Article / 15 October 2017 at 23:27 GMT

Today's Trade: S&P/ASX200 surges on commodities rebound

Trading Desk / Saxo Capital Markets
Australia
  • Copper for December delivery rose hit its highest level in a month
  • Spot iron ore surged above $60/t as data showed strong China demand
  • The Nasdaq hit a record high on Friday, despite falls for banks
  • Analysts expect China's Party congress to give the base metals market direction
  • Nickel hit a high on concerns China might sut output in efforts to clean its skies
By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 headed higher at the open; it was up 0.43% to 5,839.40 at 1020 AEST (2320 GMT on Sunday evening).
  • U.S. stocks notched weekly gains and the Nasdaq Composite closed at a record, even as shares of big banks declined.
  • A backdrop of improving global economic growth and the expectation that it will be another strong quarter for corporate earnings has supported stocks, traders say. The march higher comes even as there have been some hiccups in data, from weaker-than-anticipated inflation to job losses in September, and as some investors worry shares look pricey.


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Beijing's push to clean up the environment is expected to give a boost to supplies of high-grade iron ore from overseas while hurting local mine supply. Photo: Shutterstock

  • A measure of U.S. consumer sentiment rose to its highest level since 2004 in the first half of October, according to the University of Michigan on Friday. Rising sentiment suggests increased household spending could follow.
  • The Dow Jones Industrial Average rose 30.71 points, or 0.1%, to 22871.72 Friday, finishing the week up 0.4%. The S&P 500 added 2.24 points, or 0.1%, to 2553.17, a 0.2% rise in the week. Both indexes posted their fifth straight week of gains.
  • The Nasdaq Composite rose 14.29 points, or 0.2%, to 6605.80, a fresh record. It added 0.2% in its third consecutive weekly gain.
  • Shares of financial companies in the S&P 500 declined for the third day in row. Major lenders started reporting their third-quarter earnings this past week, and while they have mostly beat expectations, their stocks dropped after the results.
  • Wells Fargo slid $1.52, or 2.8%, to $53.69 as the bank reported weaker-than-expected third-quarter revenue, while shares of Bank of America added 38 cents, or 1.5%, to 25.83 after the bank said its quarterly profit had risen 13% from a year earlier.
  • Shares of J.P. Morgan Chase and Citigroup fell after reporting their respective earnings results on Thursday.
  • A drop in U.S. government-bond yields also weighed on banks Friday, after data from the Labor Department showed U.S. core inflation rose less than expected. The yield on the 10-year Treasury note edged down to 2.280% from 2.323% Thursday.
  • The S&P 500 financials sector fell less than 0.1% Friday, notching a weekly drop of 0.9%. However, the sector remains up more than 5% over the past month, and it hasn’t posted a negative October since 2009.
  • Shares of health-care companies came under pressure Friday following the Trump administration’s decision to end billions of dollars in payments to insurers under the Affordable Care Act program. Health-care companies in the S&P 500 fell 0.3%, ending the week down 0.7%.
  • Wal-Mart Stores rose 52 cents, or 0.6%, to 86.62 Friday, bringing its weekly gain to 9.6%—its best week since 2003. The retailer said Tuesday that it would deepen its cost-cutting and focus on existing stores and e-commerce.
  • Stocks around the world rose during the week, as money flowed into global stock funds.
  • The Stoxx Europe 600 edged up 0.3% Friday, putting its weekly rise at 0.5%.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
Local markets
  • Bank of New York Australia ADR Index is up 2.2%, most since August 16, to 278.6, BHP Billiton ADRs are up 2.9% to $A26.74 equivalent, a 1.4% premium to last Sydney close, Rio Tinto ADRs are up 4.0%, most since July 25, to $A63.45 equivalent, a 7.0% discount to last Sydney close.
  • Gold prices rose Friday after the latest tepid reading on the US economy. Gold for December delivery closed up 0.6% at $1,304.60 a troy ounce on Comex. The precious metal was back above $1,300/oz for the first time in two weeks and ended a four-week losing streak following another weak inflation reading Friday that increased doubts about the Federal Reserve’s interest rate plans. Data released Friday showed the consumer-price index rose less than economists expected in September, with so-called core prices excluding food and energy increasing just 0.1%. Inflation has remained weak throughout the year, putting the Fed in a bind as it tries to stay committed to its plans for gradual rate increases moving forward. Investors will be keeping a close eye on Fed signals and economic data moving forward. Some have said minutes from the central bank’s September meeting released Wednesday that again showed lingering questions over inflation were driving a split among officials have also boosted gold prices recently. Despite the gains seen in spot gold, gold stocks in Toronto barely moved, up 0.07% for the session on Friday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil prices jumped Friday on a mix of factors, including bullish Chinese data and geopolitical risks from oil-rich regions in the Middle East. Light, sweet crude for November delivery rose 85 cents, or 1.7%, to $51.45 a barrel, closing at a two-week high. Brent, the global benchmark, rose 92 cents, or 1.6%, to $57.17/barrel. Chinese crude imports rose by roughly 1 million barrels a day in September, on the month, to 9 million barrels a day, according to government data released Friday. The news alleviated investor concern that demand in the world’s largest crude importer might be waning amid faltering economic growth. On Friday, President Donald Trump said he wouldn’t recertify a 2015 international agreement with Iran to curb its nuclear program in exchange for economic-sanctions relief. The lifting of sanctions at the start of 2016 has allowed Iran to significantly increase its production to around 3.8 million barrels a day. But disavowal of the deal or the imposition of fresh sanctions on Iran could undermine the country’s export capacity. At the same time, tensions are building between Iraq’s central government in Baghdad and the leaders of the semiautonomous Kurdistan region in the north, which late in September held an independence referendum. Kurdistan exports over 500,000 barrels of crude a day. Traders also weighed news reports that Saudi Arabia’s state-owned oil company is considering options other than its plan to list shares in New York or London in 2018. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Spot physical iron ore surged back above $60/t as data showed China’s demand remained strong. Iron ore imports by China surged above 100 mln tonnes to a record, smashing the previous high set in 2015, as the country’s concerted push to clean up the environment stoked demand for higher-grade material from overseas while hurting local mine supply. Purchases of iron ore expanded to 102.8 mln tonnes in September from 93 million tons a year ago, surpassing the previous record of 96.3 million tons in December 2015, according to customs data on Friday. Over the first nine months, imports climbed 7.1% to 817 mln tones, putting full-year purchases on course to top 1 billion tons by a comfortable margin. China has been pulling in ever-greater volumes from miners in Australia and Brazil including Vale SA and BHP Billiton. The unprecedented iron ore import figure provided a lifeline for prices that have been beaten down into a bear market in recent weeks amid speculation China’s steel cuts will lower overall demand. On Friday, futures in Singapore advanced as much as 6.2% to $62.20 a ton. The benchmark spot price for 62% content ore in Qingdao climbed 4.1%, the most since August, to $62.53 a dry ton, according to Metal Bulletin Ltd. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper for December delivery rose 0.4% to $3.1330 a pound—its highest level in a month—and was on track for a fifth straight session of gains. Since retreating from multiyear highs hit in early September, prices have rallied and are nearly back at their highest level in three years. Strong import data out of China released Friday was boosting industrial metals prices, as the country is responsible for nearly half the world’s copper consumption. Chinese copper imports rose to a six-month high last month. Many analysts expect the Party congress to give the base metals market further direction by providing an update on China's economic policy. Copper stocks: OZL, SFR.
  • Nickel prices hit a one-month high on concerns China might order further output cuts as it ramps up efforts to clean its skies, while aluminium gave back gains after rising on news a Chinese city had ordered capacity reductions. Three-month nickel on the London Metal Exchange ended up 2.5% at $11,675, having hit a one-month high of $11,725. Aluminium ended down 0.6% at $2,134 a tonne having rallied earlier on the output cut news; while zinc ended down 0.5% at $3,235, having hit its highest in more than 10 years last week. Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • In early reporting: Evolution Mining sees December quarter gold output 180,000-190,000 vs 217.8 oz year ago; total mine cash flow seen in line with September quarter if commodity prices stay stable. September quarter gold output 220.97 oz , C1 cash costs $A558/oz; AISC $A786/oz, AISC less than FY guidance of $A820-$A870/oz on better than expected grades at Cowal, Mt. Carlton, higher than forecast pricing, and lower capex
  • Trading ex-dividend: Programmed Maintenance, TPG Telecom.
  • AGL Energy (AGL AU): ACCC Electricity Report Details Affordability, Competition Issue
  • Bendigo & Adelaide Bank (BEN AU): Is Said to Target Hybrid Issue: AFR.
  • Downer EDI (DOW AU): Australia’s Greens Vow to Protest Construction at Adani Mine.
  • Macquarie Group (MQG AU): Is Said to Be Studying Joining LMEPrecious as Clearer.
  • Paladin (PDN AU): Gets Notice From EDF on Supply Pact Termination.
  • Primary Health (PRY): May consider changes to private billing unit to cut costs: AFR.
Broker upgrades, downgrades
  • Evolution Mining (EVN AU): Rated New Overweight at JPMorgan; price target $A2.60.
  • Northern Star (NST AU): Northern Star New Neutral at JPMorgan, PT $A5.
  • Red River (RVR AU): New Buy at Baillieu Holst, PT $A0.46.
  • Regis Resources (RRL AU): Regis Resources Cut to Underweight at JPMorgan, PT $A3.70.
  • St Barbara (SBM AU): St Barbara New Overweight at JPMorgan, PT $A3.20.
ASX news and corporate releases
  • Monday: Rio Tinto production.
  • Tuesday: Telstra AGM, Oil Search production.
  • Wednesday: BHP Production, CSL AGM, Origin Energy AGM, Brambles AGM.
  • Thursday: Woodside production, Santos production, Iluka production.
EURUSD trend

The euro’s weekly high failed at precisely the 50% retracement between the 2017 high to October low with selling pressure to prevent further gains to be seen at precisely this half way retracement mark.

EURUSD chart1





















If we look at the bigger picture, the current technical set up for the euro is developing into a bearish backdrop, as last week’s swing high has produced its perfect right shoulder to complete a perfect head and shoulder formation.

We look for a retest of the neckline this week and upon a potential break, aggressive losses are highly likely to follow, Applying the head and shoulder break, the market is left eyeing the 1.13 handle as its ultimate end target. Of course this is all a theory for now, and a break above last week’s high would discount this theory completely.


EURUSD year-to-date chart
2
 
However if we look at the current set up of the US dollar index (see below), it too is consolidating in a bottoming price action with its inverse head and shoulder neckline the break that must be obtained for further gains to be made.

We start the week with a bearish outlook over the euro, and we can accumulate shorts here at market with a stop above last week's high, and so we would stop if bid 1.1881 and our weekly target for all short positions is at 1.1620 or the first 23.6% head and shoulder extension. 

US dollar index


3
 

AUDUSD gains strength

We wrote last Monday that we would use every opportunity to accumulate long positions over the AUDUSD, given that losses were arrested at the true break out level of 0.7730 after topping out in September.

So we’ve now seen the retest, seen this level to hold and prove to be solid support so the bias is for Aussie strength going into year end. However given the aggressive moves we saw last week we start the week with a neutral position as its likely for prices to initially consolidate before breaking higher. A retracement to 0.7825 will be welcomed as levels to add to long positions.

AUDUSD chart4
















S&P/ASX200 breaks free

After a five month long consolidation, the ASX appears to have finally broken free from the defined resistance level last week which sets up a bullish tone for the session/s ahead.

Applying the rules of a consolidation break, we see first 23.6% extension coming in at 5,831 with final target coming in just shy of 6,000 at 5,954. Will the end target produce a double top for 2017?

S&P/ASX200 chart
5
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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.


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