Article / 14 January 2016 at 0:57 GMT

Today's Trade: S&P/ASX200 tumbles in brutal selloff

Trading Desk / Saxo Capital Markets
Australia
  • The S&P/ASX200 fell nearly 2% at the open but regained some lost ground
  • The freefall in base metals paused after China reported strong trade data
  • But Copper gave up earlier attempts at gains to hit a fresh lows
  • The Aussie dollar has fallen below $0.70, and its under downward pressure

Overnight and early trading

  • The S&P/ASX200 was down 1.57% to just 4,909.30 at 1130 AEST (0030 GMT), in a brutal selloff.
  • The Dow Jones Industrial Average fell to its lowest level since late September following a broad selloff in stocks which accelerated last night.


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 A rise in US inventories and the imminent lifting of sanctions on crude reserves-rich Iran have added to the downward pressure on oil prices. Photo: iStock


  • The Dow industrials fell 365 points, or 2.2%, to 16151. The S&P 500 dropped 2.5% ending below the psychologically key 1,900 level for the first time since September 29 and the Nasdaq Composite declined 3.4%. All three indexes have entered correction territory
  • For the year the Dow has now declined 7.3% and the S&P 500 has dropped 7.5%.
  • A drop in consumer-discretionary stocks (the best performing sector over the past year), carried onto the broader market. Stocks in this sector within the S&P 500 fell 3.4%. Auto-parts maker BorgWarner shares dropped 9.5% and shares in Netflix tumbled 8.6%.
  • Some of the biggest gainers of 2015 were under the pressure last night. Four internet companies that the market has dubbed FANG (Facebook, Amazon, Netflix and Google) weighed heavily: Amazon.com, which contributed the most points to the S&P 500 last year, fell 5.8%. Google parent Alphabet shares fell 3.5% and Facebook shares lost 4%. Netflix closed down close to 8.6%. Netflix and Amazon both more than doubled in 2015 as the top performers in the S&P 500.
  • The Nasdaq Biotechnology Index dropped 5.3% and is now down 17% so far this year. Apple turned lower to close ~ 2.6% lower.
  • US crude oil fluctuated during the session last night, but settled well below earlier levels after data showed inventories of crude oil and refined products hit record highs. U.S. crude oil settled 0.1% higher to $30.48 a barrel, while energy stocks fell 1.8%
  • Copper gave up earlier attempts at gains to hit a fresh near-seven-year lows. Freeport-McMoRan extended the week's sharp decline to close down 9%.
  • The Dow transports closed down 3.68% at their lowest level in more than two years.
  • The market will be watching JPMorgan Chases’ earnings which are expected tonight before the opening bell.
  • The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, held near 25.
  • European equities were mixed with the DAX down 0.25% while the FTSE added 0.54% and the CAC rose 0.30%
  • Energy stocks held up well in Europe with gains of over 1.5% being seen across BP, Seadrill and Subsea.
  • Tullow Oil rocketed up close to 12%, before ending the session with a 4.7% gain after the London-listed company said it has enough cash to weather the weak oil market
  • The rise in metal prices saw Rio Tinto put in a solid performance, which was higher by close to 2%.
  • Earnings in Europe was in the spotlight as French food services and facilities management firm, Sodexo, posted first-quarter 2015/2016 revenue growth of 4.7% like-for-like and confirmed its full-year targets sending its shares up 2.7%.
  • Dutch insurance group Aegon rose to the top of the STOXX 600, up 9.7%, after announcing a €400 million share buyback program.
  • British supermarket chain Sainsbury's fell more than 1% after it said like-for-like sales for the 15 weeks to Jan 9 fell 0.4%, excluding fuel.
  • In other corporate news, Banco Popolare and Banca Popolare di Milano shares ended sharply higher, up 4.2 and 5.6% respectively, after Reuters reported that the two banks were close to reaching a deal on a merger.
  • Autos was the worst performing sector however after a strong day of trade the previous day. BMW, Daimler and Peugeot Citroen all closed more than 1% lower.

Local markets

  • Bank of New York Australia ADR Index -1%. BHP Billiton ADR -0.8% to $A14.70 equivalent, 0.5% discount to last Sydney close. Rio Tinto ADR -0.3% to $A34.34 equivalent, 13% discount to last Sydney close.
  • Spot gold has closed up 0.4% to trade at $1,094. As predicted yesterday, gold's retracement from December's lows and January’s high went to the 50% Fibonacci level of $1,080 (low of $1,079.56) before bouncing. On the daily chart, gold kissed the 200 day moving average in January before falling away, which will prove its next ceiling of resistance. Breaking this 200 day MA and holding for a day or two will prepare it for another run. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR. Consider trading gold directly as well, with a ticker XAUUSD.
  • Crude oil traded with greater weakness than anticipated. WTI and Brent fell 2.2% and 3.9% respectively to $30.29/barrel and $30.03/barrel. Brent traded below $30/barrel for the first time since April 2004. The market was expecting a weekly oversupply of WTI of 1.9 million barrels last night when the EIA reported a climb of 324,000 barrels. However it was the fall in Brent that is the real direction of oil as the market prepares itself for Iran sanctions expected to soon be lifted. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore was driven 4.1% lower as predicted yesterday and broken the key $40/t level. Iron ore after only edging lower yesterday made up for the falling lead of rebar steel which had dropped 5.5%. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals have paused their freefall as China has reported strong import data. China who is the worlds largest importer of copper had their second largest import in December. It is believe the volume is on opportunistic buying rather than genuine monthly demand. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • The S&P/ASX 200 drop seen by Morgan Stanley; target 15% below consensus.
  • Australia December jobless rate seen rising to 5.9% vs 5.8% in Nov.; Employment seen down 10,000 when data released 1130 AEST in Sydney.
  • Sydney apartment rents follow prices lower after overbuilding.
  • Atlas Iron (AGO): Glencore bought Atlas Iron debt from Fortress: AFR
  • CSL (CSL), Mesoblast (MSB), Resmed (RMD): Scheduled to present at JPMorgan Health Care Conference.
  • Origin Energy (ORG), APA Group (APA): Among contenders for solar funding
  • South32 (S32): Said interested in $1b Anglo sale.
  • Wesfarmers (WES): Offers GBP340m cash for Homebase unit.
Stocks to watch

Electronics retailers JB-HI (JBH) performed exceptionally well these past few days, in particularly yesterday. JBH has faced strong selling forces in the past two years as it approached the key $A22.50 price tag.

Given its surge in buying, this ceiling of resistance and a weak lead overnight, we see JBH due for a pull back in the short term. When the time comes we will look at buying opportunities, but for now, it looks to be a short until it retraces to either the 50% retracement level or more likely the 100 day MA.

Retailer JB Hi-Fi's price trend

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Data points

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Open positions
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Broker upgrades, downgrades

  • AGL Energy (AGL): Raised to buy vs neutral at UBS
  • BHP Billiton (BHP): Raised to overweight vs equal weight at Morgan Stanley
  • Harvey Norman (HVN): Cut to neutral vs outperform at Credit Suisse
  • JB Hi-Fi (JBH): Raised to outperform vs neutral at Credit Suisse
  • Oil Search (OSH): Rated new overweight at JPMorgan
  • Woodside Petroleum (WPL): Raised to buy vs neutral at UBS
  • Woodside Petroleum (WPL): Rated new neutral at JPMorgan
  • Santos (STO): Rated new underweight at JPMorgan
  • Scentre Group (SCG): Downgraded to underweight from neutral at JPMorgan
  • Whitehaven Coal (WHC): Downgraded to neutral from overweight at JPMorgan

AUDUSD selloff likely

The AUDUSD made a brief rally up to $0.7050 when a good Chinese trade balance was released, but it did not last long above $0.70 handle as iron ore collapsed by more than 4% and copper made a fresh low. Selling pressure is expected to continue while today’s focus would be on the employment numbers at 1130 AEST. Although the past two employment figures were very impressive, and beat estimates, we are unlikely to see another estiamte-smashing number.

The $0.70 handle is the resistance level and break out below the support level at the $0.69 handle would trigger a further sell off down to $0.6853, which is the 50% extension of the height of the bearish pennant.

AUDUSD trend
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AUS200.I under pressure

Yesterday the ASX200 index (XJO) made a much needed relief rebound. However it failed to touch 5,000. When the US market opened, AUS200 made a sharp reversal to sell off down to the March 2009 uptrend which would be the key support level at 4,900, while the VIX has rallied back up towards 25.

Despite China's better than expected trade balance, the Shanghai Composite showed a lot of weakness by closing below the psychological level 3,000 for the first time since the August selloff last year. We see this price action as a critical indication of the strong downward momentum. So 5,000 should remain as a solid resistance level, and we expect the AUS200 to test the August low of 4,766 in the very near term

Brief AUS200.I rebound
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– Edited by Robert Ryan

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

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