Today's Trade: S&P/ASX200 retreats on pessimism in world stockmarkets
- Pessimism in world financial markets has ended the rally for crude oil
- Falling oil prices will weigh on share prices for energy explorers
- Gold prices turned lower on Friday as US Treasury bond yields rose
- AUD slid as political turmoil risked undermining economic confidence
- Iron ore prices rose slightly on strong trader interest in high grade ore
Overnight and early trading
- The S&P/ASX 200 lost ground in early trading; it was down 0.20% to 6,017.60 at 1051 AEST (2351 GMT, on Sunday evening).
- Equities in Asia looked set to fall as the week gets under way, with no sign of the recent surge in volatility subsiding for now.
- Stock-index futures pointed lower in Japan, while Hong Kong and Australia were poised for muted opens. The Aussie dollar slid as fresh political turmoil in Australia risks undermining already fragile economic confidence. Australian bonds tracked the sell-off in the U.S. on Friday. In addition to progress on tax legislation in Congress, American inflation and growth data is one of the final remaining hurdles to clear before the Federal Reserve decides whether to lift rates next month.
- The Dow Jones Industrial Average slipped on Friday, notching its first weekly decline since September.
- Investor concerns about the status of a U.S. tax overhaul weighed on stocks during the week, though Friday’s moves were relatively muted.
- The Dow industrials lost 39.73 points, or 0.2%, to 23422.21 on Friday. The S&P 500 fell 2.32 points, or 0.1%, to 2582.30 and the Nasdaq Composite rose 0.89 point, or less than 0.1%, to 6750.94.
- All three indexes posted weekly declines, though the losses were relatively modest: the Dow’s 0.5% drop was the biggest.
- Solid corporate earnings have helped U.S. stocks rise this year, analysts say, even as the timing and scale of policy changes in Washington have remained uncertain.
- With roughly 91% of S&P 500 companies having reported results, firms are on track to post another quarter of earnings growth, according to FactSet.
- On Friday, shares in energy companies fell with oil prices, pressuring major stock indexes. The S&P 500 energy sector lost 0.8% on the day but notched a weekly gain as U.S. crude oil ended the week at $56.74/barrel—its fifth highest level of the year.
- Consumer-staples shares jumped 1% in the S&P 500, finishing the day as the best-performing sector in the broad index.
- Monster Beverage led gains in the group, rising $2.48, or 4.2%, to $61.16 after Citigroup raised its price target for the stock to $66 a share from $60.
- Other food and beverage companies jumped, with Campbell Soup up 1.78, or 3.9%, to 47.42 and General Mills up 1.50, or 2.9%, to 53.28.
- Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
- Bank of New York Australia ADR Index is down 1.2% to 273.7, BHP Billiton ADRs are down 0.3% to $A27.93 equivalent, a 0.5% discount to last Sydney close, Rio Tinto ADRs are up 0.8% to $A64.62 equivalent, a 11.4% discount to last Sydney close
- Gold prices turned lower on Friday as US Treasury bond yields rose, but losses were limited by weaker stock markets and the dollar, which fell due to uncertainty over US tax reform. Trades that moved about 4 million ounces of gold in a matter of minutes awakened the precious metal from its slumber. After 1110 EST on the Comex in New York almost 40,000 contracts, each representing 100 ounces of the metal, traded in a span of 10 minutes. That triggered a selloff, sending prices down as much as 1.1%. The trades jolted the market, which has seen 60-day historical volatility languishing near the lowest since 2001. Futures for delivery in December settled 1% lower at $1,274.20 an ounce. Gold stocks in Toronto fell on Friday by 1.11%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Crude succumbed to pessimism in financial markets around the world, denting oil’s longest stretch of weekly rallies in more than a year. The arrests of Saudi Arabian royals and investors in an anti-corruption sweep compounded tensions between the world’s largest oil exporter and longtime rival Iran, sending prices to their highest in more than two years. But those gains were eroded Friday as the futures fell 0.8% in New York in the face of a global selloff of stocks and bonds. Crude has surged about 35% since reaching its 2017 nadir in late June amid signs that global supplies have tightened.
- At the end of this month, Opec is expected to extend its output curbs beyond their March expiration to further erode the oversupply that triggered the 3 1/2-year market rout. The Saudi kingdom advised its nationals to leave Lebanon, fueling fears of a confrontation with Iran in a country long known for being a battleground for proxy wars. West Texas Intermediate for December delivery slid 43 cents to settle at $56.74/barrel on the New York Mercantile Exchange, capping the weekly advance at 2%. It was the longest streak of weekly gains since October 2016. Total volume traded was about 14% below the 100-day average. Brent for January settlement dropped 41 cents to end the session at $63.52/b on the London-based ICE Futures Europe exchange. The global benchmark crude was at a premium of $6.54 to January WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
- Iron ore prices rose slightly as traders’ interest in high grade ore remained strong. The iron ore market was also supported by strong gains in the steel futures, which rose between 1-2% as sentiment continued to rise. Data was slightly bearish, with inventories at Chinese ports up slightly last week. According to Steelhome data, they jumped 1.2% w/2 to 137.9m tonnes. Spot iron ore rose 0.4% or $0.28 to close at $62.60. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Base metals were mixed, with nickel once again weighing on the sector. The exuberance generated from LME Week has eroded, with investors locking in gains after a 25% rally over the past couple of months. Zinc prices surged higher as data showed further falls in inventories. Stockpiles on the LME fell 1.3% to 235,225 tonnes, the lowest level since 2008. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- Stocks trading ex-div. ANZ, Westpac.
- BHP Billiton (BHP): As Oil Prices Rise, Global Majors Eyeing Mexico’s Deep Waters.
- Bega Cheese (BGA): Agrees to Buy Australia’s Top Peanut Supplier.
- CBA (CBA): RBS’s Ross McEwan Is Said to Sidestep CBA CEO Race, AFR Reports.
- Macquarie Group (MQG): Aurizon, Macquarie Are Said to Make $A4bn WICET Bid: AFR; Macquarie Interested in Paying $5b For Petrobras Pipeline: Globo.
- Origin Energy (ORG): Australia, Home of Coal, Signals Shift Away From Future Plants.
- Rio Tinto (RIO LN):Reports Market Price for Off-Market Buyback; Begins Restart at Kennecott Smelter After Accident.
- Woodside (WPL): Australia’s North West Shelf LNG Said to Have Outage: Reuters.
- Companies trading below 20/50/200 day moving averages, Bollinger lower band with RSI below 30: NAB.
- BWX (BWX AU): BWX Initiated at Shaw and Partners With Buy; price target $A7.61.
- CC-Amatil (CCL AU): Upgraded to Neutral at JPMorgan; PT $A8.25.
- Integrated Research (IRI AU): Downgraded to Hold at Bell Potter; PT $A4.25.
- Johns Lyng Group (JLG AU): Initiated at Bell Potter With Buy; PT $A1.40.
- Motorcycle Holdings (MTO AU): Cut to Hold at Morgans Financial; PT $A5.41.
- REA Group (REA AU): REA Group Downgraded to Sell at UBS; PT $A68.
- Monday: AGM: Nine Entertainment Co Holdings Ltd, Breville Group Ltd, Medibank Pvt Ltd
- Tuesday: AGM: Computershare Ltd, Abacus Property Group, Estia Health Ltd, Newcrest Mining Ltd. Earnings: Incitec Pivot Ltd.
- Wednesday: AGM: Aveo Group, Pact Group Holdings Ltd, Navitas Ltd. Earnings: AusNet Services, DuluxGroup Ltd.
- Thursday: AGM: Commonwealth Bank of Australia, News Corp, Goodman Group, Mirvac Group, Platinum Asset Management Ltd, Ramsay Health Care Ltd, Seven Group Holdings Ltd, BHP Billiton Ltd, Vicinity Centres, Harvey Norman Holdings Ltd, Northern Star Resources Ltd, Costa Group Holdings Ltd, Wesfarmers Ltd.
- Friday: AGM: ResMed Inc, LendLease Group.
Watch for spike in AUDUSD
We would not be surprised to see a temporary spike above 0.77 in the near term but this would provide oppportunity to sell as we are anticipating further declines eventually.
Fragile uptrend for Whitehaven
The uptrend (from the June low) is expected to maintain its validity, but further downside risk should not be ruled out.
Whitehaven Coal 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.