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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 / 21 March 2018 at 23:24 GMT

Today's Trade: S&P/ASX200 retreats after slide on Wall St

Trading Desk / Saxo Capital Markets
Australia
  • Wall St erased its gains after the Fed raised rates and reiterated its hike plans
  • The US dollar took a tumble; Gold soared on USD selloff
  • The White House will announce new punitive trade steps aimed at China tomorrow
  • Trade war fears have made some money managers anxious
  • Copper, zinc and aluminium rebounded from three-month lows on Wednesday
By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 retreated at the open; it was down 0.57% to 5,916.50 at 1020 AEDT · (2320 GMT, on Wednesday evening).
  • Asian stocks headed for a mixed start to Thursday trading as they assessed the implications of the Federal Reserve’s policy decision. The dollar declined and U.S. stocks ended down after a choppy session.
  • Futures pointed to losses for equity indexes in Japan and Australia, while Hong Kong contracts rose.

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Frustrating talkfest ... finance ministers from the G20 nations failed to reach a fresh deal on trade at their meeting in Buenos Aires this week, a sign of ongoing trade war anxiety. Photo: Shutterstock.

  • U.S. stocks erased gains and closed lower on Wednesday after the Federal Reserve raised interest rates and reiterated plans for two more increases this year.
  • Worries that a pickup in inflation could lead to a quicker-than-anticipated pace of rate increases contributed to last month’s stock-market correction. Some investors had feared the Fed would raise rates four times in 2018, but the central bank reiterated Wednesday plans for three total this year. Still, more officials now think four increases might be necessary, and the Fed also marked up slightly the estimate of interest rates it expects to prevail over the long run.
  • The Dow Jones Industrial Average closed down 44.96 points, or 0.2%, at 24682.31, after earlier rising as much as 250 points immediately following the Fed decision. The S&P 500 declined 5.01 points, or 0.2%, to 2711.93, while the Nasdaq Composite fell 19.02 points, or 0.3%, to 7345.29. All three indexes swung between gains and losses for the second straight session following sharp declines to start the week.
  • The yield on the benchmark 10-year U.S. Treasury note climbed to 2.901% from 2.881% Tuesday. Bond yields rise as prices fall. The WSJ Dollar Index, which tracks the U.S. currency against a basket of 16 others, declined 0.8%.
  • Stocks rose earlier in the session after U.S. trade representative Robert Lighthizer told lawmakers that several key U.S. allies and trading partners won’t face steel and aluminum tariffs until negotiations on possible exemptions wrap up next month.
  • Worries that protectionist trade policies could spread following the imposition of U.S. tariffs that is expected to take effect on Friday and crimp global economic growth have made some money managers anxious in recent weeks. The White House is expected to announce a new raft of punitive measures aimed at China, including levies worth at least $30 billion.
  • Finance ministers from the Group of 20 countries failed to reach a fresh agreement on trade at a meeting this week in Buenos Aires, a sign that the U.S. and other countries remain split on the matter.
  • Energy stocks surged alongside oil prices Wednesday after a weekly report showed U.S. inventories surprisingly decreased during the week ended March 16. The S&P 500 energy sector climbed 2.6%, its best day since November 2016. A rise in metals prices boosted materials stocks, which added 1.1%.
  • Airline stocks were among the worst performers following a downbeat revenue forecast from Southwest Airlines, which slid $2.91, or 4.8%, to $57.78. American Airlines Group dropped 1.23, or 2.2%, to 54.09, and Delta Air Lines fell 55 cents, or 1%, to 55.95.
  • General Mills dropped 4.42, or 8.9%, to 45.51 after it said higher food and shipping costs hurt profitability in the latest quarter and will weigh on the food maker’s earnings for the year.
  • Elsewhere, the Stoxx Europe 600 fell 0.2%, with the index’s banking sector among the worst performers.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC

Local markets

  • BHP Billiton ADRs are up 2.6% to $A29.49 equivalent, a 2.0% premium to last Sydney close, Rio Tinto ADRs are up 3.0% to $A68.56 equivalent, a 8.9% discount to its last Sydney close.
  • Gold prices rose on Wednesday after the Federal Reserve approved a widely expected raise in interest rates. While baseline forecasts of three more rate hikes this year were unchanged, the Fed hinted that the path of rate hikes could be more aggressive in the following two years. Spot gold soared 1.28% at $1,327.64/oz, having dropped as low as $1,306.91 in the previous session. U.S. gold futures for April delivery shot up 1.17% to $1,327. Spot gold was up 0.89% in the Wednesday session shortly before the Fed announced its decision. Gold stocks in Toronto added 1.49% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil climbed to the highest level in six weeks after crude inventories in the world’s biggest economy dropped for the first time in a month, catching traders off guard. Futures jumped 2.6% on Wednesday in New York. Refiners and brokers pulled more than 2.6 million barrels of crude from American storage facilities last week, confounding more than 80% of analysts in a Bloomberg survey who were expecting an increase. The withdrawal occurred amid speculation the U.S. may intensify sanctions against Iran, OPEC’s third-largest supplier. West Texas Intermediate crude for May delivery advanced $1.63 to settle at $65.17/barrel on the New York Mercantile Exchange, the highest level since February 2. The rally followed a 2.2% increase on Tuesday. Brent for May settlement jumped $2.05 to end the session at $69.47/b on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $4.30 premium to West Texas Intermediate. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Bulk commodities were mixed, with iron ore futures showing signs of stabilisation. Prices on the Dalian Exchange rose slightly, while on the Singapore Exchange they remained under pressure. The divergence is highlighting the confusion in the market, with trade issues and high inventories making the outlook rather uncertain. Spot iron ore was flat closing at $70.49. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper, zinc and aluminium rebounded from three-month lows on Wednesday as a sharp rise in oil prices, a firmer tone to equities and a retreat in the US dollar buoyed metals prices ahead of the policy statement from the Federal Reserve. Three-month copper on the London Metal Exchange closed at $US6793 a tonne, up 0.6%. Earlier it touched a three-month low of $6702. Copper stocks: OZL, SFR.
  • LME aluminium slid to its lowest since mid-December at $US2062.50 a tonne before recovering to end the day at $2,081 a tonne, up 0.2%. Global primary aluminium output excluding China dipped to 2.009 million tonnes in February from a revised 2.221 million tonnes in January, International Aluminium Institute (IAI) data showed on Tuesday. LME zinc ended at $3,249 a tonne, up 1.4% and off an earlier three-month low of $3,183, while lead closed 2.1% higher at $2,400 a tonne. Aluminium stock: AWC.
  • Nickel finished up 0.1% at $13,460 a tonne, and tin ended up 1.6% at $21,000. In company news, Louis Dreyfus suspended dividend payments to its family owners in 2017 for the first time in at least a decade as the storied food commodities merchant suffered another year of tepid profit. Dreyfus, one of the world's top four agricultural traders, said net income rose 4% to $317 mln last year, largely supported by a record year in metals. But excluding the metals unit - which it agreed to sell in December - net profit at the core agriculture business fell 16% to $US224 million. Nickel stocks: IGO, WSA.
  • Ex-Dividend: Altium, Bingo Industries, Bluescope, Bravura, Capitol Health, McPherson’s, Southern Cross Media.
  • Adairs (ADH): Non-Deal Roadshow Scheduled By Morgans for March 9.
  • BHP (BHP): Bernstein Boosts Top Iron Miners’ Export Estimates. After ‘Busy Week’.
  • Bluescope Steel (BSL): Among Asian Stocks That May Move After U.S. President Donald Trump Said He Will Impose Tariffs on Steel and Aluminum Imports.
  • Cimic (CIM): CIMIC Is Said to Join Bid With IFM for WestConnex: Australian.
  • Commonwealth Bank (CBA): Priced: EU500m FRN 5Y 3mE +25; Names KPMG to Begin Separating Colonial First State Global Asset Management Accounts Ahead of Planned IPO: Australian.
  • Macquarie Group (MQG): Is Said to Target Infrastructure Fund in China Push.
  • Viralytics (VLA): Merck Turns to Tumor-Killing Viruses in Immune Cancer Treatment.
Broker upgrades, downgrades
  • Capricorn Metals (CMM): Capricorn Metals Rated New Speculative Buy at Canaccord

XAUUSD soars on USD selloff

Gold (XAUUSD) shot up on the back of the broad based US dollar selloff. In 2018, XAUUSD has failed to display both weekly and daily close below support level 1,310. We now look to build long positions on any pull back based on the recent resilience from the price actions perspective.

XAUUSD chart
1
 
London-listed BHP looks promising

Earlier this week, BHP (BLT) looked weak breaking below 1,400 and 200 day moving average. But Tuesday’s price action look much more promising as the stock appears to have formed a bullish Harami where  positive candlestick is completely engulfed by the previous day’s heavy selloff.

The 200 day moving average intersects the long term uptrend (from 2016), and this intersection is the key support area that needs to hold to maintain the bullish bias on BLT.

London-listed BHP charts
2
 
 
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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

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