Article / 25 March 2018 at 23:39 GMT

Today's Trade: S&P/ASX200 retreats on trade friction, slide on Wall St

Trading Desk / Saxo Capital Markets
Australia
  • The DJIA fell 5.7% last week, it biggest weekly percentage loss since January 2016
  • Gold soared on Friday as mounting tensions drove up safe-haven demand
  • Shares in the troubled social media giant Facebook have taken a tumble
  • Selling in stocks intensified after Trump decided to slap hefty tariffs on China
  • Crude soared on speculation sanctions will be re-imposed on Opec member Iran

By Saxo Capital Markets Australia

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Overnight and early trading
  • Australia's benchmark S&P/ASX200 was down 0.69% to 5,780.60 at 1036 AEDT (2336 GMT, on Sunday evening).
  • U.S. stocks suffered their worst week in more than two years, signaling mounting investor anxiety over whether factors from restrictive trade policies to rising interest rates could disrupt the nine-year bull market.


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Base metals posted a fifth straight weekly loss as trade friction escalated after Donald Trump, right, decided to slap additional hefty tariffs on imports from China. Photo: Shutterstock


  • The Dow Jones Industrial Average fell more than 1,400 points over five days, a 5.7% decline that marked the blue-chip index’s biggest weekly percentage loss since January 2016. Financial stocks in the S&P 500 dropped 3% Friday, with Bank of America and Morgan Stanley falling nearly 5% apiece. Tech stocks slid nearly as much, with Facebook posting its third-worst weekly fall on record.
  • Larger tech companies and banks had benefited for much of the past year from bets that the global economy would expand while interest rates rose gradually—the so-called Goldilocks scenario for stocks. Enthusiasm for shares of fast-growing companies drove many names in the sectors sharply higher, with Facebook, Apple, Bank of America and Citigroup all surging double-digit percentages last year.
  • Friday’s selling underscored the vulnerability of those bets, which investors had based on a number of assumptions that have come under question in recent weeks. While signs of growth persist, increasingly restrictive trade policies threaten to disrupt a global economic recovery that had helped lift major indexes from New York to Hong Kong to multiyear highs in January. And growing backlash over how technology firms handle their users’ data has driven some of the most popular names in the sector lower.
  • The Dow Jones Industrial Average slid 424.69 points, or 1.8%, to 23533.20 on Friday, deepening its declines for the year and closing at its lowest level since November. The S&P 500 fell 55.43 points, or 2.1%, to 2588.26 and the Nasdaq Composite shed 174.01 points, or 2.4%, to 6992.67.
  • Stocks elsewhere around the world fell broadly, with benchmark indexes in Europe, Japan, Shanghai and Hong Kong each losing more than 3% for the week.
  • The trading week began on downbeat note, as investors—unnerved by reports that a third-party firm had improperly kept Facebook users’ data—dumped some of the best-performing technology shares of the year. Selling in stocks then intensified after the Trump administration said it would impose tariffs on tens of billions of dollars of Chinese imports, on top of levying duties on steel and aluminum imports—raising fears that tighter trade policies could dull economic growth.
  • China’s commerce ministry responded Friday by announcing it would levy tariffs against $3bn worth of U.S. goods, including pork and recycled aluminum.
  • Shares of manufacturers, steelmakers and aluminum producers logged steep weekly losses, as investors shied away from firms whose profits could take a hit if the price of industrial goods rises. Century Aluminum fell 20% for the week, while U.S. Steel lost 15% and heavy-machinery maker Caterpillar lost 7.8%.
  • Bank shares slid as government bonds, which have rallied on the tariff news, strengthened for a second straight week. The recent pullback in bond yields, which fall as prices rise, narrowed the gap between short- and long-dated U.S. Treasury notes—something that tends to hurt lenders’ profits. The KBW Nasdaq Bank Index of large U.S. lenders fell 3.3% for the day, finishing down 8% for the week.
  • The week’s selling came as many investors were grappling with a number of potential threats, including rising interest rates, a possible tightening of regulations for tech giants and data suggesting some slowdown in economic growth in Europe.
  • Business activity in the Eurozone slowed for a second straight month in March, data showed Thursday, and the Citi Economic Surprise Indicator for the eurozone, which measures economic data releases against expectations, has fallen to its most negative level in two years.
  • Adding to the downbeat tone in markets: a selloff in the technology sector, which extended declines Friday as investors worried that backlash over Facebook’s handling of user data could lead to tighter regulations.
  • Facebook shares tumbled again on Friday, posting a 14% weekly decline—its biggest since 2012. Other technology names slipped, with Twitter, Apple and Google parent Alphabet each losing more than 7% for the week.
  • As global stocks tumbled into the weekend, assets that tend to rise with market uncertainty got a bump.
  • Gold contracts for March delivery jumped 2.9% to $1349.30/oz for the week, settling at their highest level in more than a month.
  • The yen, which tends to rise in times of market stress, hit its highest level against the dollar since November 7, 2016, a day before the U.S. presidential election.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
Local markets
  • Bank of New York Australia ADR Index is down 0.9% to 262.8 BHP Billiton ADRs are unchanged at $A28.58 equivalent, a 0.7% discount to last Sydney close, Rio Tinto ADRs are down 0.6% to $A65.54 equivalent, a 10.8% discount to last Sydney close
  • Gold posted its biggest weekly advance in almost two years on Friday as mounting economic and geopolitical tensions fueled demand for the metal as a haven. Gold, which earlier in the week had been struggling to hold on to 2018 gains, was also given a lift when the Federal Reserve stuck to its forecast for three interest-rate increases in 2018, easing concern that a more aggressive stance from policy makers would dim demand for the non-interest-bearing metal. Front-month gold for March delivery added 1.7% to $1,349.30/oz on Comex—its best day since February 14. Prices have stayed between roughly $1,305 and $1,360 this year, swinging based on safe-haven buying, moves in the dollar and worries about higher interest rates. Goldies rallied 3% on Friday in Toronto. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Crude posted its biggest weekly gain since July as the appointment of a hardliner for U.S. national security adviser fueled speculation sanctions on Iran will be re-imposed. Futures in New York climbed 5.7% this week. West Texas Intermediate crude for May delivery rose $1.58 to settle at $65.88/barrel on the New York Mercantile Exchange. Brent for May settlement advanced $1.54 to $70.45/b on the London-based ICE Futures Europe exchange, the highest level since late January. Futures are up 6.4% this week, the biggest weekly gain since July. Crude surpassed $65/b for the first time since early February this week as geopolitical tension adds to signs that Opec and its partners are succeeding in draining a global glut. Crude stockpiles in the U.S. finally ticked below the closely watched five-year average mark for the first time since 2014. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Bulks fell sharply, with steel and iron ore futures under heavy selling as the trade friction continued. Steel rebar futures for May on the Dalian Exchange fell as much as 6.6%, as investors reacted to China’s announcement of reciprocal tariffs on US goods. The bearish mood was helped by data showing that stockpiles of iron ore continue to rise. Inventories held at Chinese ports rose 0.8% to 160.4mt, according to Steelhome data. The most actively traded steel contract on the Shanghai futures market was shut down on Friday after hitting its downward limit of a 7% fall for the day. The Dalian Exchange's key iron ore contract also hit its downward limit on Friday, completing a fourth consecutive week of losses. The prices of most Chinese steel and iron ore futures contracts have now fallen back to levels last seen in mid-2017. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Base metals posted a fifth straight weekly loss in London as the trade friction between the U.S. and China escalated, with nickel bearing heavy losses amid fears the rift will derail global growth and dent usage in China’s steel-making sector. Most metals slumped on the London Metal Exchange after resident Donald Trump ordered tariffs on $50 billion worth of imports from China on Thursday, and Beijing announced retaliatory duties shortly afterward.
  • Copper and aluminum hit fresh three-month lows and mining majors including Glencore Plc and Rio Tinto Group dropped in London. Nickel dropped 1.8% to settle at $12,950 a tonne at 1752 in London, following heavy losses in Chinese steel and iron ore futures. Lead declined 1.1%, while copper fell 0.5%, paring earlier losses after orders to withdraw metal from the LME rose by the most in almost 13 months. Zinc climbed, rebounding from three-month lows struck on Thursday. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Ex-Dividend: Seek, Seven Group.
  • Commonwealth Bank (CBA), Insurance Australia (IAG AU): Insurance Australia Among Cos in Talks With CBA About General Insurance Unit: AFR.
  • Woolworths (WOW): Said to consider petrol station IPO If Trade Sale to BP Doesn’t Proceed: Australian; Goldman, Deutsche Section Heads in Australia Quit, AFR Reports
  • AGL Energy (AGL): Australia Spat Over Coal Power Resumes Amid Worry Over Blackouts.
  • Amcor (AMC): Tech Pack Sues Amcor in New York Over Alusa Sale Breach Claims.
  • Cimic (CIM): Among APAC Stocks That Are Forming Major Technical Chart Patterns.
  • Qantas (QAN): Efficiency Helping Co. Cope With Lower Prices: Australian.
  • South32 (S32): Co., Transnet Sign 10.4b Rand Manganese-Ore Deal: Bus. Day.
  • Sky Network (SKT): CEO John Fellet to Retire Within Next 12 Months.
Broker upgrades, downgrades
  • Cardinal Resources (CDV): Rated New Buy at RFC Ambrian; PT A$0.93
  • Macquarie Atlas (MQA): Rated New Buy at Insight Investment Research  Rawson Oil and Gas (RAW): Rated New Speculative Buy at APP Securities
Telstra hits fresh low

Last Friday, the share price chart for the telco Telstra (TLS) formed a black Marubozu candlestick where the opening price was the high, and the closing prices was the low, as the telco made a fresh six year low at $3.22.

The downward momentum is expected to continue, so we look to sell on any rallies.

Telstra chart1

























Fortescue tests support 


The mining company Fortescue Metals group (FMG) is again testing the key support level at $4.52 which has been acting as a valid support and double bottom since June 2017.

Both iron ore and copper still look weak, but we look to buy near $4.52 with stop below $4.50.

Fortescue chart
2























 
Shanghai Composite under pressure

Island reversal was seen in Shanghai composite index (SHCOMP) as it gapped down more than 3% with one of the highest volume since early February.

The index also appears to have failed below its 200 day moving average around 3,300, so we should see further selling pressure.

Shanghai Composite





















Source: Bloomberg. Create your own charts with SaxoTrader; click here to learn more

– 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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