Article / 11 February 2018 at 23:51 GMT

Today's Trade: S&P/ASX200 retreats, despite positive close on Wall St

Trading Desk / Saxo Capital Markets
Australia
  • Major U.S. indexes ended last week more than 5% lower
  • The firmer USD and worries about rising global interest rates weighed on gold
  • Equities volatility and shale oil boom concerns dragged crude sharply lower
  • Copper and other metals fell as hopes of surging US GDP growth retreated
  • A jump in inventories of the red metal also weighed on prices

Overnight and early trading
  • The S&P/ASX200 retreated in early trading; it had lost 0.59% to 5,815.10 by 1050 AEDT, (2350 GMT, on Sunday evening)
  • U.S. stocks closed their most turbulent week in years with a sharp swing higher, temporarily stemming the bleeding in the market but doing little to quell investors’ fears of a prolonged downturn ahead.
  • Major U.S. indices ended the week more than 5% lower, their worst loss in more than two years. Investors described the volatility as a shock after more than a year of tranquility in markets.
  • The Dow Jones Industrial Average—which rallied 330 points, or 1.4% Friday—had swung at least 1,000 points in all but one day this week and changed direction a total of 53 times.


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 Worries about economy in China, above, were a clear driver for market instability in early 2016, but this time there is no obvious cause for frequent swings in stock prices. Photo: Shutterstock

  • After dropping more than 3% on Monday and Thursday, the Dow and S&P 500 entered correction territory—a fall of more than 10% from their highs of two weeks ago.
  • The week’s turbulence was especially unsettling given that there was no obvious cause for the frequent lurches. Even the traditional relationship between stocks and bonds, where investors seek a safe haven in times of trouble, materialized on some days but was absent on others.
  • That was a sharp contrast with the last notable bout of market instability, in January and February 2016, when investors were able to point to a crash in the price of oil and fears about the Chinese economy.
  • Adding to investors’ anxiety, the current upheaval follows a placid time in markets for most of 2017 and early 2018. Stocks for the most part steadily marched higher in a quiet market.
  • It was so quiet, that many investors said they wished for a stock-market swoon that would offer the opportunity to buy more shares at lower prices. Now, with that opportunity at hand, many would-be opportunists stayed on the sidelines this week or headed for the exits.
  • Investors, for example, withdrew a record $30.6 billion from EPFR-tracked equity funds in the first week of February.
  • Stash, an app that enables individuals to start buying shares of exchange-traded funds with as little as $5, sent a push alert earlier this week to users’ cellphones warning them that while markets go down, “it’s never a reason to panic.”
  • The Dow’s 5.2% drop for the week marked its steepest decline since the week ended Jan. 8, 2016. The index lost 1,330 points for the week and is trading near late November’s levels. The S&P 500 and Nasdaq Composite also suffered their worst weeks since January 2016 and February 2016, respectively.
  • In Friday’s action, the S&P 500 rose 38.55 points, or 1.5%, to 2619.55, and the Nasdaq Composite added 97.33 points, or 1.4%, to 6874.49.
  • Trading volume for the week was the highest since August 2011 when Standard & Poor’s stripped the U.S. of its triple-A credit rating during the debt-ceiling crisis.
  • For the second straight session, stocks made their biggest moves in the final half-hour of the trading day, a sign of traders’ lack of conviction as to where stocks are headed. The Dow dropped more than 400 points in the last 30 minutes of Thursday’s session and added nearly 230 points over the same period Friday.
  • The swift selloff highlights the precariousness of stock markets in recent months, as many investors made big bets on low inflation and assumed solid corporate profits could keep shares afloat, even as stock prices were historically expensive.
  • Late last week, signs of increasing inflation sparked the beginning of stocks’ tumble. The turmoil caught some investors off guard after Wall Street’s fear gauge doubled at the beginning of the week, clobbering exchange-traded products that investors had used to bet on the continued stability of stock prices.
  • On Monday, the Cboe Volatility Index dropped sharply, spreading pain to investors who bought products betting against stock-market swings. Mr. Bernstein said he expects investors who made similar bets on a lack of volatility and inflation to also be hurt in coming weeks.
  • This recent selloff has been broad-based across equity sectors and regions, sending indexes in Europe and Asia into correction territory, as well.
  • The Stoxx Europe 600 fell 1.4% Friday, ending the week down 5% at its lowest close since August. Benchmarks in Japan, Hong Kong and Shanghai were off 2% to 4% on the day and roughly 8% to 10% on the week.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC

International earnings

  • Monday: CNA Financial, Loews, Diamond Offshore, Brighthouse Financial, Vornado Realty, Dun and Bradstreet, Boardwalk Pipeline, Molina Healthcare.
  • Tuesday: PepsiCo, Under Armour, Generac, Baidu, Blue Apron, Martin Marietta Materials, MetLife, Occidental Petroleum, AllianceBernstein, Tanger Factory Outlet, Twilio, Fossil, Dana Holding.
  • Wednesday: Cisco Systems, Applied Materials, Credit Suisse, Dr. Pepper Snapple, Groupon, TripAdvisor, Marriott, Cedar Fair, Wyndham Worldwide, Agilent, NetApp, Kinross Gold, SunPower, Williams Cos, Waste Connections.
  • 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 0.7% to 296.3, BHP Billiton ADRs are up 0.6% to $A30.68 equivalent, a 0.1% discount to last Sydney close, Rio Tinto ADRs are up 0.6% to $A70.28 equivalent, a 9.6% discount to last Sydney close
  • Gold held steady on Friday amid mixed equity markets, but a firmer dollar and worries about rising global interest rates weighed on prices. Spot gold was mostly unchanged at $1,319/oz. Prices touched their lowest since January 4 at $1,306.81 on Thursday. Spot gold was down 1% for the week and headed for its second straight weekly drop due to a recovery in the dollar. U.S. gold futures were down 0.39% at $1,313.90/oz. Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.07% to 826.31 tonnes on Thursday from Wednesday. Holdings fell over the last three sessions, and have declined 1.7% so far this week, the worst since the week ended July 30, 2017. Gold stocks in Toronto fell sharply on Friday losing 2.30%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • The last time oil had such a bad week two years ago, the commodity was trading near a $26 bottom. On Friday alone futures in New York lost almost $2, settling below $60/barrel for the first time this year as the unraveling of global equity markets added to concerns that a new shale boom is in the making. American crude output is soaring so fast that the U.S. is on the verge of elbowing Saudi Arabia and Russia aside as the top supplier, gushing more than 10 million barrels a day. Crude had been on a steady rally since June as Opec and Russia curtailed output to prop up prices, while American stockpiles shrank. But with some prime shale areas delivering profits with oil at $50 or even less, the U.S. is producing the most crude since the 1970s. Traders who try to divine market momentum from technical signals were closely watching New York crude’s 50-day moving average during the session, with West Texas Intermediate closing below the key level. A settlement below that mark for several days in a row would be regarded as a bearish indicator. WTI for March delivery slid $1.95 to settle at $59.20/barrel on the New York Mercantile Exchange, the lowest since December 22. For the week, futures declined 9.6%, the most since January 2016. Brent for April settlement declined $2.02 to end the session at $62.79 on the London-based ICE Futures Europe exchange. The global benchmark settled at a $3.80 premium to April WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • The losses in the bulks sector were less severe, with Chinese iron ore futures down only 1%. Nevertheless it managed to end the week higher, as traders looking to restock ahead of this week’s Spring Festival holidays remained active. However, with liquidity likely to be limited this week, and steel futures also ending the week lower, the likelihood of iron ore futures falling sharply this week are high. Spot iron ore was down 0.1% or $0.06 closing at $75.58. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper fell on Friday and other metals broadly retreated as the prospect of a faster pace of US interest rate increases dented hopes that surging economic growth would drive up demand. Consequent selling of cyclical assets sent copper to an eight-week low at $6,750 and put it on track to fall 4.1% this week, potentially its largest weekly drop since 2016. A jump in inventories of the red metal, chiefly used in construction, also weighed on prices. Three-month copper on the LME ended down 1.3% at $US6755 a tonne. Copper stocks in LME-registered warehouses rose 20,125 tonnes or 6%, data showed on Friday, and are up by two-thirds in the last three weeks. On-warrant stocks - those not earmarked for delivery - have almost doubled in the same period to their highest since September 2016. Aluminium slid 2.2% to end at a seven-week low of $2123 a tonne. Lead fell 1.1% to $2534 a tonne, with traders cashing in gains after its recent rally to 6-1/2 year highs. Lead, the biggest loser among the major industrial metals, has fallen 7% this week. The Shanghai Futures Exchange said it will quintuple the intraday transaction fee on its nickel futures contract for May delivery with effect from Monday. Nickel fell 1.2% to $US12,970 a tonne, while zinc slipped 1.1% to $US3385 and tin lost 1.4% to $21,025. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • REA Group reported revenue for the first half of $A406.8 million. H1 net income $A132.5 million, H1 interim dividend per share $A0.47. Expects normal seasonality of revenue in Australia, which results in higher H1 vs H2. New project start declines seen continuing, impacting developer unit growth. Expects revenuse growth to exceed cost growth in FY18, although not in Q3. Sees lower EBITDA growth rate in Q3 on expense timing, EasterAmcor reported net income for the first half of $329.7 million. H1 revenue $4.50 billion, H1 interim dividend per share 21.0c. Amcor sees modest PBIT growth in flexibles segment in FY18. Sees FY18 rigid plastics PBIT broadly in line with a year ago and sees FY18 free cash flow at $150mln-$250mln. H1 interim dividend 21c. Ansell reported net income for the first half of $428.2 million. H1 revenue $766.4 mln. Organic revenue growth up 4.5%, reported revenue from continuing operations up 8.8%. Adjusted EBIT up 3% (2% lower in constant currency). EBIT Growth moderated by $17m impact from high raw materials, Operating cash flow lower given timing of Sexual Wellness divestment. 15th year of dividend increases.
  • Aurizon reported this morning H1 underlying EBIT A$485.3mln, down 5%. Coal demand has improved but competition is impacting contract prices. Intermodal business was closed December, $A380mln three-year transformation on track; $A300mln share buyback 75% done, to be completed by June, H1 underlying net. profit $A281.5mln vs $A295m a year ago. Interim dividend $A0.14; Free cash flow to $A345mln from A$387mln a yearr ago reflecting one off proceeds from Morebank sale in 1H17.
  • Bendigo & Adelaide Bank (BEN) reported First-half cash profit $A225.3m; Adj. net income est. $A227m (3 analysts, range $A224mln-$A229mln). Cash EPS $A0.468; est. $A0.553 (4 analysts. Stat. profit $A231.7m, up 11% y/y. Income from ops $A842.9mln; est. $A812.5mln (4 analysts). Interim div. $A0.35; NIM after profit share arrangements 1.98% vs 1.83% year ago; NIM pre-profit share 2.36%, up 18bps on repricing in lending and deposits vs target ~2.34%. Bad debts up 16% on provisions for commercial exposures; Impaired assets down 4%. Cost-to-income ratio 54.2% vs 56.4% year ago. CET1 ratio 8.61%, +64 basis points since the end of December.; Total capital 12.98% vs 12.2% at end December.
  • AMA Group (AMA): Blackstone Readies $530mln Bid for AMA Vehicle Panels Unit: AFR.
  • AMP (AMP): China Life Is Said in Talks to Buy AMP Life Assets: Australian.
  • ANZ Bank (ANZ), Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac (WBC): Bank Misconduct Comes Under Scrutiny as Australia Inquiry Starts.
  • BHP (BHP): Escondida Workers Optimistic on Setting Up New Union.
  • Baby Bunting (BBN): Non-Deal Roadshow Scheduled By Morgans for February 19.
  • GetSwift (GSW): Statements Should Have Included Trial Disclaimer.
  • IPH (IPH): Non-Deal Roadshow Scheduled By Morgans for February 19.
  • NextDC (NXT): Temasek May Be Among Potential Bidders For NextDC: Australian.
  • Rio Tinto (RIO): Rio Tinto Is Said to Consider Pacific Aluminium Unit IPO: AFR.
Broker upgrades, downgrades
  • Regis Resources (RRL): Cut to Accumulate at Hartleys Ltd; price target $A4.17.
  • OceanaGold (OGC): Cut to Hold at Global Mining Research Pty; PT $A3.40.
  • Capilano (CZZ): Downgraded to Hold at Morgans Financial; PT $A18.28.
Australian corporate releases due out this week

  • Monday: Ansell, Aurizon, Bendigo and Adelaide Bank, JB Hi Fi.
  • Tuesday: Boral, Challenger, Cochlear.
  • Wednesday: Aveo, Computershare, CSL, Domino's Pizza, Dexus, Goodman Group, Orora, Woodside.
  • 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: Domino's Pizza (DMP)

Since Domino's Pizza (DMP) lost 50% from all time high top at $80.69, it  has been going through a consolidation phase. The long term uptrend still remains valid but the key resistance level at $50 needs to be broken to see a further recovery to the top side.

Last week DMP saw bullish price action with outside reversal candlesticks, and we are yet to witness a weekly close below $45 for seven consecutive weeks. We look to add bullish exposure on DMP heading into its reporting this Thursday and buy the technical breakout above $50.

Dominos Pizza (DMP) chart
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SPI futures

SPI futures remain well intact within the channel, which started in 2016. We saw prices being supported at the lower channel trendline last week.

A break and two settlements below the support trendline would confirm deeper selling ahead. However till then we expect the S&P/ASX200 to be supported.

SPI futures
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Upbeat on AUDUSD

AUDUSD failed its 50% retracement mark. But it nevertheless found support above the 200 day moving average, which hovers just above the 61.8% retracement level.

The reversal on Friday lends a positive impetus in the short term. So we start the week with a short term positive on the AUDUSD with any long positions to target the 0.79 handle in the near term.
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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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