Article / 14 February 2018 at 23:38 GMT

Today's Trade: S&P/ASX200 rebounds on Wall St, resources rally

Trading Desk / Saxo Capital Markets
  • Copper posted its biggest three-day gain in more than a year, adding 2.5%
  • Gold rebounded from losses made in the wake of strong US inflation data
  • The US dollar initially rose after the release of robust inflation data
  • Crude climbed as a recent build-up in US storage appeared to slow down
  • Iron ore futures in China climbed to their strongest in three weeks on Wednesday
Overnight and early trading
  • The S&P/ASX200 surged higher in early trading; it was up by a robust 0.79% to 5,887.30 at 1011 AEDT (2311 GMT, on Wednesday evening).
  • A rally in global stocks looks set to continue in Asia as equity investors showed signs of warming to a world with inflation and a quicker pace of tightening for U.S. monetary policy following this month’s slide in risk assets.
  • U.S. stocks climbed for a fourth consecutive session, temporarily easing fears of a prolonged market downturn despite fresh signs of a pickup in inflation.

 Saudi oil minister Khalid Al-Falih says volatility in the crude market is “unfortunate” and that Opec and its partners are trying to stabilize the market. Photo: Shutterstock

  • Consumer prices increased more than expected in January, another data point showing inflation is firming after a long run of softness. The rise was largely driven by higher prices for gasoline, rent and apparel, which some analysts said are more volatile and might not be able to consistently drive future increases.
  • Fears about inflation have taken center stage in markets since the beginning of the month, when strong wage growth sparked concerns the Federal Reserve would have to raise interest rates more quickly than expected. The Dow Jones Industrial Average and S&P 500 slumped last week into correction territory—a 10% decline from their Jan. 26 highs—but have climbed every session since then. They remain down more than 6% from those highs.
  • The Dow Jones rose 253.04 points, or 1%, to 24893.49 Wednesday. The S&P 500 added 35.69 points, or 1.3%, to 2698.63, and the Nasdaq Composite closed up 130.10 points, or 1.9%, at 7143.62. All three indexes pared early losses and are back in positive territory for the year. The VIX closed below 20 at 19.26.
  • Meanwhile, the yield on the 10-year U.S. Treasury note surged to a fresh four-year high, closing at 2.913% from 2.837% Tuesday. Yields rise as prices fall.
  • Wednesday’s data showed that the consumer-price index gained 0.5% in January after rising a seasonally adjusted 0.2% in December. Economists surveyed by The Wall Street Journal expected consumer prices to add 0.4%.
  • Some analysts said the data showed core inflation pressures are still likely to grow gradually, as the increase in the 12 months to January was the same as the prior month.
  • The S&P 500 and Dow Industrials fell more than 1% in the futures market immediately following the consumer-price data and opened lower, with the Dow falling as much as 150 points before rebounding.
  • Some traders said they were pondering whether the rebound in recent sessions indicates the worst of the market pullback is over. Many have said the underlying earnings backdrop remains in place for stocks to move higher even as they continue readjusting to the prospect of higher rates.
  • Investors were also reacting to data that showed spending at U.S. retailers dropped in January. Some analysts warned against reading too much into the data, saying the figures were influenced by cyclical factors around the holiday season.
  • On Wednesday, the S&P 500 financial sector was among the best performers, while utility and real-estate stocks fell.
  • Elsewhere, the Stoxx Europe 600 climbed 1.1%.
  • Source: Bloomberg,,, CNBC.
International earnings
  • Thursday: CBS, Zoetis, Con Ed, Andeavor, Shake Shack, TrueCar, Nestle, Encana, Waste Management, TransCanada, TreeHouse, Yamana Gold, Allscripts Healthcare, Cognex, Avon Products, Brookfield Asset Management.
  • Friday: Coca-Cola, Kraft Heinz, Campbell Soup, Deere, Och-Ziff Capital Management, Ryder System, Vulcan Materials, VF Corp, JM Smuckers.
Local markets
  • Bank of New York Australia ADR Index is up 1.8% to 289.8, BHP Billiton ADRs are up 3.2% to $A31.14 equivalent, a 3.7% premium to last Sydney close, Rio Tinto ADRs are up 4.2% to $A73.33 equivalent, a 7.0% discount to last Sydney close
  • Gold jumped up on Wednesday, rebounding from losses made in the wake of stronger than expected U.S. inflation data, as the dollar surrendered gains and stock markets swung higher. The dollar initially rose after Wednesday's inflation report showed U.S. consumer prices rose more than expected in January, as traders bet that rising price pressures could spur the Federal Reserve to boost interest rates faster than previously forecast. However, softer than forecast retail sales data and an immediate pullback in equities markets sparked concern that the Fed would struggle to raise rates quickly enough to offset inflation pressures. Spot gold was up 1.4% at $1,349.94/oz. U.S. gold futures for April delivery were up 1.68% at $1,352.70. The world's largest gold-backed exchange-traded fund, SPDR Gold Shares, reported an inflow of nearly 3 tons on Tuesday after the biggest weekly drop in holdings since July 30. Gold stocks in Toronto rallied firmly overnight adding 4.39%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Crude climbed the most since December as a recent build-up in U.S. storage tanks and terminals appears to be slowing down. Futures gained 2.4% in New York on Wednesday after a government report showed American oil inventories rose by 1.84 million barrels last week. That was lower than all but two of 11 estimates in a Bloomberg survey, and was also less of an increase than in the previous two weeks. At the nation’s biggest pipeline hub, stockpiles have fallen for eight straight weeks. Typically, U.S. crude stockpiles accrue at this time of year as refiners perform maintenance that takes key equipment offline, depressing demand for oil.
  • Also helping improve the mood after oil lost almost 9% this month through Tuesday were bullish statements from Opec. Secretary General Mohammad Barkindo said at a conference in Riyadh that oil supplies are on the road to coming back into balance with demand. Saudi Arabian Oil Minister Khalid Al-Falih said the volatility in the market is “unfortunate” and that Opec and its partners are trying to stabilize the market. West Texas Intermediate for March delivery added $1.41 to settle at $60.60/barrel on the New York Mercantile Exchange. Total volume traded was about 35% above the 100-day average. Brent for April settlement edged higher by $1.64 to end the session at $64.36/b on the London-based ICE Futures Europe exchange and traded at a $3.85 premium to WTI for the same month. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore futures in China climbed to their strongest in three weeks on Wednesday, supported by expectations for firm steel demand in the world's top consumer in the first half of the year. It marked the second straight session of sharp gains for the steelmaking raw material, with the price movements accompanied by low liquidity as many market players have taken off for the week-long Lunar New Year holiday that starts on Thursday. Spot iron ore was jumped 1.9% or $1.45 closing at $77.01. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • A weaker USD and the risk-on tone in markets generally saw base metals prices rise. Copper posted its biggest three-day gain in more than a year adding 2.5% to settle at $7,163/ton. That takes gains since the start of the week 6%, biggest 3-day gain since November 2016. Nickel made the biggest move, lifting more than 4%. Copper and zinc both posted gains of more than 2%. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Teck Resources, the world's second-biggest exporter of steelmaking coal, said on Wednesday that growing global steel production is expected to boost demand for its coal in 2018, though coal trade competition will also likely rise. Vancouver-based Teck, which also mines copper, zinc, gold and oil sands, said it is "feeling pretty good about 2018" after reporting in-line financial results. Teck on the outlook for coal: "Market expectations are that global steel production and demand for steelmaking coal will continue to increase in 2018. Competition in the steelmaking coal trade is expected to increase in 2018 as Australian exports recover and the ongoing logistics issues are gradually resolved. Coal stocks: WHC, YAL, ATU.
  • Telstra reported 1st half results for FY18 showing increased subscriber numbers on mobile and fixed, a reduction in underlying core fixed costs and progress being made under its strategic investment program. Telstra said its net profit fell 4.9% in the six months ended December 31 to $1.7bn from $1.8bn in the year-earlier period. Earnings before interest, tax, depreciation and amortisation dropped 2.5% to $5.1bn. Total revenue rose 5.9% to $14.51 billion from the year-earlier $13.7bn. The country's biggest telco said it will pay an interim dividend of 11¢ on March 29 to shareholders of record on March 1.
  • S32 delivered a statutory profit after tax of $543mln as stronger commodity prices more than offset lower volumes. Underlying EBITDA US$1.1bn, Operating margin 36%, Net cash $1.4bn, Ordinary div 4.3cps, special div US3.0cps, total dividends $378mln.
  • ASX Ltd, the operator of the Australian Securities Exchange, said its first-half net profit rose 5.1% to $230.5mln. Revenue for the six months ended December 31 climbed 7.8% to $501.5mln. ASX said it will pay a $107.2 interim dividend on March 28 to shareholders of record on March 8.
  • Origin Energy has been dragged into a first-half net loss because of write-downs it flagged last week, while underlying earnings jumped 51%. The net loss for the six months ended December 31 narrowed to $207mln from $1.56bn in the year-earlier period, which had been hit by heavier impairments. Sales rose 19% to $7.49 billion. Origin paid no interim dividend, as in the year earlier, as it focuses on paying down debt. Underlying profit, the benchmark number watched by analysts, rose to $428 million, beating a forecast by Morgan Stanley.
  • Suncorp Group said its interim net profit fell 15.8% to $452 million from $537 million a year ago after taking a hit from the Victorian hail storms and ploughing money into strategic programs like its controversial marketplace strategy. This was slightly above forecasts from Citi analyst who were tipping NPAT to sit at $488 million. Revenue for the six months ended December 31 fell 9.2% to $7.84 billion, the financial group said in a statement to the Australian stock exchange. Suncorp will pay a 33¢ interim dividend on April 5. "The interim dividend reflects the confidence we have in generating strong future returns from the strategic programs being undertaken this year," chairman Ziggy Switkowski said.
  • Evolution Mining (EVN) said its interim net profit fell 10% to $122.52mln from $136.67mln. Australia's second-biggest gold miner by market capitalisation and production said revenue rose 10% in the six months ended December 31 to $782.14mln from $711.15mln. Evolution reduced all in sustaining costs to a record low of $785 an ounce, a decrease of 20% on the previous period despite a four% fall in production to 407,459 ounces. Directors have approved a fully franked dividend of 3.5¢ a share to be paid on March 30 in keeping with company's policy of returning 50% of NPAT to shareholders.
  • Eastern Australia's GrainCorp (GNC) biggest grains handler says net profit will more than halve in fiscal 2018 following a below average harvest. GrainCorp said it expected to posted an underlying net profit of between $50mln to $70mln in the 12 months to September 30. This compares to $142mln in 2017. It expected underlying earnings before interest tax and depreciation of between $240mln to $265mln, down from $390mln in 2017. The profit forecast includes tax benefits from the recent change in the US corporate tax rate, with an $18mln tax benefit in fiscal 2018, GrainCorp said.
  • Ex-dividend: Janus Henderson, Mineral Resources.
  • National Australia Bank (NAB): Is Said to Conduct Review of JBWere: AFR.
  • Rio Tinto (RIO): There’s Value in Rio, Vale on High- Grade Iron Demand: Bernstein.
  • Woodside (WPL): Australia LNG Project Arbitrating Price Dispute With Korea Gas.
Broker upgrades, downgrades
  • Transurban (TCL AU): Upgraded to Buy at Deutsche Bank; PT $A13.25.
  • Reckon (RKN AU): Downgraded to Hold at Wilsons; PT $A1.67.
  • Carbonxt Group (CG1 AU): Rated New Buy at Shaw and Partners; PT $A0.90.
  • Computershare (CPU AU): Downgraded to Neutral at Credit Suisse; PT $A17.60.
  • CSL (CSL AU): Downgraded to Hold at Morgans Financial; PT $A156.
  • Insurance Australia (IAG AU): Upgraded to Buy at Bell Potter; PT $A8.15; Cut to Neutral to Neutral at Credit Suisse; PT $A7.50.
Australian earnings
  • Thursday: ASX, Evolution Mining, Healthscope, IOOF, Newcrest, Sonic, Suncorp, Telstra, Treasury Wine Estates, Vocus.
  • Friday: IAG, Medibank Private, Origin, Primary Healthcare, Whitehaven Coal.
Australian stock to watch: Primary Health Care (PRY)

No stand out technical signals from the chart of Primary Health Care, although it appears to have broken its 2016/17 downtrend as the market awaits their earnings tomorrow.

Sentiment does not look high as analysts expect downside risk to FY18 earnings, the loss of a bowel cancer screening contract, the rollout of medical centres and IT systems to impact profitability. Bloomberg data shows: two buys, two holds & five sells.

Primary Health Care chart
SPDR Junk bond ETF (JNK)

VIX has now dipped below 20 for the first time in almost two weeks as major equity indices resumed ascending. However safe haven Yen and gold (XAUUSD) still attracts buyers while shorts in SPDR Junk bond ETF (JNK) is spiking to highest level 30.66 (% of shares outstanding) since 2010.

A rounding top appears to have been formed during 2017 and this year JNK showed nothing but weakness. So we look to sell on any rallies on JNK.

SPDR Junk bond ETF (JNK) 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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