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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 / 27 September 2017 at 0:43 GMT

Today's Trade: S&P/ASX200 edges lower, despite gains for miners, banks

Trading Desk / Saxo Capital Markets
Australia
  • Copper declined for a second day after US new-home sales fell
  • China's moves to curb speculation in the property market also hurt copper prices
  • Gold eased under pressure from USD on Tuesday, with investors booking profits
  • The yellow metal had hit a one-week high on rising Nth Korea/US tensions
  • Spot iron ore prices recovered slightly, adding 3%
Overnight and early trading
  • The S&P/ASX200 lost ground in early trading. It was down 0.15% to 5,662.60 at 1023 AEST (0023 GMT).
  • Equities in Asia look set to start the session higher, as the yen weakened amid moves out of haven assets, after Federal Reserve Chair Janet Yellen boosted expectations for an interest-rate rise in December.
  • The US dollar index climbed for a second day, though pared some gains, after Yellen said raising borrowing costs gradually is the appropriate policy stance considering the uncertainty surrounding inflation. That pushed down the yen and leaves Tokyo equities poised for a higher open
  • Resurgent shares of technology companies helped the Nasdaq Composite eke out a gain Tuesday.
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 BHP says there's change afoot in steelmaking in China, as Beijing steps up pollution curbs and mills favour bigger blast furnaces, above. Photo: Shutterstock.

  • Even with tech’s rise, however, eight of the 11 major S&P 500 sectors closed lower, leaving the broad index little changed, while the Dow Jones Industrial Average slipped less than a percentage point.
  • The stabilization came a day after tensions flared between the US and North Korea, contributing to declines in US stocks. Some analysts attributed tech’s rebound Tuesday to investors taking advantage of the sector’s decline a day earlier.
  • The tech-heavy Nasdaq Composite rose 9.57 points, or 0.2%, to 6380.16, while the S&P 500 rose 0.18 point, or less than 0.1%, to 2496.84.
  • The Dow industrials were in positive territory for much of the session, but declined heading into the close. The blue-chip index slipped 11.77 points, or less than 0.1%, to 22284.32, its fourth straight session of declines and its longest losing streak since June.
  • Apple, which has stumbled this month following the rollout of its latest slate of iPhones and watches, was among the tech sector’s biggest gainers Tuesday. The company rose $2.59, or 1.7%, to $153.14.
  • Software maker Red Hat gained 4.31, or 4.1%, to 110.07 after it reported higher-than-expected profit and revenue for the latest quarter, while data-storage firm NetApp rose 1.06, or 2.5%, to 43.76.
  • Without any new major geopolitical developments, investors pulled back from assets they consider to be relatively safe.
  • Gold for September delivery fell 0.7% Tuesday, and the dollar rose 0.5% against the Japanese yen, which tends to rise when markets slide.
  • The Stoxx Europe 600 was little changed.
  • Source: Bloomberg, TradingFloor.com, WSJ.com.

Local markets

  • Bank of New York Australia ADR Index is down 0.8% to 269.5, BHP Billiton ADRs are down 1.8% to A$25.71 equivalent, a 0.3% discount to last Sydney close, Rio Tinto ADRs are down 1.0% to A$59.11 equivalent, a 10.2% discount to last Sydney close
  • Gold eased under pressure from the dollar on Tuesday, with investors booking profits after rising tensions between North Korea and the US pushed the metal to a one-week high. Spot gold was down 0.96% to $1,297.57/oz, after earlier marking its highest since Sept. 20 at $1,313.54. It gained more than 1% the previous session. U.S. gold futures settled down at $1,301.70 an ounce. North Korea appears to have boosted defences on its east coast, South Korea's Yonhap news agency reported, after the North said U.S. President Trump had declared war and that it would shoot down US bombers flying near the peninsula. Bullion is an alternative investment during times of uncertainty, generally gaining along with U.S. Treasuries and the yen.
  • Elsewhere, investors awaited a speech on "inflation, uncertainty, and monetary policy" by Federal Reserve Chair Janet Yellen, in Cleveland. Ahead of Yellen's speech, Fed officials gave mixed signals on the likely path for interest rate increases. New York Fed President William Dudley said the U.S. central bank is on track to gradually raise rates given factors that have depressed inflation are "fading," while two other Fed officials expressed the need to stay put on further tightening. Gold stocks in Toronto gave back most of Monday’s gains dropping 1.83% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil pared losses after an industry report was said to have shown an unexpected decline in crude inventories. Prices were little changed in post-settlement trading after the American Petroleum Institute was said to report on Tuesday that U.S. crude stockpiles slid by 761,000 barrels last week. That would be the first draw since August if confirmed in Energy Information Administration data scheduled to be released on Wednesday. Analysts in a Bloomberg survey were bracing for a 3.1 million-barrel rise in stockpiles. Oil has gained about 10% this month in New York and its global counterpart traded in London reached a two-year high on Monday amid forecasts for rising consumption in the face of output cuts by Opec and partners including Russia. The two benchmarks posted declines Tuesday, yet losses were limited due to Opec’s continued output restrictions and lingering concerns that Turkey may disrupt Kurdish oil shipments. WTI for November delivery traded at $52.10 a barrel after settling at $51.88/b on the New York Mercantile Exchange. Total volume traded was about 7% below the 100-day average. Prices surged to $52.22/b on Monday, more than 20% above their most recent low – the classic definition of a bull market. Brent for November settlement dropped 58 cents to end the session at $58.44/b on the ICE Futures Europe exchange. Futures closed at $59.02/b on Monday, the highest settlement since July 2015. The global benchmark traded at a premium of $6.56 to WTI on Tuesday. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Spot iron ore recovered slightly adding 3% or $1.89 to close at $64.95. The world’s largest mining company BHP says there’s a “new reality” in the global iron ore market as a flight to quality boosts the premium users will pay for higher-grade material, predicting that the trend will probably endure as China steps up pollution curbs and mills favour bigger furnaces. “Blast furnaces have become bigger and bigger, have become more efficient, and therefore cleaner,” Arnoud Balhuizen, chief commercial officer of BHP Billiton Ltd., said in Singapore. What the company has started to see “is that high-quality raw materials, which serve those bigger blast furnaces and therefore a cleaner industry, are attracting a premium.” He added: “That is just one example of how this new reality is starting to play out.” The global iron ore market has undergone a profound shift over the past two years even as benchmark prices have gyrated between bull and bear markets, with the spreads between different grades widening. Higher-grade ore now trades at a much bigger premium to lower-quality shipments, and banks including Goldman Sachs Group Inc. and Morgan Stanley are trying to assess the significance of the trend. China’s plan to intensify a pollution crackdown this winter will probably add further impetus to the changes. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper declined for a second day after U.S. new-home sales fell and Chinese authorities took steps to curb speculation in the property market, fueling demand concerns for the metal used in pipes and wiring. London Metal Exchange copper ended the day down 0.6% at $6,411 a tonne. Prices touched their lowest since mid-August on Friday at $6,366 a tonne. Copper prices have fallen more than 7% from their September high and are hovering near their lowest levels since early August. Copper cash-to-3-month spread fell to - $60/ton, the lowest level since 2007. LME zinc closed up 0.6% at $3116 a tonne, while lead ended 0.5% higher at $2,488 a tonne. Tin closed little changed at $20,710, while nickel finished down 0.9% at $10,480 and aluminium ended 1% lower at $2,126. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Brambles (BXB): PRICED: Brambles EU500m 10Y Bonds MS +70.
  • Centuria Capital Group (CNI): Sees FY18 Op EPS A16.5 -17c/Stapled Security.
  • Monadelphous (MND): Secures Contracts With Combined Value About $A220mln.
  • NextDC (NXT): Says 360 Capital’s Bid for APDC Has Funding Risks.
  • Origin Energy (ORG): Co. Has ‘Headroom’ to Tackle Risk: Moody’s.
  • Tatts Group (TTS), Tabcorp (TAH): Australian Competition Tribunal Sets Hearing Date for Tatts Deal.
  • Telstra (TLS): Telstra Says Deal With ASX Boosts Connectivity for Intl Traders.
Broker upgrades, downgrades
  • QBE Insurance (QBE): Cut to Sell at Shaw and Partners; price target Cut to $A9.50.
  • Investa Office (IOF): Raised to Outperform at Credit Suisse; PT $A4.67.
  • Namoi Cotton Co-Operative (NAM): New Add at Morgans.
  • Financial Rio Tinto (RIO): London-listed Shares Cut to Hold at Canaccord, PT £37.80; ‘Be Selective’ in Base, Bulk Commodities in Near-term, BMO Says.
USDCAD meets resistance

Gains in USDCAD met with resistance at the short term downtrend, which interestingly coincided with the July swing low.

At the same time, USDCAD is riding a short term uptrend and as long as this trendline holds losses, we look to further strength ahead with the immediate test to claim the downtrend which had capped gains overnight. A break of the downtrend would open 1.25 handle as next topside target.

USDCAD chart

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Huge XAUUSD selling

After launching off the 2017 breakout level (at $1295/oz), gold received a huge flush of selling which wiped out nearly all of the gains seen two sessions ago.

The test remains for gold to maintain its territory above 1288 (recent lows) for technical reasons to build for the next wave of gains to commence.

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

For more on forex, click here.

– Edited by Robert Ryan

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


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