Today's Trade: S&P/ASX200 gains ground as investors shrug off tensions
- US defence stocks rallied on heightened tensions with North Korea
- Secretary of State Rex Tillerson calmed market fears of conflict with North Korea
- Oil edged higher as traders weighed inventory and global supply factors
- Silver looks like it will maintain its upward momentum
By Saxo Capital Markets Australia
- The S&P/ASX200 was up 0.22% to 5,778.60 at 1044 AEST (0044 GMT).
- Asian stocks were poised to halt the slide triggered by an escalation in tensions between the US and North Korea as American officials tried to ease concerns that sparked a flight to safe-haven assets.
- Treasuries pared gains and US stocks recouped declines in the final hour of trading as Secretary of State Rex Tillerson signaled military confrontation was not imminent. He was one of several officials in the Trump administration who sought to fine-tune the message on how it will address North Korean threats. The kiwi dollar climbed as New Zealand’s central bank reinforced its expectation to maintain a record-low interest rate.
- Rising tensions between the US and North Korea rattled markets around the world, interrupting a rally in stocks that has been fueled by corporate earnings and global economic growth.
Oil edged higher as traders weighed a decline in US crude stockpiles with a jump in petrol supplies, as well as rising global supplies and Opec's output reductions. Photo: Shutterstock
- In the US, major indexes ended Wednesday with relatively mild losses as the market pared declines toward the close. The selloff in the US began Tuesday after President Donald Trump warned Pyongyang against making more threats, saying it faces “fire and fury like the world has never seen.” North Korea responded that it was considering firing missiles at Guam.
- The Dow Jones Industrial Average fell 36.64 points, or 0.2%, to 22048.70, after earlier being down nearly 89 points. The index’s one-day drop was its biggest since July 24.
- The S&P 500 declined 0.90 point, or less than 0.1%, to 2474.02. The Nasdaq Composite shed 18.13 points, or 0.3%, to 6352.33.
- Stocks have rallied globally this year, with the Dow Jones Industrial Average up 12% in 2017. Investors have been encouraged by better-than-expected quarterly results from big U.S. companies and signs of growth in economies including China and the Eurozone.
- Trading volumes in stocks listed on the New York Stock Exchange and Nasdaq were below the 2017 daily average Wednesday. Some downbeat corporate results added to the pressure on US stocks.
- Declines in Walt Disney shares shaved around 28 points off the Dow Jones Industrial Average. The entertainment giant fell $4.15, or 3.9%, to $102.83 after it reported a worse-than-expected drop in operating income from its cable networks business and said it would end a deal with Netflix after 2018, in an earnings announcement that came after markets closed Tuesday. Netflix shares fell 2.58, or 1.4%, to 175.78.
- Priceline fell $142.20, or 6.9%, to $1,906.80, making it one of the worst performers in the S&P 500. The online travel company lowered forecasts for growth in hotel bookings when it reported results after markets closed Tuesday.
- Corners of the market that tend to benefit from flare-ups of geopolitical risk were the bright spots amid Wednesday’s declines.
- The CBOE Volatility Index, a measure sometimes known as Wall Street’s “fear gauge,” rose 1.4% to 11.11, its highest close in more than a month. The VIX had surged more than 15% earlier in the session.
- US defence stocks rallied. Shares of Raytheon , which manufactures Tomahawk cruise missiles, added $4.50, or 2.6%, to $179.30, while defense contractor Lockheed Martin rose $5.12, or 1.7%, $305.22. Northrop Grumman added $3.28, or 1.2%, to $273.10. Defense shares also rose in April after the U.S. launched cruise missiles at a Syrian air base.
- Source: Bloomberg, TradingFloor.com, WSJ.com
- Thursday: 3M Co, Acuity Brands Inc, Advanced Micro Devices Inc, Boston Scientific Corp, CA Inc
- Celgene Corp, CenturyLink Inc, Cimarex Energy Co, CSRA Inc, Delphi Automotive PLC, DXC Technology Co, Ecolab Inc, Edwards Lifesciences Corp, Equifax Inc, General Motors Co, Hologic Inc,
- International Flavors & Fragrances Inc, Kohl's Corp, Lam Research Corp, Macy's Inc, Marsh & McLennan Cos Inc, Mylan NV, News Corp, Nordstrom Inc, Perrigo Co PLC, Public Service Enterprise Group Inc, Ralph Lauren Corp, Red Hat Inc, Twenty-First Century Fox Inc, Visa Inc, WestRock Co, Xilinx Inc, Zions Bancorporation
- Friday: Macy's Inc, Ecolab Inc, NVIDIA Corp, Nordstrom Inc, News Corp, NVIDIA Corp
- Bank of New York Australia ADR Index +0.1%, BHP Billiton ADR -0.3% to A$26.22 equivalent, little changed from last Sydney close, Rio Tinto ADR -0.1% to A$58.53 equivalent, ~12% discount to last Sydney close.
- Gold hit a near two-month peak on Wednesday, after North Korea said it is considering an attack on Guam and President Donald Trump boasted of the strength of the US nuclear arsenal. The tensions rattled through global markets, sending investors out of equities and into the safety of the yen, Swiss franc, and government debt. The VIX "fear gauge" of expected volatility on the S&P 500 hit a one-month high. "The market hates uncertainty and that's certainly what we have now," said Ole Hansen, head of commodity strategy at Saxo Bank. "But looking ahead unless we start to see a conflict breakout or a major stock market correction, (gold) is capped at 1,295 (although) the upside at moment is the favoured direction."
- Spot gold rose 1.31% to $1,276.80/oz, while US gold futures for December delivery rose settled up at $1279.30/oz. Gold futures had its best daily performance since May 17, when it gained 1.8%. Gold hit a two-week low on Tuesday after US jobs data came in better than expected and the dollar turned positive, while investors awaited inflation figures later this week for further clues about the pace of interest rate rises. A strong dollar makes dollar-priced gold costlier for non-US investors while rising interest rates increase the opportunity cost of holding non-yielding bullion. Gold stocks in Toronto traded rallied firmly overnight adding 2.02%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
- Oil edged higher as traders weighed a decline in US crude stockpiles with an unexpected increase in gasoline supplies. Futures closed 0.8% up, after swinging between gainsand losses during the session in New York. While crude inventories slid for a sixth week, by 6.45 million barrels, gasoline supplies jumped by 3.42 million barrels last week, the most since January, data from the Energy Information Administration released on Wednesday showed. This came as a surprise to investors, as reductions in gasoline stockpiles are typically seen during the summer driving season. Oil has fluctuated around $49/b this month in New York as investors assess rising global supplies against output reductions from Opec and its allies. Opec said Tuesday that Iraq, the United Arab Emirates and Kazakhstan, which have lagged behind in their pledged curbs, reaffirmed their commitment to the cuts at a meeting in Abu Dhabi.
- West Texas Intermediate for September delivery gained 39 cents to settle at $49.56/barrel on the New York Mercantile Exchange. Total volume traded was about 18% above the 100-day average. Brent for October settlement added 56 cents to end the session at $52.70/b, the highest level since May, on the ICE Futures Europe exchange. The global benchmark crude traded at a premium of $2.98 to October WTI, the widest since March. Even though it’s summer driving season, gasoline inventories increased to 231.1 million barrels last week. Refineries took in 17.57 mln barrels a day, a record in data going back to 1989. Four-week average total product demand rose 493,000 barrels a day to 21.2 mln, the highest since January 2008. U.S. crude stockpiles dropped to 475.4 mln barrels last week, the lowest level since October, EIA data showed. Nationwide US crude imports slid by 491,000 barrels a day, the biggest frop since May. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
- Spot iron ore was slightly lower, despite the excitement in the steel market. Spot iron ore was unchanged at $75.46. Rebar futures in China hit a four-year high as investors continue to see the market becoming increasingly tight due to supply curbs. However, the impact on raw materials, such as iron ore, is starting to be questioned. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Copper ended down 0.4% to $6,455 as funds took profits. Earlier it touched $US6515, its highest since December 2014. Expectations of stronger demand from China have seen copper rise around 17% this year. Copper stocks: OZL, SFR;
- Aluminium prices climbed to their highest in more than two years as expectations of capacity cuts in top producer China, where the government is waging a war on pollution, were reinforced by a lower dollar. Benchmark aluminium on the London Metal Exchange ended down 0.1% at $2n027.5 on profit-taking. Earlier it touched $2,043, its highest since November 2014, a gain of around 20% this year. Zinc rose 0.2% to $2,931.5, lead slid 1.4% to $2,350, tin ended little changed at $20,205. Aluminium stock: AWC
- The worst-performing base metal, Nickel, claimed another victim. First Quantum Minerals Ltd. announced on Wednesday its decision to suspend the Ravensthorpe nickel operation in Western Australia after the metal used in stainless steel production missed a rally by everything from aluminum to zinc. The Vancouver-based company will place Ravensthorpe on care and maintenance next month at an estimated cost of $10 million, plus $5mln annually. Restarting would cost about $10mln, it said in a statement. The company’s shares lost as much as 4.4% in Toronto, the worst performance among peers. Nickel stocks: IGO, WSA.
- Rio Tinto (RIO): Trades ex-dividend.
- RBNZ keeps key rate at record low on weak inflation outlook.
- AGL Energy (AGL): FY results expected; NOTE: FY17 adj. net income est. A$787.6m (12 analysts).
- AMP (AMP): H1 underlying profit A$533m, net A$445m; NOTE: H1 adj. net income est. $A501mln (3 analysts).
- BHP Billiton (BHP): In talks with battery makers to supply nickel for EV boom.
- Commonwealth Bank (CBA): Accepted several indicative bids for life business: AFR
- Elders (ELD): Refinances $A75 mln multi-option facility.
- Liquefied Natural Gas (LNG): Gas sellers warn hard- bargaining buyers: market is turning
- Magellan Financial (MFG): FY results expected; NOTE: FY17 adj. net income est. $A199.9mln (8 analysts).
- Orora (ORA): FY results expected; NOTE: FY adj. net income est. $A180.5m (11 analysts).
- Red River Resources (RVR): Trafigura secures zinc offtake and offers financing to Red River.
- Virgin Australia (VAH): FY results expected; NOTE: FY17 adj. net income loss est. $A34.4mln (5 analysts).
- ASX (ASX): Raised to neutral at JPMorgan, price target $A52.79
- Carsales.com (CAR): Raised to add at Morgans Financial, PT $A13.97
- Rio Tinto (RIO): Iron ore chief says sees robust China steel demand; Cut to sell at Morningstar.
- Thursday: AGL Energy Ltd, Magellan Financial Group Ltd, News Corp, AMP Ltd
- Friday: Goodman Group, National Australia Bank Ltd (TRADING UPDATE ONLY), REA Group Ltd
So we look to add bullish exposure in the anticipation of ¥142 to remain as a strong support level.
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Silver looks solid
We expect silver to maintain the upward momentum as the downtrend (from the April 17 high) appears to have been clearly broken.
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– Edited by Robert Ryan
Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.
Saxo Capital Markets (Australia) Pty Ltd | A part of Saxo Bank Group