Article / 30 August 2017 at 0:33 GMT

Today's Trade: S&P/ASX200 rebounds as missile jitters retreat

Trading Desk / Saxo Capital Markets
Australia
  • Wall St recovered Tuesday after the missile launch rattled global markets
  • The Stoxx Europe 600 fell 1% to its lowest close since February
  • Base metals were up across the board, led by copper and nickel
  • Spot iron ore fell, but prices are still around their highest levels in four months
  • Gloomy forecasts of a slowdown in China’s steel industry are proving to be false
By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX 200 headed higher in early trading.It was up 0.22% to 5,681.40 at 1028 AEST (0028 GMT).
  • Asian markets are set to climb after President Donald Trump’s measured response to North Korean missile launches. The yen was down 1% since Tuesday’s Tokyo close while gold made further headway above $1,300/oz.
  • Equity index futures pointed to higher opens in Japan, South Korea and Australia after U.S. stocks rebounded from losses initially sparked when Kim Jong Un’s regime fired a missile over Japan.

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The top Aussie miners are spending billions on mines so they can keep pumping out shipments to China as demand in their biggest customer shows little sign of easing. Photo: Shutterstock

  • U.S. stocks recovered Tuesday after North Korea’s launch of a ballistic missile over Japan rattled global markets.The missile was the first Pyongyang has fired over Japan’s main islands since 2009 and the latest in a string of direct provocations that have briefly weighed on financial markets in recent weeks.
  • Gains in industrial and technology stocks helped bring major U.S. indexes back into positive territory.
  • The Dow Jones Industrial Average rose 56.97 points, or 0.3%, to 21865.37 after falling 135 points earlier in the session.
  • The S&P 500 added 2.06 points, or less than 0.1%, to 2446.30 and the Nasdaq Composite rose 18.87 points, or 0.3%, to 6301.89.
  • Rising shares of United Technologies helped turn the Dow industrials positive. The aircraft-equipment maker added 2.9%, or $3.37, to $118.70 after The Wall Street Journal reported the company was near a deal to buy Rockwell Collins for more than $20 billion.
  • United Technologies, which had been trading lower prior to the news, accounted for roughly half of the blue-chip index’s daily gain.
  • Tech companies within the S&P 500 gained 0.4%, led by Micron Technology , which rose 40 cents, or 1.3%, to $31.48, and Akamai Technologies , which gained 57 cents, or 1.3%, to $45.71.
  • Some money managers said the latest North Korea developments contributed to an increase in phone calls from investors who were worried about the impact on their portfolios. But for the most part, investors were staying put, they said, with some choosing to scale back some long-held positions to lock in gains made amid the eight-year rally.
  • Positive economic data helped keep deeper selling at bay, investors added.
  • A measure of U.S. consumer confidence rose in August to the second-highest reading since late 2000, while home-price growth accelerated slightly in June because of upward pressure from limited inventory and strong buyer demand.
  • The North Korean missile launch jolted a market that was largely listless around the world, but selling moderated throughout Tuesday.
  • The Stoxx Europe 600 fell 1% to its lowest close since February, while South Korea’s Kospi recovered to trade down 0.2%. Japan’s Nikkei Stock Average declined 0.4%.
  • Source: Bloomberg, TradingFloor.com, WSJ.com
Local markets
  • Bank of New York Australia ADR Index -0.3%, BHP Billiton ADR +0.4% to A$27.03 equivalent, 0.6% premium to last Sydney close, Rio Tinto ADR +0.2% to A$60.48 equivalent, ~9% discount to last Sydney close.
  • Gold prices rose for a third day on Tuesday to its highest since November as mounting geopolitical tensions over a new North Korean missile launch stoked demand for safe-haven assets and weighed heavily on the dollar and equities. Spot gold rose 0.4% to $1,314.52/oz, after earlier touching its highest since November 9 at $1,322.33/oz. Gold gained 1.4% in the previous session in its biggest one-day percentage rise since mid-May. U.S. gold futures for December delivery settled up 0.3% at $1,318.90.
  • South Korea and Japan said the missile North Korea launched early on Tuesday landed in Pacific waters east of Hokkaido after flying over the northern Japanese island, in a sharp escalation of tensions on the Korean peninsula. The news saw equities plunging and the yen touching four-month highs against the dollar. Geopolitical risks can boost demand for safe-haven assets such as gold, which is considered a good store of value during volatility in other markets. Gold stocks in Toronto added 1.05% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Gasoline prices moved to a two-year high while crude slipped as traders braced for more cutbacks at Gulf Coast refineries with Tropical Storm Harvey set for a second landfall near the Texas-Louisiana border. Motor fuel prices rose 4.2% in New York, while WTI traded at the lowest level in five weeks. Harvey is now expected to regain strength before crashing ashore Wednesday near Port Arthur, Texas, where Motiva Enterprises LLC operates the largest U.S. refinery. The plant is currently said to be shutting down.
  • Oil has declined 7.4% this month as investors weigh signs of rising global output against production cuts by some Opec members. Harvey, meanwhile, has curbed crude demand with about 2.35 million barrels a day of crude and condensate capacity falling offline. Valero Energy.’s Port Arthur plant shut two process units due to flooding and Exxon Mobil’s Beaumont, Texas refinery is in the process of shutting due to the flooding. Futures were little changed from the settlement after the industry-funded American Petroleum Institute was said to report US crude supplies fell by 5.78 million barrels last week.
  • West Texas Intermediate crude for October delivery traded at $46.42/b after settling at $46.44/b on the New York Mercantile Exchange. Brent rose 11 cents to end the session at $52 on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $5.56 to WTI. Gasoline for September delivery rose 7.1 cents to $1.7833 a gallon. The gasoline crack spread, a rough measure of the profit from refining crude into gasoline, climbed to $20.84/b. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Spot iron ore prices fell 1% or $0.79 to close at $76.36 overnight, but are still trading around the highest levels in four months. BHP Billiton noted that steel production has not yet peaked, which should continue to support demand for the raw materials. The biggest iron ore producers in Australia are spending as much as $10 billion on mines so they can keep pumping out shipments to China as demand in their biggest customer shows little sign of easing. Led by Rio Tinto Group, the nation’s top three exporters plan to add about 170 million tonnes of new capacity to replace exhausted mines and are studying investments in infrastructure and equipment to boost export capacity to their long-term targeted rates. Output will rise 9% to 843 million tonnes in 2022, according to Deutsche Bank. Forecasts of a slowdown in China’s steel industry are proving to be misplaced with BHP saying production hasn’t yet peaked and likely won’t do so until the middle of next decade, while steel-making raw materials will continue performing well over the coming 12 months. Iron ore prices are trading near a four-month high. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Base metals were up across the board, led by copper and nickel, which both rose 2.1% in the overnight session. Benchmark copper jumped 1.9% to close at $US6791.50 tonne. It earlier touched $US6843.50, a level last seen in September 2014. "The main input to copper is the continued weakness of the dollar which has been particularly aggressive today," said Ole Hansen, a commodities analyst at Saxo Bank, adding that falling stocks had provided underlying support over the last week. Inventories in warehouses registered by both the London and Shanghai exchanges showed declines. On-warrant stocks - those not earmarked for removal - in London Metal Exchange (LME) shed 775 tonnes to 112,175 after fresh cancellations. Weekly copper stocks in warehouses registered by the Shanghai Futures Exchange declined by 8.2% to 187,444 tonnes. Copper stocks: OZL, SFR.
  • Three-month nickel on the London Metal Exchange ended up 2% at $11,710. At one point the contract rose to $11,885, the highest since November 28, 2016. Aluminium ended with gains of 1.2% to $2,095, lead ended 2.3% higher at $US2378, tin inched up 0.1% to $US20,350, while zinc was 1.5% higher at $US3110. Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Trading ex-dividend: AGL, Bapcor, Contact Energy, Iluka, Mineral Resources, Platinum Asset, Prime Media, Telstra
  • Boral (BLD): FY results expected; NOTE: FY17 adj. net income est. A$314.9m (8 analysts)
  • Gateway Lifestyle (GTY): FY results expected; NOTE: FY17 adj. net income est. A$42m (6 analysts).
  • Independence Group (IGO): FY results expected; NOTE: FY17 adj. net income est. A$39.9m (14 analysts).
  • Ramsay Health (RHC): FY results expected; NOTE: FY17 adj. net income est. A$543.7m (7 analysts).
  • Sandfire Resources (SFR): FY results expected; NOTE: FY17 adj. net income est. A$80.5m (17 analysts).
  • Scottish Pacific (SCO AU): IFM Investors is said to have sold stake in co.: AFR.
Broker upgrades, downgrades

  • Ainsworth Game (AGI): Raised to buy at Canaccord, price target $A2.78.
  • AusNet (AST): Cut to Underweight at Morgan Stanley, PT $A1.65.
  • Blackmores (BKL): Raised to overweight at JPMorgan, PT $A110.
  • CC-Amatil (CCL AU): Co. to build new production line in Medan, North Sumatra, with annual capacity of 150m bottles, Kontan reports, citing PT Coca-Cola Amatil Indonesia in statement; Raised to Buy at Morningstar.
  • GrainCorp (GNC AU): Upgraded to outperform at Credit Suisse, PT $A9.42.
  • Regis Resources (RRL AU): Upgraded to neutral at Credit Suisse, PT $A3.70.
  • LendLease Group (LLC AU): Cut to hold at Shaw and Partners, PT raised to $A17.11.
  • Source: ABC Business.
Watch for USDJPY rally

As yesterday morning’s negative sentiments settled down, USDJPY made a sharp reversal to reach near the ¥110 handle. USDJPY has made daily close below the ¥109 handle only once in the past four months.

So this level is expected to remain as strong support level and we anticipate a further rally in the next coming days.

USDJPY chart
1
 
Grocery chain under pressure

Last week, the grocery retail chain Woolworths (WOW) created a double top near its May high of $A27.72, and since then the stock has been declining sharply lower.

It has broken uptrend (from its 2016 low of $A25.41), but yesterday’s intraday low coincided with 200 day moving average, which should act as a support line despite the recent weakness. Failure to climb above the uptrend would signal more selling pressure to persist.

Woolworths' chart

























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– Edited by Robert Ryan

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

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