Article / 06 October 2016 at 23:21 GMT

Today's Trade: S&P/ASX200 slips into the red in early trading

Trading Desk / Saxo Capital Markets
  • Crude has climbed above $50/barrel for the first time since June
  • A US dollar rally has sent gold tumbling below its 200-day moving average
  • Watch for a fall in the fragile AUDUSD if the nonfarm figure is a solid one

By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 slipped into the red in early trading; it was down 0.10% to 5,477.50
    at 1017 AEDT (2317 GMT).
  • Treasuries posted their longest slide since April and the dollar rose on speculation that the Federal Reserve will boost borrowing costs this year. Gold tumbled, while oil rallied.
  • Traders pushed down the value of Treasuries for a fifth day after data showed further strengthening of the U.S. labour market ahead of a key jobs report. The dollar climbed against its major peers, posting the longest advance against the yen since 2014 and spurring a slump in gold. American equities erased a morning slide after a European Central Bank official said the institution is still in an “accommodative mode".

Resources stocks have been propping up the S&P/ASX200, but the gains have been offset by losses from the goldmining and property stocks. Photo: iStock

  • Bond traders increased their bets on higher US interest rates after data showed a drop in filings for unemployment benefits to an almost four-decade low, adding to reports pointing to an improvement in services and manufacturing. While Friday’s jobs figures are forecast to reinforce that picture, investors will keep a close eye on any substantial increase in wages. The reason is -- they’re seen as a leading indicator of inflation, which has already been on the market radar after the recent surge in oil prices.
  • US employers added 172,000 jobs in September, according to estimates in a Bloomberg survey, an increase from a three-month low reached in August. A Bloomberg index tracking economic surprises in the US turned positive yesterday for the first time since August, meaning that more reports are beating forecasts. The market-implied probability of a hike by year-end has risen to 64%, while the chance of an increase in November has climbed to 24% from 17% at the start of this week.
  • Central-bank officials set to speak Friday include Cleveland Fed President Loretta Mester, who said this week that the case for a rate increase would still be “compelling” when the Fed Open Market Committee meets on November 1 to 2. Fed Vice Chairman Stanley Fischer, Governor Lael Brainard and Kansas City Fed President Esther George are scheduled to appear at the Institute of International Finance’s annual meeting in Washington.
  • Ten-year Treasury yields rose four basis points, or 0.04%, to 1.74%. The extra yield investors get for holding two-year notes instead of similar-maturity German or U.K. debt increased to the highest in at least a decade, reflecting the Fed’s status as the only major central bank contemplating a hike this year.
  • A Treasury-market gauge of inflation expectations over the next decade known as the break-even rate rose to 1.66%, the highest since May, according to data compiled by Bloomberg. The Fed targets a 2% inflation rate.
  • The 10-year gilt yield jumped the most in almost a month amid speculation the pound’s tumble to a three-decade low will fuel faster inflation and dissuade the Bank of England from adding to stimulus by cutting interest rates or boosting asset purchases.
  • France’s 50-year securities climbed the most in two weeks after the nation auctioned more of its longest bonds at a record-low average yield of 1.43%. Germany’s benchmark 10-year bund yield was little changed at minus 0.018%.
  • The S&P 500 Index rose 0.1% to 2,160.77, erasing a 0.4% slide. Apple Inc. rose for a third day to boost technology shares and Whole Foods Market Inc. rallied on takeover speculation. Mylan NV sank as drugmakers weighed on the health-care group, with lawmakers continuing to pressure the company over prices for its EpiPen allergy shot. Utilities extended their longest losing streak in 14 years.
  • American stocks fell earlier Thursday as lackluster corporate results damped sentiment before the government’s jobs report Friday and the start of earnings season next week.
  • CBOE Volatility Index fell 1.2 per cent to 12.84, wiping out an earlier 6.5 per cent climb.
  • Speculation about the future of ECB stimulus is creating a rift in the region’s equity market. While lenders posted their biggest three-day gain in a month following a Bloomberg News report that the ECB has had discussions about how to end its asset-purchase program, the Stoxx Europe 600 Index fell for a second day.
  • ECB Vice President Vitor Constancio said in an interview with Market News that the institution is waiting for the consolidation of a sustained path of inflation towards its objective.
  • The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 peers, added 0.4%. The greenback rose 0.5% to 104.01 yen, and advanced to $1.1148 per euro.
  • The pound tumbled against every major currency, setting a new 31-year low versus the dollar, as concerns grew about the impact of Brexit on the U.K. economy.
  • The MSCI index of emerging-market currencies declined 0.1%, dropping for a third day.
  • Oil climbed above $50/barrel for the first time since June as declines in U.S. crude inventories and Opec’s pledge to reduce supply lifted hopes the global glut may clear.
  • West Texas Intermediate for November delivery rose 1.2% to $50.44. It’s the highest close since June 9.
  • The dollar rally sent gold tumbling below its 200-day moving average -- a technical level used by chart watchers to predict future moves. Prices lost at least 7% within about two months on two occasions when the metal fell below the measure in 2014 and 2015.
  • Source: Bloomberg,

Local markets

  • Bank of New York Australia ADR Index -0.3%, BHP Billiton ADR -0.7% to A$23.12 equivalent, in line with last Sydney close, Rio Tinto ADR -1.6% to A$43.74 equivalent, ~16% discount to last Sydney close.
  • Gold futures for December delivery slipped 1.2% to settle at $1,253. The precious metal fell to the lowest in almost four months and breached the critical 200-day moving average after jobless claims in the US dropped to the second-lowest level since 1973, strengthening the case for an increase in interest rates. Canadian gold stocks ended the day 2.34% lower as a rout in goldminers worsened. Silver futures also declined. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • West Texas Intermediate for November delivery rose 61 cents to $50.44/barrel. That’s the highest close since June 9. Total volume traded was 14% above the 100-day average. Brent for December settlement rose 65 cents, or 1.3%, to $52.51/b. That’s the highest close since June 8. The global benchmark crude ended the session at a $1.53 premium to WTI for December delivery. Declines in U.S. crude inventories and OPEC’s pledge to reduce supply lifted hopes the global glut may clear. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore has been subdued by a week-long holiday in China. Traders have said volumes are very low according to the AFR. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper fell for a fourth day in the longest losing slump since August as the dollar rose on prospects for an increase in US interest rates this year. Copper for three-month delivery fell 0.9% to settle at $4,756. Nickel ended 1.7% higher at $US10,255 a tonne, but it has fallen more than 3% this week on receding worries over supplies from the Philippines and expectations of higher supplies from Indonesia. Aluminium ended up 0.1% at $US1677 a tonne and zinc settled 1 per cent lower at $US2320. Lead ended 0.5% higher at $US2054.50. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Beach Energy (BPT): Considering Cooper Basin asset sales: Australian.
  • Downer EDI (DOW): May gain windfall from Ausgrid sale: Australian.
  • Karoon (KAR): In talks with Petrobras on stakes in two oil fields.
  • Macquarie Atlas (MQA): M6 toll bidders in talks with banks to finance offers.
  • National Australia Bank (NAB): Fitch affirms co.’s mortgage covered bonds at AAA.
  • Newcrest (NCM), Evolution (EVN), Northern Star (NST), Saracen (SAR), Regis Resources (RRL), Resolute Mining (RSG), St Barbara (SBM): Gold slumps to 4-mo. low as bears seize control on Fed bet.
  • Worleyparsons (WOR), Oil Search (OSH), Beach Energy (BPT), Karoon (KAR), Origin Energy (ORG), Santos (STO): U.S. oil advances above $50/bbl for first time since June.
Broker upgrades, downgrades

  • Galaxy Resources (GXY): Rated new speculative buy at Bell Potter.
  • Estia Health (EHE): Seven Group (SVW) amassing stake in co.: AFR; Cut to underweight vs equalweight at Morgan Stanley.
  • OZ Minerals (OZL): Raised to buy vs hold at Wilsons.
  • Sims Metal (SGM): Raised to hold vs sell at Deutsche Bank.
  • Woodside (WPL): Cut to hold vs buy at Morningstar.
  • Spark Infrastructure (SKI): Raised to outperform vs sector perform at RBC Capital Markets .
  • Australia (VAH): Fitch upgrades 2013-1 A, B & C notes.

Stock to watch: Tatts Group (TTS)

The gaming group Tatts Group (TTS) is currently trading near $A3.60 where the uptrend (from all time low $A2.08) intersects the neckline of the head and shoulders that formed since end of 2014.

The RSI is also indicating falling momentum as it has been declining during 2015-2016 therefore further weakness is expected towards 3.25-3 if a clear break out below 3.60 is confirmed.

Tatts Group share price trend
Nonfarm payrolls figure impact

Bond yields and US dollar extended its gains to the upside ahead of tonight’s nonfarm payroll figures due for release at 2330 AEST (1230 GMT). The US dollar index (DX) has hit a downtrend (from December 15 high 100.60) while the 10 year bond yield looks to have formed a temporary double top. A disappointing NFP should reverse this week’s price actions, but we also need to focus on the comments from a number of Federal Open Market Committee members after midnight.

The AUDUSD looks weak and it may decline towards the next support levels 0.7522-0.7500 if we see a solid NFP. Gold (XAUUSD) has broken the 200 day moving average and has now touched the interim support level 1,250 which equates to the pre Brexit low and 38.2% retracement between the December 15 low of 1,046 and July 16 high at 1,375. The selling pressure seems strong but we could see a reversal of this week’s weakness tonight depending on the NFP outcome or the FOMC members’ speeches.

AUDUSD trend

XAUUSD trend

Weekly close key for S&P/ASX200 (AUS200)

The price actions of US500 remained cautious and choppy but we are expecting a volatile session tonight.

The S&P/ASX200 (AUS200) trend  is currently benefitting from strong energy stocks, although some of these gains have been offset by losses from the goldmining and property stocks. The key resistance level remains at 5,500. So a weekly close above this level could signal more rally to come.

The S&P/ASX200 (AUS200) trend
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– Edited by Robert Ryan

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

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