Article / 15 March 2018 at 0:04 GMT

Today's Trade: S&P/ASX200 edges lower as Wall St retreats yet again

Trading Desk / Saxo Capital Markets
Australia
  • Wall Street lost ground on worries about the impact of rising protectionism
  • Angela Merkel said the EU shouldn’t be afraid to impose its own trade measures
  • Copper rose after China’s economy showed faster than expected growth
  • Oil reversed two days of declines on signs of stronger fuel demand
  • PIMCO is cutting investments in Australian bank debt because of lofty valuations

By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX 200 dipped into negative territory at the open. The benchmark index was down by 0.17% to 5,925.30 at 1100 AEDT (Midnight, GMT).
  • Asian stocks pointed lower, tracking losses in U.S. shares, after lacklustre retail sales stoked concern that consumer spending is cooling in the world’s largest economy. Treasury yields and the dollar edged lower. Futures on equity indexes in Japan, South Korea and Hong Kong all declined.
  • Shares of industrial and materials firms pushed the Dow Jones Industrial Average and S&P 500 lower for the third straight session Wednesday, as investors weighed new signs that protectionist trade policies could spread.

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Iron ore rallied overnight, after news that factory output and investment growth in China unexpectedly accelerated buoyed metals prices. Photo: Shutterstock

  • Stocks had come under pressure earlier in the month as investors worried that U.S. tariffs on steel and aluminum could hurt firms that use the metals to manufacture goods. And some are concerned that other countries might retaliate, slowing international trade and eventually weakening global economic growth.
  • While the White House appeared to soften its initial stance on trade policy last week, helping stocks recoup some of their losses, stocks and bond yields came under fresh pressure Wednesday after the Commerce Department signalled that few product exclusions to the tariffs would be granted to U.S. firms.
  • Germany’s newly re-elected chancellor, Angela Merkel, also said the European Union needs to respond with one voice to the U.S. tariffs and shouldn’t be afraid to impose its own trade measures, if necessary.
  • The Dow Jones Industrial Average closed down 248.91 points, or 1%, at 24758.12, after opening higher. The S&P 500 dropped 15.83 points, or 0.6%, to 2749.48, while the Nasdaq Composite declined 14.20 points, or 0.2%, to 7496.81.
  • Aerospace giant Boeing was among the worst performers in the blue-chip index Wednesday, sliding $8.41, or 2.5%, to $330.26, and slicing 58 points off the Dow industrials.
  • Shares of materials companies fell 1.3% in the S&P 500, with all but one stock in the sector posting losses for the day, while the S&P 500 industrials sector lost 1.1%.
  • Despite renewed trade worries, stocks have largely stabilized following a wave of volatility in February that sent the S&P 500 and Dow industrials into correction territory.
  • The S&P is 4.3% away from its all-time high set Januaary 26, while the Dow industrials are 7% away from their Jan. 26 record.
  • Investors attribute stocks’ recovery to recent data pointing to more measured economic growth, which they hope will keep the Federal Reserve on a gradual path of interest-rate increases.
  • Last month, many investors feared that significantly higher inflation would give the Fed a freer hand to raise rates more quickly than anticipated, pushing up bond yields and making stocks less attractive.
  • On Wednesday, the US Labor Department said a gauge of U.S. business prices rose 0.2% in February, a sign of modest inflation pressure . Americans cut spending at retailers in February for the third consecutive month despite receiving bigger paychecks, the Commerce Department said.
  • Shares of department stores and apparel sellers fell following the downbeat retail sales data. Kohl’s shed 1.86, or 2.9%, to 62.25, while Nordstrom declined 85 cents, or 1.7%, to 49.48.
  • Signet Jewelers shares tumbled 9.69, or 20%, to 38.22 after the jewelry seller said same-store sales fell more than expected in the most recent quarter.
  • Meanwhile, government bonds strengthened, with the yield on the benchmark 10-year U.S. Treasury note slipping to 2.815% Wednesday from 2.848% a day earlier. Yields fall as prices rise.
  • Elsewhere, the Stoxx Europe 600 closed down 0.1%, as trade concerns offset gains in mining companies, which surged after better-than-expected Chinese economic data boosted commodity prices. China is the world’s largest consumer of raw materials.
  • European Central Bank President Mario Draghi warned on Wednesday that the bank isn’t yet ready to end its giant bond-buying program, pointing to new threats from U.S. trade restrictions and a strengthening euro.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC

Local markets
  • Bank of New York Australia ADR Index is up 0.4% to 275.0, BHP Billiton ADRs are up 0.8% to $A28.66 equivalent, a 0.1% discount to last Sydney close, Rio Tinto ADRs are up 0.3% to $A66.25 equivalent, a 11.2% discount to last Sydney close
  • Gold prices edged lower on Wednesday, pressured by a recovering dollar but supported by safe-haven buying after the sudden dismissal of U.S. Secretary of State Rex Tillerson. USD inched higher against major currencies after slipping following the dismissal of Tillerson. Spot gold lost 0.1% to $1325.25/oz whilst gold stocks in Toronto gained 0.3% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil reversed two days of declines as signs of stronger fuel demand were balanced by surging U.S. supply. Crude has struggled since hitting a three-year high in January. A broader market slump initially drove prices lower, while surging American production and increasing inventories remain a challenge. OPEC acknowledged the scale of the shale boom, forecasting for the first time that supply growth from rivals will outstrip the increase in demand this year. West Texas Intermediate for April rose 25 cents to settle at $60.96/barrel on the New York Mercantile Exchange. The discount of April contracts to May widened to 6 cents as growing supply weighed on the value of oil for prompt delivery. Brent for May settlement rose 25 cents to $64.89/b on the London-based ICE Futures Europe exchange, and traded at a $3.87 premium to WTI for the same month. Rising US production continues to stoke market fears. U.S. output climbed by 12,000 barrels to 10.381 million barrels a day last week, the highest in weekly data going back to 1983, according to the Energy Information Administration. Production is expected to top 11 million barrels a day in late 2018. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore rallied overnight, up $1.86 to $71.64/tonne as news that factory output and investment growth in China unexpectedly accelerated buoyed metals prices and helped spur buying in raw material producers overnight. BHP and Rio Tinto New York-listed shares pushed higher as iron prices at the Chinese port of Qingdao yesterday evening jumped almost $2 a tonne to $71.64. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper prices rose Wednesday after data showed China’s economy expanded faster than expected in the first two months of 2018, helped by strong overseas demand for Chinese goods. Front-month copper for March delivery climbed 0.7% to $3.1400 a pound on Comex. Prices have fallen 4.3% in 2018 coming off their best year since 2010, with some analysts concerned about an economic slowdown in China, the world’s largest consumer of industrial metals. However, Wednesday’s data showed industrial production in China, a rough proxy for economic growth, expanded by 7.2% in January and February from a year earlier, well above the 6.2% pace in December and a 6.1% rise forecast by economists. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Ex-Dividend: Ausdrill, Automotive Holdings, Bapcor, Contact Energy, Inghams Group, McMillan Shakespeare, Spark NZ.
  • Pimco Sells Australia Banks, Property Bonds as Risks Escalate (AFR): Pacific Investment Management Co. is cutting its investments in Australian bank debt because of lofty valuations as well as trimming holdings of real estate and retailers' bonds. The unwinding of some of its holdings in Australian lenders' debt is the first such move in about five years by the $1.75 trillion ($A2.2 trillion) money manager. Pimco's reduction of its exposure to notes sold by real estate investment trusts and retailers Down Under reflects concerns that surging personal debt will constrain consumption, according to Aaditya Thakur, senior vice president and portfolio manager in Sydney.
  • Macquarie Group (MQG): IFM, Macquarie May Bid for Victoria Land Titles Ops.: Australian
US 10 years

As we approach an anticipated rate hike at the Federal Open Market Committee meeting next Thursday morning, the yield curve (10-2) has already started to flatten for three consecutive sessions in a row.

The spread between 2s10s failed at 80 where the 200 day moving average crosses, and it is now approaching the key support level at the 50 basis point. 10 year treasury (ZNM8) is forming an inverse head and shoulders pattern with the neck line near 120-2. So we look to add bullish exposure as long as it continues to make higher lows.

US 10 years chart

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Chart: Bloomberg. Create your own charts with SaxoTrader; click here to learn more

– Edited by Robert Ryan

For more on forex, click here.

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