Today's Trade: S&P/ASX200 tumbles, Aussie dollar soars past 0.80
- Australia's benchmark S&P/ASX200 slumped in early trading
- Gold has soared 1.1% to $1,339.20/oz, its highest since September 2016
- US Treasuries rallied, taking 10-year yields to their lowest since the US election
- The Fed's Lael Brainard said central banks should be cautious about raising rates
- Crude rose as refineries and pipelines restarted after hurricane-driven shutdowns
- The Australian dollar soared through the 0.80 barrier
By Saxo Capital Markets Australia
Overnight and early trading
- The S&P/ASX200 too a tumble in early trading; it was down 0.47% to 5,679.10 at 1042 AEST (0042 GMT).
- Asian stocks are set to fall as nations grapple with how to deal with escalating provocations from North Korea. The yen headed higher and a rally in U.S. Treasuries took 10-year yields to their lowest since the aftermath of Donald Trump’s November election win.
- Equity-index futures signaled declines from Tokyo to Sydney, and S&P 500 Index contracts retreated in early Asian trading.
- The Dow Jones Industrial Average fell 234 points Tuesday, as threats from North Korea and another powerful hurricane weighed on major indexes.
- Investors headed for assets they consider to be safer stores of value, like U.S. government bonds and gold, after North Korea tested its most powerful nuclear bomb yet. Hurricane Irma dragged down shares of insurance companies as it churned through the Caribbean.
- The blue-chip index fell 1.1% to 21753.31 after declining nearly 278 points earlier in the session. It was the Dow industrials’ biggest one-day drop since Aug. 17.
- The S&P 500 declined 18.70 points, or 0.8%, to 2457.85 and the Nasdaq Composite shed 59.76 points, or 0.9%, to 6375.57. The CBOE Volatility Index, a measure of expected swings in the S&P 500, jumped 21%.
- As U.S. government bonds strengthened, the yield on the 10-year Treasury note fell to 2.072%—the lowest yield since November 9—from 2.157% on Friday. Also hitting yields: Federal Reserve governor Lael Brainard said Tuesday that central banks should be cautious about raising short-term interest rates while inflation remains stubbornly low.
- Shares of financial companies in the S&P 500 tumbled 2.2%, making the sector the worst performer out of the broad index’s 11 major groups. Recent declines in the 10-year Treasury yield have narrowed the gap between long- and short-term rates, potentially crimping profits for lenders. Goldman Sachs fell $8.10, or 3.6%, to $217.78, while Bank of America shed 78 cents, or 3.2%, to 23.31.
- The possibility of another major storm hitting the U.S. put insurers among the S&P 500’s biggest decliners and deepened losses for the financials sector Tuesday. Everest Re Group declined 17.19, or 6.9%, to 231.19, XL Group fell 2.35, or 5.8%, to 38.27 and Travelers Cos. lost 4.47, or 3.7%, to 115.43.
- Travelers shaved about 31 points off the Dow industrials. United Technologies erased an additional 46 points off the index after the company announced a $23 billion deal to buy Rockwell Collins . United Technologies was the worst performer in the Dow industrials, falling 6.71, or 5.7%, to 111.21—the stock’s biggest percentage decrease since July 2015. Rockwell Collins rose 39 cents, or 0.3%, to 131.00.
- While market reactions to the continuing tensions between the U.S. and North Korea have been short-lived in recent weeks, some market strategists and investors warn the latest threats have made investors skittish following five consecutive months of gains for both the Dow industrials and the S&P 500.
- Gold for September delivery gained 1.1% to $1,339.20 a troy ounce, its highest settle value since September 2016.
- Source: Bloomberg, TradingFloor.com, WSJ.com
- Bank of New York Australia ADR Index -0.6%, BHP Billiton ADR -0.2% to A$27.56 equivalent, 0.2% discount to last Sydney close, Rio Tinto ADR -1.4% to A$61.07 equivalent, ~10% discount to last Sydney close.
- Gold rose slightly on Tuesday as prices remain underpinned by safe-haven demand because of continued concern over North Korea's nuclear posturing. Spot gold was up 0.51% at $1,341.08/oz, trading near a one-year high. US gold futures for December delivery settled 1% higher at $1,344.50/oz. Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, rose on Friday to help underpin prices. Much of gold's recent strength can be attributed to the flight to assets perceived as being at less risk from geopolitical uncertainty that has been stoked up by events in Korea. South Korea said an agreement with the US to scrap a weight limit on its warheads would help it to respond to the threat from North Korea after Pyongyang conducted its sixth and largest nuclear test. Meanwhile, North Korea has been observed moving what appeared to be an intercontinental ballistic missile towards its west coast, South Korea's Asia Business Daily reported on Tuesday.
- Yet stockmarkets in Europe bounced back on Tuesday as traders showed reluctance to price in the tail risks on every possible bad outcome and instead focused on the more prosaic but upbeat global economic picture. A recovery in the global economy is negative for gold because it raises expectations for interest rate increases, which lift the opportunity cost of holding non-yielding assets and boost the dollar, in which gold is priced. Gold stocks in Toronto rallied firmly overnight adding 2.14%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Crude rose to the highest in more than three weeks as key refineries and pipelines resumed operation following hurricane-driven shutdowns, stoking demand and making oil futures the best-performing energy contract of the day. Oil climbed 2.9% in New York. Refiners including Valero Energy and Citgo Petroleum worked to get Texas plants back on track, while Exxon Mobil began supplying filling stations with fuel after repairs to a Houston pipeline. Even as the hardest-hit operators worked to resurrect output, traders watched another major hurricane approaching that has already led to the shutdown of an oil terminal. Harvey forced refineries, pipelines, ports and offshore platforms to shut as the storm intensified before making landfall on August 25. While many of those facilities are back in service, others have yet to restart, including plants owned by Royal Dutch Shell and Total SA. Still, Goldman Sachs Group Inc. sees half of the refining capacity lost to Harvey back to work by September 7. Dry weather across Texas should help minimize the loss of demand for gasoline and diesel, according to the bank. WTI crude for October delivery added $1.37 to settle at $48.66/barrel at on the New York Mercantile Exchange. Earlier in the trading session, the contract was up as much as 3.6% for the biggest intraday gain since July 25. Brent for November settlement advanced $1.04 to $53.38/b on the ICE Futures Europe exchange and traded at a premium of $4.24 to November WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
- The spot iron ore prices resumed its move higher, as stronger steel prices in China dragged it higher. The disruptions to several steel mills in China due to fires have raised fears of further safety inspections and potentially more capacity closures. Spot iron ore added 0.7% or $0.53 to close at $78.39. Rebar prices in China rose 0.6%, following a 2.4% raise on Monday. Hot rolled coal prices were also strong, up 1.3%. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Base metals suffered a bout of weakness as profit taking emerged after another strong week. While economic data out later this week is keeping investors cautious, technical factors are starting to weigh on the sector. Benchmark copper on the London Metal Exchange closed down 0.2% at $6,901 a tonne. It had earlier touched $6,970, the highest since September 2014 and near the key psychological level of $7,000. Copper stocks: OZL, SFR.
- LME aluminium closed down 1.1% at $2096 a tonne; zinc finished 2% lower at $3,140 and tin ended 0.3% lower at $20,725. Nickel closed down 1.4% at $12,080 and lead ended 2.5% lower at $2,330. Orange juice and cotton futures surged as Hurricane Irma strengthened to become a Category 5 storm and remained on track to reach the US later this week, threatening crops in southern states. Orange juice for November delivery jumped as much as 6.1% to $1.448 a pound on ICE Futures US on Tuesday, the biggest intraday gain for the contract since June 26. Cotton for December delivery climbed as much as 3.5% to 74.36 US cents a pound. The trading volumes for both commodities were above their respective 100-day averages, according to data compiled by Bloomberg. Florida, the nation's top orange producer, has declared a state of emergency as Irma approaches the Caribbean. All of the state's crop is at risk of moderate to severe damage, with trees already full of fruit, Donald Keeney, meteorologist with MDA Weather Services in Gaithersburg, Maryland, said in a telephone interview. Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- RBA governor Philip Lowe says stimulatory policy continues to be appropriate.
- Trading ex-dividend: APN Outdoor, Healthscope, Iress, Independence Group, IAG, Invocare, Medibank Private, OZ Minerals, Perpetual, St. Barbara.
- AGL Energy (AGL): Australia govt in talks to keep Liddell plant open: Turnbull
- ANZ Bank (ANZ): Final bid date for ANZ wealth unit is Sept. 15: AFR
- Buru Energy (BRU): Will engage with Western Australia on fracking moratorium
- Commonwealth Bank (CBA): Expected to receive offers on its ANZ life operations over next two to three weeks: AFR.
- CSL (CSL): FDA approves Seqirus request to supplement BLA for flu vaccine.
- Fonterra (FSF): Whole milk powder average price falls to $3,100/t.
- Transurban Group (TCL): May sell EUR Long 10Y Senior Secured Notes tomorrow.
- Senex (SXY): Raised to buy at Canaccord, price target $A0.36
Stocks to watch: Woolworths (WOW)
The retailer Woolworths (WOW) continues to bounce off its 200 day moving average but uptrend (from the 2016 low of just $20.30) could serve as an interim resistance line.
We still favour buying near the 200 DMA in the anticipation of retracements to the topside although we would like to see a clean break above the recent resistance level at $26.
Woolies share price chart
US Dollar index
A weekly close below here could confirm acceleration to downside momentum. A weekly settlement below this 200WMA would see the US Dollar index close at levels last seen in late 2014/early 2015.
US dollar index chart
We look to initiate a bearish call over EURGBP: any short positions from here would have a stop above 0.9230 and our downside targets begin at the 90 handle, followed by the 89 handle.
AUS200 seems to be struggling to stay above its 200 day moving average, which has been acting as a valid support line since June. The banks are under selling pressure while resource stocks have been strong.
The interim resistance level remain at 5,730 and support level would be the August low of 5,633.
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Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
– Edited by Robert Ryan
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Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.