Article / 28 March 2017 at 0:44 GMT

Today's Trade: S&P/ASX200 surges higher despite commodity weakness

Trading Desk / Saxo Capital Markets
Australia
  • The DJIA notched its longest losing streak in nearly six years
  • Iron ore futures in China have fallen by more than 7%
  • Industrial metals fell on fears Donald Trump will struggle to carry out key policies
  • Watch for copper to drive an AUDUSD rally

By Saxo Capital Markets Australia

Overnight and early trading

  • The S&P/ASX200 defied commodity gloom, Wall Street's woes and surged sharply higher in early trading. It was up by a hefty 0.80% to 5,792.40 at 1120 AEST (0020 GMT).
  • The Dow Jones Industrial Average notched its longest losing streak in nearly six years, reflecting investors’ doubts about the Trump administration’s ability to enact its agenda.
  • The blue-chip index fell for an eighth straight trading day Monday, declining 0.2% in the session after Republicans failed to pass their health-care overhaul. Investors and analysts widely viewed the bill as a key test of the administration’s ability to implement its policies.
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 A pledge by Opec-led producers to consider extending their output cut deal failed to excite traders, and crude prices have lost ground. Photo: Shutterstock


  • The selling marked the latest blow to postelection bets on higher growth and inflation that had sent stocks and the dollar soaring while sparking a selloff in government bonds. On Monday, the US Dollar Index touched its lowest level since early November as the yield on the benchmark 10-year Treasury note settled at 2.373%, the lowest yield in a month. – please see DXY chart below.
  • The Dow Jones Industrial Average fell 45.74 points, or 0.2%, to 20550.98 Monday. The S&P 500 lost 2.39 points, or 0.1%, to 2341.59 and the Nasdaq Composite gained 11.64 points, or 0.2%, to 5840.37.
  • The Dow has shed 1.9% over the past eight sessions--a far cry from the 6.7% it lost during its previous downdraft of that length in 2011. At the time, the US government was embroiled in a debate about whether to raise the debt ceiling--a disagreement that in part led rating firm Standard & Poor’s to downgrade the country’s credit rating, saying the trajectory of future U.S. debt was unsustainable. In the month after that streak, the Dow fell another 5.3%.
  • The VIX came reversed a large proportion of its initial gains, losing 3.55% for the day to 12.50
  • More recently, the Dow’s stumble echoes a nine-session drift lower for the S&P 500 last fall, when investors shed stocks as polls tightened heading into Election Day after a contentious campaign season. What followed was a rapid rally that sent major U.S. stock indexes to records. In February, the Dow industrials rose for 12 consecutive days, its longest stretch of gains since 1987, according to WSJ Market Data Group.
  • European stocks also clocked losses, with the Dax and FTSE both down just shy of 0.6%. The CAC shed 0.07%.
  • Source: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
Local markets
  • Bank of New York Australia ADR Index -0.4%, BHP Billiton ADR -1.9% to A$23.50 equivalent, little changed from last Sydney close, Rio Tinto ADR -1.5% to A$52.78 equivalent, ~11% discount to last Sydney close.
  • Gold briefly traded above $1,260/oz as the selling that emerged late last week after the failed vote on Trump’s new health care bill continued to reverberate through the markets. However, a pickup in equity markets and the USD late in the trading session saw some of the gains reversed. Gold stocks in Toronto jumped 1.95% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil fell as a pledge by Opec-led producers to consider extending their output-cut deal failed to excite traders concerned that more time is needed to trim global stockpiles. Six Opec members and Oman backed an extension, with Kuwait saying it should be for six months. The ministers met this weekend in Kuwait City and asked Opec to make a recommendation in a month on the possibility of prolonging the supply curbs. West Texas Intermediate for May delivery dropped 24 cents to close at $47.73/barrel on the New York Mercantile Exchange. Total volume traded was about 33% below the 100-day average. Prices slipped 1.7% last week. Brent for May settlement slipped 5 cents to $50.75/b on the London-based ICE Futures Europe exchange, and closed at a $3.02 premium to WTI. The global benchmark contract climbed 0.5% to $50.80 on Friday. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • The selloff in futures markets in China has been too hard to ignore for the physical iron ore spot market, with spot falling 3.5% to $81.57. While fundamentals remain unchanged, physical traders have been pushed to the sidelines as iron ore futures in China fell over 7%. In the coking coal market, prices were supported as supply side disruptions emerged. A hurricane approaching the east coast of Australia has forced the closure of several coal mining operations and related ports. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Industrial metals slumped on concern President Donald Trump will struggle to carry out key policies, including boosting infrastructure spending. The declines helped drag down mining stocks. Copper dropped to the lowest in more than two weeks after Trump and Republican legislators failed to proceed with health- care reform Friday. The metal pared losses after US equities rebounded. Copper for delivery in three months fell 0.8% to settle at $5,760 a tonne on the LME. Nickel and zinc dropped as much as 2.2% and 3.3%, receptively. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Aurizon (AZJ), BHP Billiton (BHP), Evolution Mining (EVN), Resolute Mining (RSG): Thousands evacuated as cyclone moves toward Australian coast.
  • Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac (WBC): Credit cards provide fresh fodder for Australian bond investors.
  • Downer EDI (DOW): Chairman Michael Harding may face pressure to step down in wake of Spotless bid, capital raising: Australian.
  • Evolution (EVN): Evolution says preparing Mt Carlton Gold Op for Tropical Cyclone Debbie.
  • Macquarie (MQG): Said in talks for Hindustan Power solar assets: Mint.
  • Macquarie Telecom (MAQ), Vocus (VOC): Bell Potter seen building book to buy .Macquarie Telecom stake: AFR.
  • Mantra (MTR): Marriott Intl may be considering offer for Mantra of ~$A1bn: Australian.
  • Myer (MYR): Myer soars as block trade spurs short covering, deal speculation.
  • Orocobre (ORE): To invest $160m over 3 years in Argentina.
  • Quintis (QIN): Says abides by Australian law; Glaucus unfounded allegations.
  • St Barbara (SBM): Board approves Gwalia extension project.
Companies going ex-dividend this week

  • Tuesday: ACI, SEK.
  • Wednesday: APE, ALF, CMA, GNE, SGF.
  • Thursday: APW, APN, ARD, AJD, ABW, AOD, AIB, AUP, AYF, AOF, AVN, BPA, CAB, CIP, CUA, CLW, FET, GCM, GDF, HEG, LYL, MQA, MAQ, MMS, MEZ, PWH, PNW, PNC, RFP, RFF, SLK, VRT.
  • Friday: CWP, CYC, DFM, FNP, GBT, PFG, VEC.
Broker upgrades, downgrades
  • Independence Group (IGO): Raised to buy at Argonaut, PT $A4.12.
  • Seven West (SWM): Cut to hold at Morningstar.
  • OZ Minerals (OZL): Raised to hold at Morningstar.
  • Metcash (MTS): Cut to underweight at JPMorgan, PT $A2.10.
Watch for crude rally

Crude oil (OILUSMAY17) made a number of attempts to crack the $47/b handle but failed to close below it again last night. An uptrend (from the April 16 low of $35.22/b) seems to be acting as a valid support and crude is trading at an oversold territory.

So we are anticipating potential rally in the near term as long as $47/b holds.

Crude chart

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AUDUSD indecision


The last two days of price action indicate indecision for AUDUSD, although a clear support level has been the 0.76 handle. After copper (HG) was unable to break this month’s low at $255.85, it made a sharp reversal to the topside.

We expect AUDUSD to follow this price action, so a recovery is likely.
 
AUDUSD chart
2
 
US dollar index (DX)

The US dollar index (DX) rebounded off the intersection of 200 day moving average and uptrend that began from May 2016. Downward momentum should not be ignored, but potential reversal of this month’s sell off is possible if the low at 98.67 holds.
 
US dollar index 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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