Today's Trade: S&P/ASX200 soars, thanks to Wall St and commodities
- Gold held steady on Tuesday, after hitting a high in the previous session
- Benchmark copper soared 3.3% higher on the London Metal Exchange
- The higher copper prices will give the S&P/ASX200 a lift
- Oil rose above $48/barrel for the first time since early June
- Brent closed above $50/b on the ICE Futures Europe for the first time since June
By Saxo Capital Markets Australia
Overnight and early trading
- The S&P/ASX200 was up 0.98% to 5,782.70 at 1017 AEST (0017 GMT).
- Positive corporate earnings and improving business confidence in Germany, Europe’s largest economy, spurred a rally in global equities and dragged bonds lower as the Federal Reserve prepares to conclude its policy meeting.
- Equity-index futures indicated an advance in U.S. and European stocks will extend to Asia on Wednesday after earnings from Caterpillar Inc. and McDonald’s Corp. led to outsize gains in the Dow Jones Industrial Average. More than 80% of S&P 500 companies have delivered earnings that have beaten forecasts so far this reporting period, helping to support optimism in the global economy and bringing down volatility levels to fresh record lows.
- The Dow industrials added 100.26 points, or 0.5%, to 21613.43, after three consecutive sessions of declines. The S&P 500 rose 7.22 points, or 0.3%, to 2477.13 and the Nasdaq Composite added 1.37 points, or less than 0.1%, to 6412.17 — fresh closing records for both indexes.
- Among the Dow components that reported earnings Tuesday: Shares of Caterpillar gained $6.36, or 5.9%, to $114.54 after the equipment giant raised its outlook for the year. McDonald’s shares jumped $7.22, or 4.8%, to $159.07—the highest close for the stock in data going back to 1972—after the fast-food chain’s results topped analysts’ expectations. Shares of DuPont added $1.14, or 1.4%, to $85.49. Gains in the three stocks added roughly 101 points to the Dow industrials.
- Declines in the shares of 3M and United Technologies, both of which released quarterly results earlier Tuesday, shaved roughly 91 points off the blue-chip index. 3M fell 10.61, or 5.1%, to 199.39—its biggest percentage drop since 2015.
- The pan-European Stoxx 600 ended the day 0.41% higher with almost all sectors and major bourses in positive territory. European bourses closed higher Tuesday as investors monitored earnings and awaited the start of a two-day policy meeting of the Federal Reserve. Strength among commodity firms and banking stocks supported European shares during Tuesday deals while earnings season also remained front and centre for investors.
- Spanish lender, Banco de Sabadell, said Tuesday it had reinsured its life insurance portfolio which resulted in a net income of more than €235 million ($273.9 mln). Its shares were over 3.85% higher on the news. Elsewhere, British business media group, Informa, reported that first-half revenue rose over 40% amid strong trading in its global exhibitions system. Its shares were 2.7% higher on the news.
- Government bond prices fell ahead of the release of the Federal Reserve’s latest policy statement, expected Wednesday. The yield on the 10-year U.S. Treasury note rose to 2.328% from 2.253% on Monday. Yields rise as bond prices fall.
- The dollar languished near a 13-month low against a basket of currencies on Tuesday, with traders sceptical that this week's Fed meeting would do much to alter the greenback's recent weak trend. The Fed is widely expected to keep interest rates unchanged at its two-day meeting that ends on Wednesday. The focus will be on any hints on whether it may raise rates again this year, and when it will begin paring its bond holdings.
- Source: Bloomberg, TradingFloor.com, WSJ.com
- Wednesday: Nintendo Co. Ltd., Facebook Inc, Coca-Cola Co., Ford, Motor Co. and Boeing Co.
- Thursday: Deutsche Bank AG, Royal Dutch Shell Plc and Twitter
- Friday: Credit Suisse Group AG, Nomura Holdings Inc., Exxon Mobil Corp., Chevron Corp., UBS Group AG, Barclays Plc and BNP Paribas SA
- Bank of New York Australia ADR Index +1.8% to highest since Feb. 22, BHP Billiton ADR +3.4% to $A25.32 equivalent, 3% premium to last Sydney close, Rio Tinto ADR +4.6% to $A57.85 equivalent, 8.2% discount to last Sydney close
- Gold prices held steady on Tuesday, after hitting a one-month high in the previous session, buoyed by political uncertainty in the US, as investors awaited the Federal Reserve meeting for clues on monetary policy. Investors also braced for possible hints on when the next interest rate hike is coming, ahead of the Fed's rate-setting two-day committee meet starting on Tuesday. Spot gold was down 0.37% to $1,250.24 per ounce. In the previous session, it touched $1,258.79/oz, its highest since June 23. U.S. gold futures for August delivery settled at $1,252.10. Gold stocks in Toronto dropped 0.14% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil rose above $48/barrel for the first time since early June in New York after an industry report was said to show U.S. inventories shrank by the most since September. Futures traded as much as 5% higher, extending the regular session’s gains. Crude inventories declined by 10.2 million barrels last week in an American Petroleum Institute report released Tuesday, people familiar with the data said. That would be the largest draw since September if Energy Information Administration data confirms the drop on Wednesday. Futures have advanced in the past two sessions as the market appears to be tightening. Saudi Arabia will cap shipments at 6.6 million barrels a day in August, 1 million lower than a year earlier, Energy Minister Khalid Al-Falih said. “They have chased the bears back into the woods. Sentiment in the market is mildly bullish,” James Williams, an economist at London, Arkansas-based energy-research firm WTRG Economics, said by telephone.
- Even as oil surges, there are some lingering doubts on the pace of the oil market rebalancing, with rising supplies from the US., Libya and Nigeria threatening to hinder curbs by Opec members and its allies. Saudi Arabia won’t act alone to balance the market and other nations should improve their implementation of supply cuts, Al-Falih said Monday. WTI for September delivery climbed to $48.55/b on the New York Mercantile Exchange, after settling at $47.89/b for the highest close since June 6. Total volume traded was about 25% above the 100-day average. Brent for September settlement added $1.60 to end the session at $50.20/b on the London-based ICE Futures Europe, the first close above $50/b since June. The global benchmark crude traded at a premium of $2.31 to WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
- The more upbeat sentiment spilled over into the bulk commodity markets, with spot iron ore prices rising over 2% or $1.62 to close at $69.48. Steel and iron ore futures in China were also stronger. Brazil announced it will nearly double mining royalties on iron ore as it struggles to meet its fiscal targets. While the increase won’t impact iron ore prices in the short term, it does add to the story of rising costs across the sector, which should be supportive of higher prices. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Benchmark copper on the London Metal Exchange ended up 3.3% at $6,225 a tonne, having earlier touched $6,234.50 a tonne, its highest since May 2015. Gains accelerated after New York opened. Copper posted its highest close in more than two years and shares in producers of the metal rallied amid a weaker dollar and expectations demand will increase in China, the world’s top user of industrial metals. Copper stocks: OZL, SFR;
- Aluminium was up 0.9% at $1,930 a tonne, zinc rose 1.7% to $2,836 a tonne, lead added 2.6% to $2,318 a tonne and tin gained 0.7% to $20,305 a tonne. Nickel reached the highest in three months after Philippine President Rodrigo Duterte on Monday threatened to impose higher taxes on mining firms unless they take steps to protect the environment, renewing concerns about supply from the world’s top producer of mined nickel. The price ended up 2.3% at $10,010 a tonne. Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- Australia commodity powerhouse faces post-LNG investment slump.
- Ardent Leisure (AAD): Activist holders say can save co. A$1b over 3 years if directors named to board: AFR.
- Bapcor (BAP): Scheduled to host business update call; NOTE: Co. in Feb. forecast FY17 NPAT ex-Hellaby $A57mln-$A59mln.
- Downer EDI (DOW): Likely to tap $A1.1bn bridge loan after taking control of Spotless: AFR.
- Independence Group (IGO): Q4 production report expected.
- SkyCity (SKC): To write-off Darwin casino goodwill.
- St Barbara (SBM): Q4 production report expected; NOTE: Co. in July reported consolidated FY17 gold output 381.1k oz.
- Suncorp (SUN): To review NZ regulator ruling on Tower.
- Thursday: Macquarie Group Ltd (AGM), GUD Holdings Ltd (2017 Earnings Call), CYBG PLC (Q3 2017 Sales and Revenue Release); June 2017 Sales and Revenue Release : Beach Energy Ltd, Fortescue Metals Group Ltd
- Friday: Westpac Banking Corp: Business Update Call; Iron Mountain Inc: Q2 2017 Earnings
- Super Retail (SUL): Cut to underperform at Credit Suisse, price target $A7.50.
- Sky Network TV (SKT): Raised to buy at Morningstar.
- Carsales (CAR): Cut to neutral at Credit Suisse, PT $A12.60.
- Challenger (CGF): Cut to underweight at Morgan Stanley, PT $A11.50.
AUS200 is expected to maintain the current strength as materials stocks should open higher on the back of the huge spike in copper (HG) last night, although the key resistance level still remains at 5,775.
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Data may impact AUDUSD
We are still in favour of remaining long on AUDUSD unless we see a significant miss on the CPI figures. Major commodity pairs are likely to be supported by copper and crude oil which rallied aggressively higher.
– Edited by Robert Ryan
Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
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Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.