Today's Trade: Stock claw back early losses
- Muted start as ASX 200 falls then climbs 3 points above Friday's finish at 5791.8
- Banks all down with BHP Billiton, Rio Tinto and Fortescue lower
- Oil prices have taken a fall overnight based on demand concerns
By Saxo Capital Markets
Overnight and early trading
Stocks in Asia looked set to fall after a decline in US equities and a rise in Treasuries left risk appetite dampened with trade worries a key market driver.
Futures on equities in Japan and Australia fell, while those in Hong Kong nudged higher.
Chinese equity markets are due to reopen after a holiday, with traders getting their first chance to react to President Donald Trump’s order for a review of additional tariffs that prompted an aggressive response from China.
The Dow Jones Industrial Average tumbled more than 550 points as growing tensions between the US and China exacerbated investors’ fears of an all-out trade war between the world’s largest economies.
All 11 major sectors of the S&P 500 declined, as investors broadly sold stocks, with the deepest declines among companies that stand to suffer from an escalation in protectionist trade policies, such as big industrial manufacturers like Boeing and Caterpillar.
The losses pushed major indexes lower for the week and break the Dow’s three-day winning streak, its longest in more than a month. The blue-chip index fell 0.7% for the week.
Investors worry the tit-for-tat responses between the US and China could translate into more severe and farther-reaching sanctions that pressure American companies and raise prices for consumers.
Such a move could crimp the global economic growth engine that has acted as a key pillar for stocks at a time when many investors were hoping the fiscal stimulative tax cut passed last year would lead to better corporate profits and an even stronger economy.
Those fears only deepened Friday, sending the Dow down nearly 800 points at one point, as several Trump administration officials tried to allay investors’ concerns of a trade conflict.
The Dow Jones Industrial Average fell 572 points, or 2.3%, to 23,933, while the S&P 500 declined 2.2%.
The Nasdaq Composite slid 2.3%. Friday’s losses also wiped out weekly gains for the S&P 500 and the Nasdaq. The S&P 500 fell 1.4% and the Nasdaq declined 2.1%.
Investors moved into assets that tend to hold up better during times of uncertainty, with so-called haven assets such as bonds and gold rising.
Shares of Boeing, which has been cited as a bellwether by analysts to gauge investors’ reaction to trade-sensitive stocks, fell 3.1%.
Heavy machinery manufacturers Caterpillar and Deere dropped 3.5% and 3.9%, respectively.
Financial firms also weighed heavily on major indexes after those stocks were hurt by stronger bond prices, which rose after the latest trade salvos.
Higher bond prices and lower yields tend to narrow the gap between short- and long-dated Treasury notes and crimp lenders’ profits.
Shares of Goldman Sachs Group shed 2.3%, while JPMorgan Chase fell 2.5%. The KBW Nasdaq Bank Index of large U.S. lenders slid 2.7%.
The yield on the benchmark 10-year US Treasury note fell to 2.779% from 2.830% on Thursday. Yields move inversely to prices.
Meanwhile, the latest jobs report showed that wages grew as expected from a year earlier, with average hourly earnings rising 2.7% in March.
That further eased worries among some investors that inflation had been rising faster than expected this year and that the Fed would have to hasten its pace of interest-rate hikes to keep the economy from overheating.
Elsewhere, the Stoxx Europe 600 fell 0.3%, but finished the week up 1.1%.
Information sources: Bloomberg, TradingFloor.com, WSJ.com, CNBC
Local markets and commodities
- S&P/ASX 200 Index futures down 0.6% to 5,739 as of 6:59 a.m. Futures relative to fair value suggest an early decline of 0.6%.
- Bank of New York Australia ADR Index is down 1.4% to 262.8, BHP Billiton ADRs are down 1.9% to A$28.41 equivalent, a 0.8% discount to last Sydney close, Rio Tinto ADRs are down 1.9% to A$65.82 equivalent, a 10.1% discount to last Sydney close.
- Gold prices rose Friday after government data showed that the US economy added fewer jobs than economists expected last month. Futures for June delivery settled up 0.6% to $1,336.10 a troy ounce on Comex after the Labor Department said US nonfarm payrolls rose by 103,000 in March, falling short of expectations for an increase of 178,000 new jobs. Metals traders are also closely watching the latest news on trade policy between the US and China, as both countries have levied tariffs against each other, and President Donald Trump threatens to escalate the punitive measures. Goldies rallied 1.1% in Toronto on Friday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
- Oil prices fell Friday, capping their worst week in two months as investors became more fearful of rising trade tensions between the U.S. and China. Oil prices have lately mirrored equity markets, which stumbled as fears of a trade war between the world’s two biggest economies grew throughout the week. Trump said on Thursday he was considering imposing tariffs on an additional $100 billion in imports from China. That would be on top of the levies on $50 billion worth of Chinese goods he announced earlier in the week and could provoke another retaliatory salvo from Beijing.
- US crude futures fell $1.48, or 2.33%, to $62.06/barrel on the New York Mercantile Exchange. Prices ended the week down 4.43% - their biggest weekly decline since February 9. Brent, the global benchmark, fell $1.22, or 1.79%, to $67.11/b on ICE Futures Europe Friday and ended the week down 3.22% - their worst week since March 2. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
- Iron ore was flat at $63.57/tonne as prices found some support, with futures prices across Asian rising slightly. However the gains were limited, with traders remaining cautious amid rising trade tensions. However the data released on Friday showed the market remains strong. Iron ore exports from Port Hedland in Western Australia recorded a record high in March. Shipments reached 42.08 million tonnes, up from 38.5mt in February and 39.09mt this time last year. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Aluminium rebounded on Friday after the United States imposed sanctions on allies of President Vladimir Putin and their companies, including Rusal. The US sanctions hit 24 Russians and a range of companies in one of Washington's most aggressive moves to punish Moscow for what it called a range of "malign activity". Benchmark aluminium on the London Metal Exchange closed up 1.6% at $2042/t, bouncing from negative territory after the sanctions were announced. Metals pared losses after the dollar reversed direction and went into the red as a report showed the US economy in March created the fewest jobs in six months and as investors worried about trade wars. Weighing on metals was news that China warned it was fully prepared to respond with a "fierce counter strike" of fresh measures if the United States follows through on President Donald Trump's threat to slap tariffs on an additional $US100 billion in Chinese goods. Nickel fell partly on worries about a sluggish stainless steel market. It closed down 0.4% at $13,275, paring losses of more than 3% during the session. LME three-month copper shed 0.7% to end at $6769/t, paring a 1.4% advance from Thursday.
- In other news: Ex-Dividend: Adairs, Brickworks, Clover Corp; AGL Energy (AGL AU): Alinta to Make Formal Offer For AGL’s Liddell Plant By End-April; Mineral Resources (MIN AU): Atlas Iron Said to Support Scrip Offer From MinRes, Which May Be 40%-50% Above Last Close: AFR; Wesfarmers (WES AU): Private Equity Firms Said to Bid for Homebase, The Times Says; A2 Milk (A2M AU), CSL (CSL AU): Valuations Too High, Investors Can Buy Similar Calibre Businesses Cheaper Overseas: Perpetual Global Share Fund Manager Garry Laurence Says: AFR; CSL (CSL AU): Gets FDA Orphan Status for C1 Esterase Inhibitor, Human; Nine Entertainment (NEC AU), Ten network (TEN AU): Said to Offer A$900m for 6-Year Cricket Rights: AFR; Orocobre (ORE AU), Galaxy Resources (GXY AU), Pilbara Minerals (PLS AU): Lithium Glut Fears Seen Tempered by Optimism Over Rising Demand; Sundance Energy (SEA AU): Plans Capital Raising to Fund U.S. Shale Sector Entry: Australian
- Perpetual (PPT AU): Upgraded to Buy at Morningstar
- BHP (BHP AU): Upgraded to Buy at SocGen
- Rio Tinto (RIO LN): Downgraded to Neutral at Exane; Price Target 40 Pounds
- Bluescope (BSL AU): Ratings Upgraded to Baa3 at Moody’s; Outlook Stable
Dow futures and gold
The Dow has breathing room ahead of the 200 DMA threat with the 2018 downtrend that has capped gains year to date to serve as test to claim this week before aggressive gains are seen. Till then, selling the retest could be the trade.
Gold has a clearly defined year to date consolidation so expect the range to continue until a clear break is seen. Support is at 1,310, resistance is at 1,355 and only a break either way followed by 2 consecutive closes to generate stronger moves at its respective direction.
XAUUSD monthly chart
Source; Saxo Bank
-- Edited by Adam Courtenay
Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Please join us for our Weekly Macro Call at 10:30 AEST: https://saxobank.adobeconnect.com/morning-call/