Article / 20 February 2018 at 23:43 GMT

Today's Trade: S&P/ASX200 slips into the red as Wall St rally winds up

Trading Desk / Saxo Capital Markets
Australia
  • The six-day long rally in US stocks came to an end
  • A sharp fall for Wal-Mart Inc. weighed on major indexes
  • Gold prices were weighed down by a stronger US dollar
  • But geopolitical worries, uncertainty about US bond auctions supported gold

Overnight and early trading


  • The S&P/ASX200 slipped into negative territory at the open, before promptly recovering most of its slide. The benchmark index was down by a thin 0.074% to 5,936.50 at 1039 AEDT (2339 GMT, on Tuesday evening).
  • US stocks halted a six-day rally as disappointing results from Wal-Mart Inc. weighed on major indexes as the dollar pushed higher. Treasuries fell amid a heavy slate of U.S. debt issuance, with short-end auctions drawing some of the highest yields in almost a decade.
  • The S&P 500 Index slipped below its average price for the past 50 days. Walmart sank the most since 1988, while a rally in chipmakers boosted the Nasdaq 100 Index. The Treasury’s auctions of two-year notes and three- and six-month bills went off at rates unseen since 2008, while the 10-year rate was up to 2.89%. The greenback gained versus major peers.


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Bright outlook ... the worldwide crude glut that has dogged major producers such as Saudi Arabia and Nigeria appears to be fading faster than anticipated. Photo: Shutterstock


  • Shares in Wal-Mart tumbled 10% after the retailer reported slowing online sales growth, indicating the difficulty it is facing in fending off competition from Amazon.com. That drop, Walmart’s biggest tumble in 30 years, took roughly 73 points off the Dow industrials and contributed to a 2.3% decline among shares of consumer-staple stocks in the S&P 500.
  • The Dow Jones fell 255 points, or 1%, to 24965, while the S&P 500 declined 0.6%. The Nasdaq Composite edged less than 0.1% lower.
  • Gap also weighed on the S&P 500, with shares down 5% after the company said it would replace the president and chief executive of its flagship Gap brand as it looks to boost sales.
  • Other retailers that traded lower included Target, which fell 3%, and Macy’s, off 2.3%.
  • Telecommunications companies also contributed to Tuesday’s drop after a federal judge ruled AT&T isn’t entitled to details of the Trump administration's internal discussions on the proposed merger with Time Warner. Shares of AT&T fell 1%, while Verizon Comunications shed 2.5%.
  • Despite Tuesday’s struggles, stocks had kicked off the week on firmer footing after having recovered much of the value shed earlier this month, as companies have reported mostly upbeat earnings and boosted expectations for the remainder of the year.
  • About three-quarters of S&P 500 companies that reported earnings through Friday exceeded profit and sales expectations, according to S&P Dow Jones Indices. And more than a fifth of the broad index has issued positive earnings guidance for 2018, according to FactSet, the highest number since the data provider began tracking guidance in 2007.
  • That helped the Dow recover around half of its more than 10% decline from its January peak. Still, investors are reacquainting themselves with a market force that was absent for much of last year: volatility.
  • Rising inflation in the U.S. has prompted investors to second-guess central bank guidance amid speculation that those institutions will speed up the wind-down of easy-money policies that helped fuel the stock market’s climb in recent years, said Larry Hatheway, chief economist at GAM Investments.
  • Elsewhere, the Stoxx Europe 600 added 0.6%. Japan’s Nikkei 225 closed down 1%, giving up some of its early-week rise due to weakness in its electronics and banking sectors.
  • With Chinese and Taiwanese markets still closed for the Lunar New Year holiday, the Hang Seng Index closed down 0.8% in its first full day of trading, while South Korea’s Kospi fell 1.1%.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC

International earnings
  • Thursday: Barclays, Axa, HP, Wayfair, First Solar, Intuit, Bloomin' Brands, Newmont Mining, Apache, Red Robin Gourmet Burgers, Hormel Foods, Chesapeake Energy, Solar Capital, Universal Forest Products, Wingstop
  • Friday: Royal Bank of Canada, Berkshire Hathaway, Cinemark, Public Service
Local markets
  • Bank of New York Australia ADR Index is down 2.2% to 280.6, BHP Billiton ADRs are down 4.0% to $A29.66 equivalent, a 5.3% discount to last Sydney close, Rio Tinto ADRs are down 2.7% to $A71.42 equivalent, a 12.5% discount to last Sydney close.
  • Gold prices were weighed down by a stronger dollar on Tuesday, dropping for the third session, but were underpinned by geopolitical worries and uncertainty about this week's huge US bond auctions. The US dollar continued its rebound from three-year lows as investors believed the currency was due an upward correction after a brutal selloff in recent weeks. A buoyant dollar makes commodities priced in the greenback more expensive for buyers using other currencies. Spot gold sunk 1.23% at $1,329.76 an ounce. U.S. gold futures for April delivery shed 1.8% to $1,331.80/oz, posting their biggest one-day percentage fall since November 2017. Gold investors will also be eyeing the release on Wednesday of the minutes of the Federal Reserve's January 30 to 31 policy meeting. Gold stocks in Toronto fell by 2.37% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Crude in New York rose to a two-week high amid signs of expanding worldwide demand for the growing abundance of U.S. oil. The U.S. benchmark settled 0.4% higher on Tuesday in New York. American crude exports have increased in four of the past five weeks, drawing supplies away from the key storage hub in Cushing, Oklahoma, to coastal shipping terminals. The worldwide glut that’s dogged major producers such as Saudi Arabia and Nigeria appears to be fading faster than anticipated. Crude is holding above $60/barrel in New York, though futures are trading below last month’s highs. As Opec and allied producers have succeeded in whittling away most of the glut that triggered the worst market collapse in decades, American explorers have been shipping more crude overseas as they pump oil at record rates. West Texas Intermediate for March delivery, which expired at Tuesday’s close, gained 22 cents to settle at $61.90/b on the New York Mercantile Exchange. The more active April contract traded at $61.79. Brent for April settlement dropped 42 cents to $65.25/b on the London-based ICE Futures Europe exchange. The global benchmark traded at a $3.46 premium to April WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore seems to be bucking the falling trend of most commodities, thanks to China, the world’s largest consumer. Benchmark Australian spot prices for iron ore are near $80 per ton, a 30% rise versus late October. So far this month, prices are up 6%. Spot iron ore added 0.1% or $0.11 closing at $77.46 overnight. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Base metals were lower, with nickel losing the most ground. Nickel stocks: IGO, WSA.
  • Benchmark copper on the London Metal Exchange closed down 0.4% at $7090 a tonne, remaining close to the four-year high of 7312.50 reached last month. Copper stockpiles in LME-registered warehouses have risen to almost 340,000 tonnes from 200,000 tonnes in early January, suggesting plentiful supply. Copper stocks: OZL, SFR.
  • Aluminium finished 1.3% lower at $US2186 a tonne, holding close to a six-year high of $2290.50 touched in January. The premium for cash aluminium over the three-month contract fell to $31 after touching $50, the highest since 2007; Aluminium stock: AWC.
  • Ex-Dividend: AMP, Star Entertainment, Suncorp.
  • 3P Learning (3PL): Non-Deal Roadshow Scheduled By Morgans for February 21.
  • BHP (BHP): BHP CEO Will Meet With Activist Elliott to Discuss Demands.
  • BluGlass (BLG AU): Non-Deal Roadshow Scheduled By Stifel for February 27.
  • Credit Corp (CCP): Is Said to Consider Takeover Offer for Nimble: AFR.
  • Emeco Holdings (EHL): Non-Deal Roadshow Set By Morgans for February 28.
  • Independence Group (IGO): First Half Net Income $A3.16 mln.
  • Megaport (MP1): Non-Deal Roadshow Scheduled By Morgans for February 28.
  • Seven Group (SVW): Raised FY18 Guidance on WesTrac, Coates Momentum.
  • Wellcom (WLL): Non-Deal Roadshow Scheduled By Morgans for February 21.
Broker upgrades, downgrades
  • APN Outdoor (APO): Upgraded to Outperform at Credit Suisse; price target $A5.05.
  • Blue Sky Alt (BLA): Downgraded to Hold at Shaw and Partners; PT $A14.20.
  • Oil Search (OSH): Asian LNG Demand Very Strong Over Last Year; Reinstated at Goldman With Buy.
  • Super Retail (SUL): Upgraded to Neutral at Credit Suisse; PT $A7.07; Downgraded to Hold at Bell Potter; PT A$7.35; Cut to Equal-weight at Morgan Stanley; PT $A7.
  • Virtus Health (VRT): Downgraded to Hold at Morgans Financial; PT $A5.47.
  • Over the Wire (OTW): Upgraded to Buy at Bell Potter; PT $A3.50 .
  • Rio Tinto (RIO LN): Downgraded to Neutral at BofAML.
Australian corporate news releases due this week
  • Thursday: Alumina, Aristocrat, Asaleo Care, Charter Hall, Crown Resorts, Link, Nine Entertainment, Oz Minerals, Perpetual, Platinum, Qantas, Qube.
  • Friday: Oceana Gold, Southern Cross Media, Woolworths.

Potential bearish reversal for WTI

The speculative positioning of COT reported that crude oil prices (CL) continued to remain net long, despite trimming some of the bullish bets last week. Recent recovery of CL seems to be slowing down as a Gravestone Doji candlestick appears to have formed with same open, low and close near $61.50/b. Usually this price action indicates potential bearish reversal thus we look to get short with stop above last night’s intraday high at $62.64/b.

The next support zone should be $58/b-$58.50/b which was previous resistance level during November-December 2017. Despite gradual rise in US oil rig count, inventory data still look unimpressive while we continue to witness a backward movement curve.

WTI 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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