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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 / 26 October 2017 at 23:35 GMT

Today's Trade: S&P/ASX200 gains on Wall St rebound, crude soars

Trading Desk / Saxo Capital Markets
Australia
  • The S&P 500 rebounded on upbeat earnings results
  • The DJIA edged higher, while the Nasdaq Composite fell slightly
  • Gold has hit a nearly three-week low as USD gained against the euro 
  • Oil soared after a Saudi leader backed the extension of Opec output cuts
  • Iron ore prices were  weaker, on concerns about steel mill closures in winter

By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 headed higher in early trading. It was up 0.20% to 5,928.30 at 1045 AEST (2345 GMT, on Thursday evening).
  • Most US stocks climbed amid a raft of robust earnings reports, speculation about the Federal Reserve’s next leader and congressional action on taxes.
  • The S&P 500 Index rebounded from yesterday’s drop as results from Twitter Inc. to Ford Motor Co. topped estimates.
  • Biotechnology shares buckled, pulling the Nasdaq 100 Stock Index lower, after Celgene Corp’s cut to its forecast sent drugmakers tumbling. The dollar rose to the highest in 15 weeks, while oil hovered above $52/barrel. Amazon.com Inc. surged more than 7% & Alphabet Inc jumped 4%.


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Iron ore prices lost ground as traders worried about the impact of steel mill closures over the coming northern hemisphere winter. Photo: Shutterstock


  • The Dow Jones Industrial Average added 71.40 points, or 0.3%, to 23400.86, recouping some of the losses suffered Wednesday. The S&P 500 rose 3.25 points, or 0.1%, to 2560.40, while the Nasdaq Composite fell 7.12 points, or 0.1%, to 6556.77.
  • DowDuPont , one of the biggest gainers in the Dow Jones Industrial Average, rose $1.96, or 2.8%, to $73.05 after it gave investors an early look into its sales and profit results, the first window into the global chemical giant following the combination of Dow Chemical and DuPont.
  • Ford Motor added 23 cents, or 1.9%, to 12.27 after the auto maker said third-quarter profit rose amid strong sales of its F-Series trucks, a lower tax rate and cost-cutting efforts.
  • Twitter reported a narrower loss and raised its earnings forecast for the fourth quarter, but also said it overstated its number of users for the past three years. Twitter shares surged 3.17, or 18%, to 20.31, its largest%age increase in more than a year.
  • Deal chatter pushed shares in Aetna up 18.48, or 12%, to 178.60. The Wall Street Journal reported that CVS Health had proposed to buy the health insurer for more than $200 a share. CVS fell 2.22, or 2.9%, to 73.31.
  • In Europe, stocks gained momentum and the euro fell after the ECB said it would pare back its monthly bond purchases to €30 billion a month from €60 billion and keep buying through September next year. The ECB also reiterated that interest rates would remain at their current levels well past the end of the asset-purchase program.
  • The ECB’s move was closely in line with what investors and economists had forecast. Still, many took the development and ECB President Mario Draghi’s tone during his news conference as a confirmation that eurozone monetary policy would remain ultraloose for some time to come.
  • The Euro Stoxx 50 index of eurozone stocks gained 1.3%, while the euro fell 1.3% against the U.S. dollar to $1.1656.
  • Many investors believe the eurozone economy is strong enough to handle the gradual shift in policy, underscoring the calm in the region’s riskier assets in recent months. Expectations for a policy change come as the currency bloc’s economy is on course for its strongest year since 2007, with measures of consumer confidence in the bloc reaching decade-highs.
  • While inflation has remained well below the bank’s target, purchasing managers’ indexes released this week showed the currency area posted its fastest employment growth in a decade, raising the prospect that rising wages may lift still-weak inflation.
  • Elsewhere in Europe on Thursday, Sweden’s Riksbank and Norway’s Norges Bank both left their monetary policy unchanged.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC.
Local markets
  • Bank of New York Australia ADR Index is up 0.2% to 273.7, BHP Billiton ADRs are up 0.3% to $A26.68 equivalent, a 0.2% premium to last Sydney close, Rio Tinto ADRs are up 0.3% to $A61.67 equivalent, a 11.5% discount to last Sydney close
  • Gold fell to a nearly three-week low on Thursday as the dollar gained against the euro after the ECB said it would extend the lifespan of its bond-buying program. The bank also decided to cut back bond purchases, a widely expected move that was factored into gold prices and the dollar, and the extension of the bond-buying program took the wind out of the euro's rally against the dollar. European stock markets gained following the decision as investors started to price out future rate increases, moving away from safe-haven gold and bonds and into stocks and other assets perceived as risky. Spot gold was down 0.79% at $1,266.90/oz. US gold futures for December delivery settled down $9.40, or 0.7%, at $1,269.60/oz. Gold stocks in Toronto fell sharply overnight dropping 1.56%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Crude oil closed at its highest in more than two years in London, nearing $60/barrel, as Saudi Crown Prince Mohammed bin Salman backed the extension of Opec output cuts. Brent, the global crude benchmark, rose 1.6%. Prince Mohammed said in an interview that "of course" he wanted to extend Opec’s production cuts beyond March 2018. His comments follow President Vladimir Putin saying Russia is open to extending the deal to the end of next year. Mounting signs that Opec and its allies may agree to extend the output-reduction deal at a meeting in Vienna later next month have helped U.S. oil hold above $50 and Brent above $55 for most of this month. Brent for December settlement rose 86 cents to end the session at $59.30/b, the highest since June 2015, on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $6.66 to WTI. West Texas Intermediate for December delivery added 46 cents to settle at $52.64/b, the highest since April, on the New York Mercantile Exchange. Total volume traded was about 18% below the 100-day average. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore prices were slightly weaker, as traders continued to fret about the impact of steel mill closures over the coming winter. This also weighed on steel futures in China. Sentiment wasn’t helped by news that Rio Tinto could potential increase output at its Australian operations to over 400 mt. This is against current output of around 330mt. However CEO Jean-Sebastien Jacques did say the company will always put value over volume, suggesting the increase is not a given. Spot iron ore shed 1.2% or $0.77 to close at $61.47. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Aluminium prices reached their highest in more than five years, as expected capacity cuts during the winter drew closer and concerns grew of a supply shortfall as inventories in London fell to a nine-year low. London Metal Exchange aluminium ended up 0.2% at $2,190 per tonne, having peaked at $2,215 during the session, its highest since March 2012. Aluminium stock: AWC.
  • Copper closed 0.3% lower at $6,986 per tonne, lead slipped 0.3% to $2,482, tin inched 0.2% to $19,850, zinc rose 1.1% to $3,225 and nickel ended down 1% at $11,745. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA.
  • In early reporting: Macquarie Group has racheted up full-year earnings guidance and made a marquee appointment to its board, attracting former Reserve Bank of Australia governor Glenn Stevens. Macquarie reported a climb in net profit of 19% in the six months ended September 30 to $1.25 bn from the year-earlier period. The result surpassed analysts' expectations for a profit of $1.14 bn and was buoyed by $537 mln in performance fees earned across several funds in its asset management unit, and a larger profit contribution from the corporate and asset finance division. Advisory division Macquarie Capital had a softer result, however, as did the commodities and global markets unit.
  • Companies trading ex-dividend today: Premier Investments.
  • APA Group (APA): Annual Meeting Scheduled; NOTE: Co. in August forecast FY18 Ebitda $A1.48bn-$A1.51bn.
  • BHP Billiton (BHP): Iron Ore Cargoes From Top Miners Climb to 24.8 mln Tons: Bernstein.
  • Carsales (CAR AU): Annual meeting scheduled.
  • Crown Resorts (CWN): Packer Says High-Rollers Return to Crown After China Debacle.
  • GWA Group (GWA): Annual meeting scheduled.
  • Iluka Resources (ILU): Q3 Output Report Expected.
  • Japara Healthcare (JHC): Annual Meeting Scheduled; NOTE: October 24: Moelis Australia Funds Take 9.96% Stake in Japara for $A50.4mln.
  • Macquarie Group (MQG): 1H Results Expected; NOTE: Adj. Net Income Est. $A1.14b (4 analysts).
  • Orocobre (ORE): Q1 Output Report Expected.
  • Regis Healthcare (REG): Annual Meeting Scheduled.
  • Rio Tinto (RIO): Sees Increased Australian Iron-Ore Potential: FT.
  • Tabcorp (TAH): Annual Meeting Scheduled.
  • Wesfarmers (WES): Said to Have Preliminary Interest in Apollo Global Mgmt’s Ventia Stake: AFR.
  • WorleyParsons (WOR): Annual Meeting Scheduled.
Broker upgrades, downgrades
  • Blackmores (BKL): Raised to Outperform at Credit Suisse, price target $A150.
  • Fortescue (FMG): Raised to Neutral at Goldman, PT $A4.75.
  • IOOF Holdings (IFL): Cut to Sell at Bell Potter, PT $A9.92.
  • OceanaGold (OGC): Q3 Gold Output 136,043 Oz; NPAT $21.7mln; Raised to Buy at PI Financial; PT $C5.
  • Qantas (QAN): Cut to Sell at Morningstar; Annual meeting Scheduled.
  • Northern Star (NST): Cut to Accumulate at Hartleys Ltd; PT $A5.31.
ASX company releases schedule
  • Friday: Qantas AGM
  • Tabcorp AGM Tatts merger update expected.
US dollar index breakout

The US dollar index (DX) finally made a clean break out above the neckline of the inverse head and shoulders on the back of the sharp sell off in the euro, after the ECB indicated extension of its asset purchase program at a lower rate.

Another factor that supported US dollar was US house passed a budget resolution to boost the prospects for tax reform. We believe US treasury rates would continue to remain strong and overnight price action for DX suggests tje beginning of a potential reversal to the topside.

USD index chart
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S&P/ASX200 shows resilience
 
The S&P/ASX200 (AUS200) has been consolidating in the past few days and it appears to be breaking the recent resistance level of 5,925.

The current resilience is expected to support AUS200 and the next key resistance level would be the 2017 high of 2,960, which is not far above the current price. We look to buy any pullbacks in the anticipation of further advances towards the psychological level of 6,000.

S&P/ASX200 chart

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

– Edited by Robert Ryan

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

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