock of the Federal Reserve’s renewed commitment to raise interest rates again this year.
  • Eight of the 11 major S&P 500 sectors ended the day lower, with the steepest declines among technology and consumer-staples shares.
  • The Dow industrials fell 53.36 points, or 0.2%, to 22359.23—ending the blue-chip index’s run of nine consecutive sessions of advances.
  • The S&P 500 slipped 7.64 points, or 0.3%, to 2500.60, the index’s first day of losses following four straight sessions of gains. The tech-heavy Nasdaq Composite fell 33.35 points, or 0.5%, to 6422.69.
  • Consumer-staples companies were among the S&P 500’s biggest decliners, falling nearly 1%. Beauty-products maker Coty fell 65 cents, or 3.9%, to $16, while Procter & Gamble fell 1.76, or 1.9%, to 92.64.
  • Technology stocks, among the best performers in the S&P 500 for 2017, also came under pressure. Apple fell $2.68, or 1.7%, to $153.39, extending the company’s declines since it acknowledged problems with cellular connectivity in its newest smartwatch.
  • Apple is down 4.6% since rolling out its latest slate of iPhones and other products last week, putting it on track for its worst performance from a product-announcement date to a release date since it launched the iPhone 5s in 2013.
  • Even with Thursday’s declines, US stocks remained near their all-time highs. Some investors said they are now looking ahead to any policy developments in Washington that could provide further direction for the stock market.
  • Elsewhere, the Stoxx Europe 600 rose 0.2%, led by a 1.4% advance in bank stocks.
  • Source: Bloomberg, TradingFloor.com, WSJ.com

Local markets

  • Bank of New York Australia ADR Index is down 1.2% to 270.9, BHP Billiton ADRs are down 0.8% to $A26.30 equivalent, a 1.2% premium to last Sydney close, Rio Tinto ADRs are up 0.1% to $A60.34 equivalent, a 7.9% discount to last Sydney close
  • Gold fell about 1% to its lowest in nearly four weeks on Thursday, shrugging off further weakness in the dollar, after the Federal Reserve signalled it was on track to raise U.S. interest rates again in December. The yellow metal is highly sensitive to rising US rates, which boost the cost of holding non-yielding bullion relative to other assets, while lifting the dollar, in which it is priced.
  • Spot gold was down 0.79% at $1,290.73/oz, having earlier touched its lowest since late August 25 at $1,287.61. US gold futures for December delivery settled at $1,294, down 1.7%. In a statement on Wednesday following its latest two-day policy meeting, the U.S. central bank indicated it still expected one more rate increase by the end of the year in spite of a recent run of soft inflation readings. It also said it planned to trim the $4.2 trillion in asset holdings that it had built up in the wake of the 2008 financial crisis. U.S. Vice President Mike Pence on Thursday urged fellow Republicans to get behind the party's "last best chance" to repeal and replace Obamacare as congressional leaders scrambled to secure enough support ahead of a planned vote next week. Gold has pulled back more than $60 an ounce since hitting its highest in more than a year earlier this month at $1,357.54/oz. Gold stocks in Toronto fell by 0.6% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil got stuck in a gridlock after Opec ministers sent mixed signals about what’s on the table for the cartel’s meeting on Friday. Futures hovered above $50/barrel, ending the session in New York on a slight drop. Ministers who will gather in Vienna appear to be at loggerheads over whether now is the time to talk about prolonging or deepening a production-cut agreement set to expire in March. Kuwaiti Oil Minister Issam Almarzooq said the group won’t look at an extension of the deal this week, while Algeria’s energy minister said an extension will be discussed.
  • Oil’s price gains have been capped by rising US shale output that threatens to hinder supply curbs by Opec. The cartel’s Joint Technical Committee, which met on Wednesday to assess compliance to the output-reduction deal, recommended ministers consider informal monitoring of exports in addition to production, according to two delegates. Russia Energy Minister Alexander Novak said in Vienna that it’s still too early to talk specifics on an Opec deal extension. Novak also said Russia has made deeper cuts to its oil output than pledged. West Texas Intermediate for November delivery fell 14 cents to settle at $50.55/b on the New York Mercantile Exchange. Total volume traded was about 26% below the 100-day average. The October contract expired Wednesday. Brent for November settlement rose 14 cents to end the session at $56.43/b on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.88 to WTI, the widest gap since 2015. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore’s under the cosh. The commodity was beaten down again on Thursday in what’s shaping up as a brutal month amid rising concerns that global supplies are poised to expand further while steel output cuts in China over winter will drive demand lower. Most-active SGX AsiaClear futures retreated as much as 6.6% to $62.60 a metric ton in Singapore, the lowest since July, with the contract headed for a third straight weekly loss. On China’s Dalian exchange, prices declined into a bear market. Spot iron ore also fell sharply losing 5.1% or $3.56 to close at $66.09. Iron ore’s slump this month is eroding the rally seen from June to August that was powered by buoyant demand in China as steelmakers benefited from rising product prices. Investors are now turning their attention toward prospects for increased supplies into 2018, as well as what will happen in China after policy makers wrap up a key political meeting in October. Adding further headwinds was a stronger dollar after the Fed signalled further rate rises, and a rating cut for China by S&P. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper hit its lowest in more than a month and nickel slid as much as 6% after the Fed raised expectations of another US rate hike this year, boosting the US dollar. London Metal Exchange copper closed down 0.7% at $6,480 a tonne. Prices earlier fell to $6,427.50, the weakest since mid-August. Aluminium eased from five-year highs reached the previous session to finish down 0.3% at $2,171 a tonne but expectations of tighter supply into early next year underpinned prices. Benchmark zinc, used to galvanise steel, closed down 1% at $3,101 after Chinese iron ore futures tumbled nearly 5%, reflecting oversupply concerns in top consumer China. Lead ended up 2.2% at $US2513 a tonne and tin finished 0.9% lower at $20,450. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Companies trading ex-dividend today: CAF, GAP, IGL.
  • Arrium (ARI): KordaMentha Begins Distributing Funds to Arrium Creditors.
  • Bank of Qld (BOQ), Bendigo Bank (BEN), AMP (AMP), Suncorp (SUN): Submission to productivity commission is seeking govt support for all banks: AFR
  • BHP Billiton (BHP): Anadarko’s Share Buyback Complicates BHP Shale Sweepstakes.
  • ClearView Wealth (CVW): Top holder Crescent Capital has been approached about its stake in recent weeks: AFR.
  • Fairfax Media (FXJ): FY18 YTD Overall Group Revenue 4%-5% Below Year Ago.
  • Macquarie (MQG): Goldman’s Woes Hand Commodities Crown to Australia’s Macquarie.
  • Oil Search (OSH): UBS, JPMorgan Market $A205mln Oil Search Block Trade: AFR.
  • Santos (STO), Woodside (WPL): Australia to enforce limits on east coast gas exports to direct more to domestic supply: AFR.
Broker upgrades, downgrades
  • BT Investment (BTT AU): Raised to Add at Morgans Financial, PT$A11.96.
  • Commonwealth Bank (CBA AU): Is Said to Seek More Arrangers for Colonial First State IPO; Raised to Add at Morgans Financial, PT $A80.
  • G8 Education (GEM AU): G8 Education Raised to Buy at Canaccord, PT $A4.45.
  • NIB Holdings (NHF AU): Raised to Hold at Bell Potter; PT Raised to $A5.39.
FTSE100 weakness

The FTSE 100 (UK100) seems to have failed to climb above 7,300, which could convert from previous support level to an interim resistance level. The 200 day moving average has crossed just above 7,300 and it is expected to restrict further upside gains.

If the recent weakness continues, the next support levels should be 7,130 (the 2015-2016 double top) and 7,090 (the 2017 double bottom).

FTSE 100 chart
1
 
Bearish signs in S&P/ASX200

We are seeing a bearish signal in S&P/ASX200 (AUS200) as it has formed a death cross where 50 day moving average appears to be crossing the 200 DMA.

Furthermore, the 100  day moving average has already crossed 200 DMA and AUS200 has now returned to the noisy support level at 5,675. We look to add bearish exposure and sell any rallies up to 5,750.

S&P/ASX200 chart
 
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– Edited by Robert Ryan

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

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


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