Article / 10 January 2018 at 0:51 GMT

Today's Trade: S&P/ASX200 slips into the red, despite rally on Wall St

Trading Desk / Saxo Capital Markets
Australia
  • US stocks added to all-time highs before the start of earnings season
  • The S&P500 closed at six consecutive records in its first six sessions in 2018
  • Copper stocks slipped, despite a report showing output fell at top Chilean mines
  • The Stoxx Europe 600 gained 0.4%, in its fifth session of advances
  • USDMXN could have scope for upside moves in the near term

By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 slipped into negative territory in early trading. It was down 0.15% to 6,126.30 at 1148 AEST (0048 GMT).
  • US stocks added to all-time highs before the start of earnings season, while the dollar got a boost from policy steps in Asia that propelled Treasury yields past 2.50% for the first time in nine months.
  • Rising shares of banks and health-care companies pushed the S&P 500 higher Tuesday, giving the broad index its best start to a year in more than half a century.
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Iron ore price rises may be premature, given the scope for volatility in China, the leading steel making market. Photo: Shutterstock

  • Stocks have mostly climbed in the first trading days of 2018, extending last year’s rally. That is leaving investors hard pressed to find clues portending the rally’s end, especially as geopolitical tensions with North Korea appear to be easing and ahead of what analysts expect to be another batch of upbeat quarterly profit results.
  • The S&P 500 has closed at six consecutive records in its first six trading sessions of 2018, the broad index’s best start since 1964.
  • The Dow industrials added 102.80 points, or 0.4%, to 25385.80. The S&P 500 rose 3.58 points, or 0.1%, to 2751.29, while the Nasdaq Composite gained 6.19 points, or 0.1%, to 7163.58. All three indexes closed at new records.
  • Shares of financial firms were among the biggest gainers Tuesday, as the yield on the benchmark US Treasury 10-year note rose for a fourth consecutive trading session to 2.542% from 2.480% on Monday.
  • Higher interest rates typically widen the spread between what banks charge on loans and what they pay on deposits, which should boost their earnings.
  • The KBW Nasdaq Bank index, a measure of 24 of the biggest U.S. bank stocks, added 1.1%.
  • Banks will be among the first companies to report fourth-quarter earnings later this week, and analysts expect many to report higher profits. Financial companies in the S&P 500 are projected to grow earnings by nearly 12% from the year-earlier period, according to FactSet. That is close to the roughly 11% growth projected for all companies in the broad index.
  • Among health-care stocks, Boston Scientific jumped $2.15, or 8.3%, to $27.96 after the medical-technology company released preliminary sales results that show fourth-quarter revenue is expected to rise.
  • Shares of Boeing and Target also contributed to Tuesday’s gains after both companies released some financial results. Boeing rose 8.28, or 2.7%, to 318.43, contributing roughly 57 points to the Dow’s gain after it reported an increase in jetliner deliveries and orders. Shares of Target added 1.96, or 2.9%, to 69.14 after it said holiday sales were strong both in its stores and online.
  • The overall gains are leading a number of investors to abandon defensive positions taken to protect against a downturn as indexes like the Dow industrials and the Nasdaq have reached new milestones in recent weeks. New data indicate that either demand for protection is low or investors are favoring bullish options on the S&P 500 instead.
  • Elsewhere, the Stoxx Europe 600 gained 0.4%, its fifth consecutive session of advances.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
Local markets
  • Bank of New York Australia ADR Index is up 0.3% to 293.0, BHP Billiton ADRs are up 0.9% to $A31.28 equivalent, a 0.7% premium to last Sydney close, Rio Tinto ADRs are up 0.8% to $A71.68 equivalent, a 10.3% discount to last Sydney close
  • Gold fell overnight as a stronger US dollar, record-high equities and higher yields sapped demand. Gold for February delivery dropped 0.5% to settle at $1,313.70/oz on Comex . Gold outperformed most major assets since the Federal Reserve last month raised interest rates -- even bitcoin. Since December 12, the day before the Fed moved, gold climbed 5.7% to $1,314.36/oz, last week touching the highest level in three months. The S&P 500 Index gained 3.1% in the same period and bitcoin was down 14%. Gold stocks mirrored the drop in the physical market, down over 1% in Toronto. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil surged to the highest level since December 2014 as the worldwide glut that triggered the worst market collapse in a generation continued to shrink. West Texas Intermediate for February delivery jumped $1.23 to settle at $62.96/barrel on the New York Mercantile Exchange. Brent for March settlement climbed $1.04 to end the session at $68.82/b on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.95 to March WTI. Oil in New York has traded above $60/b and the international benchmark Brent has held above $66/b since December as Opec and allied suppliers capped output and pledged to do so for the remainder of the year. Yet, higher prices could spur a bounce in US crude output. The Energy Information Administration increased its forecast for US crude output this year to a fresh record-high of 10.27 million barrels a day. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore rose 1% to $78.47 a tonne although iron ore's steep climb to a four-month high so far ahead of the springtime end to Chinese capacity cuts risks disappointing bulls. Record stockpiles of ore at Chinese ports indicate there is already plenty ready for use on the ground and 2017 exports from Australia's Port Hedland underscore how much ore is going to be in the market in 2018. High prices and large physical volumes with a lot of winter left under Chinese steel production capacity curbs means a lot of price volatility. And with questions remaining over how much steel will be needed -- estimates that may be lowered if property investment slows -- the current price run-up could prove premature. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Zinc failed to hold gains after touching the highest in a decade as a stronger dollar eclipsed supply concerns. Supply curbs and sustained demand from top consumer China have reduced stockpiles in London to the lowest since 2008 and in Shanghai to near the smallest since 2009. Zinc fell 1.5% to settle at $3,335 a tonne in London as a stronger dollar put pressure on metals. Prices earlier gained as much as 0.4% to $3,400 a tonne, the best intraday level since August 2007. Orders to withdraw zinc from London Metal Exchange warehouses jumped the most since 2012 on Friday, signaling that inventories will fall further in the coming weeks.
  • Copper slipped 0.3% to settle at $7,102 a ton, even after a report showing output at Chile’s top mines fell in November. Aluminum, lead and tin also decline on the LME, while nickel advanced. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Aurizon (AZJ): May Have Trouble Buying Wiggins Island Coal Terminal After Wesfarmers' Sale of Curragh: AFR.
  • Commonwealth Bank (CBA): May Consider Sale or Outsourcing of General Insurance Operations Later This Year: AFR.
  • Rio Tinto (RIO London): Is Said to Sell French Aluminum Smelter to Gupta: FT.
  • Transurban (TCL): NSW Govt Sees WestConnex Earning A$1b Within Next 10 Years: AFR.
Broker upgrades, downgrades
  • Bluescope (BSL): Downgraded to Neutral at JPMorgan; price target $A16.
  • Domain Holdings Australia (DHG): Rated New Neutral at Credit Suisse.
  • Origin Energy (ORG): Downgraded to Neutral at JPMorgan; PT $A9.65.
  • Platinum Asset (PTM): Raised to Equal-weight at Morgan Stanley.
  • Senex (SXY): Downgraded to Neutral at JPMorgan; Price Target $A0.40.
  • Woodside (WPL): Downgraded to Underweight at JPMorgan; PT $A30; Western Australia Government to Fast Track Browse Pipeline: AFR.
USDMXN shows upside potential

The Mexican peso has been one of the most underperforming EM currencies. Its divergence against the other major basket of emerging market  currencies widened when USDMXN made a breakout of the rounding bottom in mid December last year. Since USDMXN fell short of 20, it has returned to the previous resistance level 19.20 area, which also coincides with 50% retracement (November 17 low 18.45 and December 17 high 19.91).

The last two days of price action are looking like inverted hammer, suggesting potential reversal of the recent weakness. Furthermore, the US dollar seems to have begun recovery, as treasury yield extends gains. So USDMXN could still have scope for upside moves in the near term as long as it trades above 19.20.

USDMXN chart
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Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

For more on forex, click here.

– Edited by Robert Ryan

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets

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