Today's Trade: S&P/ASX200 gains ground as top miners soar
- There were wild swings in the S&P500 on Friday due to shocking nonfarm payroll data
- But falls on the S&P500 (US500) were reversed into the close
- The weak US labour market may force the Fed to keep rates lower for longer
- The Australian dollar rallied as the greenback took a dive
- Iron ore has soared 3.9% in welcome news for top miners, snapping a losing streak
- Investors surged back into industrial metals, with copper leading the pack
By Saxo Capital Markets Australia
Overnight and early trading
- The S&P/ASX200 headed into the green at the open; it was up 0.36% to 5,338.20 at 1016 AEST (0016 GMT).
- The budding optimism that lifted US equities to a seven-month high couldn’t stand up to Friday’s employment report. Stocks in the S&P 500 Index ended the week little changed despite a late rally that pared losses in the final session, after the weakest labor report in six years strained hopes for a quick economic rebound. As traders pushed back expectations for the Federal Reserve’s next interest-rate increase, banks had one of their worst days since shares bottomed in February.
- The flat week followed the longest streak of monthly gains in two years, reinforcing concerns that the S&P 500 remains trapped in the same trading range that has prevailed since the index last hit a record 12 months ago. Slowing employment growth put the emphasis back on market challenges such as earnings, which are mired in the longest decline since the financial crisis, and the highest valuations in six years.
- The S&P 500 ended Friday at 2,099.13, compared with 2,099.06 a week earlier, after briefly climbing above 2,100 for a second time this year and closing Thursday closer to its May 2015 record than any time in seven months.
- The Dow Jones Industrial Average slipped 66.16 points, or 0.4%, to 17,807.06. US markets were closed last Monday for Memorial Day. The addition of 38,000 jobs last month was less than the most pessimistic of forecasts in a Bloomberg survey, bucking the trend of improving economic data that in the past month have shown strength in housing and consumer spending. The report cooled a rally that sent the S&P 500 within 1.2% of its all-time high. Before the week, the index had surged 15% from its February low as confidence grew that the economy will be strong enough to weather a rate increase as soon as this month.
- Stocks in the S&P 500 erased about two-thirds of their decline Friday on hopes that a weakening labor market may force the Federal Reserve to keep rates lower for longer. Based on Fed funds futures, traders are now pricing in a 27% chance of a Fed boost by July, down from 55% earlier, while odds for a June hike have fallen to 4% from 22%.
- The Chicago Board Options Exchange Volatility Index climbed 2.7% to 13.47 for its third weekly advance in four.
- Financial shares slumped the most among S&P 500 industries on Friday, leaving them down 1.3% for the week, as lower interest rates and bond yields curb lenders’ earnings power and erode profits at insurers that make money by investing premiums in fixed-income. Energy producers fell the second most of any industry over the four days, sinking 1%, as members of the Organization of Petroleum Exporting Countries rejected a proposal to adopt a new production ceiling. U.S. crude oil futures settled down 55 cents, or 1.12%, at $48.62/barrel. (see short trade set up over OILUSJUL16 CFD: WTI July future races to key resistance level.
- Utility shares touched an all-time high and jumped 2.5% for the week, as investors turned to equities that pay out more as dividends relative to their share prices. The shift to defensive shares is a reversal from the last three months where companies more geared to economic growth, such as commodity producers and banks, led the market’s advance. Friday’s decline did little to change the sideways movement of the market. After closing up or down less than 0.5% for six straight days, the longest stretch since November, the S&P 500 finished with the smallest weekly change for the year. At 18 times forecast earnings in the next 12 months, the index traded at a multiple that’s near the highest level since 2010.
- European stocks also dropped sharply by Friday's close on the poor US jobs data. Stocks did come off session lows but still managed to clock some decent losses with the Stoxx 600 down 2.4% for the week. The FTSE held onto gains closing up 0.39%. The French CAC 40 and Germany's Dax lost 1% each.
- Source: Bloomberg, TradingFloor.com
- Bank of New York Australia ADR Index +1.9%. BHP Billiton ADR +3.9%. Rio Tinto ADR +2.8%
- Spot gold had its strongest one day rally in seven weeks, as it soared 2.7% to $1,244. Terrible U.S. non-farm payrolls had investors flocking to the safe haven. The U.S. economy created the fewest jobs in more than five years in May, a Labor Department report showed. That could make it difficult for the Fed to raise interest rates further. The data sparked a rebound in gold, which had slid to a 3-1/2 month low of $1,199.60 on Monday on growing expectations for a hike. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Crude oil finished Friday down with WTI and Brent losing 1.2% and 0.8% to $48.62 and $49.64 respectfully, after weekly data showed U.S. drillers added rigs for only the second time this year. Drillers added nine oil rigs in the week to June 3, Baker Hughes said. The closely followed report rekindled fears that US shale drillers would turn the spigots back on as prices flirted with $50 a barrel. Losses were limited by a weakening dollar. Friday, militants in the restive Niger Delta region that produces more than half of Nigeria's oil claimed three new attacks on oil infrastructure, promising to bring the country's oil production to "zero." Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore rose 3.9%, snapping 4-day losing streak, according to a price index compiled by Metal Bulletin. Futures pare 2nd weekly loss to -2.2%. Prices rebounded on possible production cuts in Hebei province. Steel rebar for Oct. +1.7%. Hot-rolled coil for Oct. +1.1% Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Base metals saw investors surge back into industrial metals, with copper leading the pack as it finished up 2% to $4,688. Copper is at a short term ceiling that proved trouble both late last month and then again for the period December 2015 – February 2016. BHP Billiton spin-off South 32 has warned of "more pain to come" for the mining sector amid expectations that the recent rise in some commodity prices will not be sustained. "I am not convinced we are through the challenging price environment. I'm sure there is still more pain to come," chief executive Graham Kerr said in an interview with the Financial Times. The company is to cut a further 270 jobs on top of the 1750 already announced in February, according to the report. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
- Melbourne Institute releases Australian May inflation expectations data; due 1100 AEST (0100 GMT).
- ANZ May Australian job ads data; due 1130 AEST (0130 GMT).
- AGL Energy (AGL): Seeking equity partners for renewable fund: AFR.
- Arrium (ARI): Australia says ARTC to partner with co. on Whyalla rail project.
- G8 Education (GEM): Australian Labor pledges A$3b childcare package.
- National Australia Bank (NAB): Raises capital notes 2 offer to at least $A1.35bn.
- Virgin Australia (VAH): Singapore Air considering lifting stake in co. to 51%: AFR.
- Wellard (WLD): Unaffected by Japan halt of cattle import from Australia.
- Macquarie Group (MQG): Cut to underperform vs buy at APP Securities
- XAUUSD Gold looks poised for a breakout.
- EURUSD Outlook turns bearish as EURUSD fails to close above resistance.
- OILUSJUL16: WTI July future races to key resistance level.
AUDUSD rallies, EURUSD gets a lift
The probability of the June rate rise by the Federal Reserve dropped from 30% to 4% and the gold is looking strong as it made a huge rally on the disappointing NFP announcements. All eyes on Fed Chair Yellen due to speak about the economic outlook and monetary policy at the World Affairs Council of Philadelphia's luncheon
Last Friday, the price actions of the S&P500 (US500) were wild as the initial selloff from the shocking nonfarm payroll figures was reversed into the close.
The US500 continues to outperform Australia's S&P/ASX200 as it maintains the resilience near the psychological level at 2,100. If the US500 fails to push above the April high of 2,111, then a double top is likely to form in the near term.
S&P500 (US500) chart
The interim support level stays at 5,270 and on the hourly chart, we see a clear reversal price actions with the break out level at the resistance level 5,325.
Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
– Edited by Robert Ryan
For more on forex, click here.
Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch our daily morning call on Periscope at 0945 AEST: #SaxoStratsAPAC