Article / 23 September 2016 at 0:38 GMT

Today's Trade: Strong finish in sight this week as ASX200 makes gains

Trading Desk / Saxo Capital Markets

  • Commodities jumped for a sixth straight day as oil topped $46/barrel
  • The S&P/ASX200 has now rallied over 5% from the recent September low
  • Mining and energy sectors are driving up the benchmark index
  • A weekly close above 5,400 could signal continued upward momentum
By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 headed higher at the open, helped by the financial sector; the benchmark index was up 0.34% to 5,392.900 at 1032 AEST (0032 GMT). 
  • From the US to Europe and Asia, markets are sending a clear signal -- the era of cheap money is far from over.

 Gold prices have risen following Fed inaction on interest rates; gold for December delivery settled up 1% on the Comex, in its fourth straight day of gains. Photo: iStock

  • Traders piled into equities, bonds and commodities after the Federal Reserve reined in its outlook for future interest- rate increases, soothing concern that central banks globally would taper stimulus efforts. US stocks approached record highs, bonds in the euro region had their best day since Brexit, while the dollar slipped against most major currencies. The decision also gave fresh impetus to emerging-market assets, with Russia and Argentina announcing debt sales. Commodities jumped for a sixth straight day as oil topped $46/barrel.
  • Attempts by major central banks to boost growth with looser policy have propelled stocks since the global financial crisis, and government bond yields have fallen to record lows. Hours before the Fed scaled back its tightening plans Wednesday, Japan tweaked its stimulus program, fuelling bets that Europe will keep its easing stance. Thomas Lee, the biggest equity bull on Wall Street, said the U.S. monetary restraint is one more reason to bet on share gains. Meanwhile, former Fed Chairman Alan Greenspan called the rally in Treasuries unsustainable.
  • With central banks moving off centre stage following the Fed and BOJ meetings, investors will turn their attention to the first of three US presidential debates on Monday and the earnings season due to get underway in about three weeks. Data Thursday was mixed for the world’s largest economy -- sales of previously owned homes declined in August, while filings for unemployment benefits dropped last week to match the lowest level since April.
  • MSCI’s gauge of global equities climbed 1.2%, the All-Country World Index’s first back- to-back gain of more than 1% since the end of June. Emerging-market shares posted their biggest advance in more than two months.
  • The S&P 500 Index added 0.7% to 2,177.18, rising back above its 50-day moving average for the first time in almost two weeks. The Nasdaq Composite Index rose to an all-time high.
  • For the first time since Bloomberg began compiling 2016 targets last year, forecasters have increased their estimates for the level at which the Stoxx Europe 600 Index will end in December. They now see the gauge hitting 346, according to the average of 10 projections compiled by Bloomberg, up from 334 last month. The measure, propelled to its biggest jump in almost three weeks by the Fed, closed 0.5% above that level Thursday.
  • Futures on Asian indexes signalled gains, with markets in Japan to resume Friday after missing out on the post-Fed risk rally. Contracts on the Nikkei 225 Stock Average traded in Chicago jumped 1.6%, while futures on equity benchmarks in Australia, South Korea, Hong Kong and China climbed at least 0.3%.
  • The CBOE Volatility Index (VIX) fell 16.46% after the Fed kept rates unchanged. Overnight it dropped another 9.62% to 12.02
  • Ten-year Treasury yields dropped three basis points, or 0.03%, to 1.62%, according to Bloomberg Bond Trader data, declining for a third straight session.
  • Treasuries have rallied this year as economic circumstances in the U.S. and abroad caused the Fed to delay tightening policy multiple times after a lift-off from near zero in December. While signs of U.S. labour-market strength have led bond traders to price in the growing likelihood of a rate increase by year-end, other data such as August retail sales and industrial production have shown declines.
  • The probability of a Fed move this year is about 59%, according to futures data compiled by Bloomberg. Still, the tightening cycle is poised to be the slowest and shallowest in recent history, based on the market for overnight index swaps, which reflect expectations for the fed funds effective rate.
  • Benchmark German 10-year bund yields dropped the most since June 24, while those on Spanish five- and 10-year securities slid to all-time lows. The biggest gains were in longer-dated securities, which are more sensitive to the outlook for inflation and had underperformed last week in the run up to the BOJ and Fed meetings.
  • Russia offered investors $1.25 billion of 4.75% bonds in a tap of the 2026 notes it sold in May, according to the Finance Ministry. The Eurobonds were priced at 106.75% of face value, the ministry said. Meanwhile, Argentina has picked three banks to pitch an offering of at least 500 million euros ($562 million) bonds to European investors this month.
  • Bloomberg’s Dollar Spot Index, which tracks the greenback against 10 major peers, dropped 0.1%, swelling its decline this year to about 4%. The greenback fell against most higher-yielding currencies including South Korea’s won and the Mexican peso.
  • Elsewhere in the world, the South African rand halted a six-day rally after South Africa’s Reserve Bank left interest rates unchanged for a third straight meeting and it signalled it may be close to the end of its policy-tightening cycle. Norway’s krone led gains among major currencies after the nation’s central bank refrained from cutting interest rates. New Zealand’s dollar weakened for the first time in four days after policy makers signalled further easing.
  • The weaker dollar spurred gains in raw materials as the Bloomberg Commodity Index climbed for a sixth day, the longest advance in a month.
  • Oil rose to a two-week high after rival OPEC members Saudi Arabia and Iran met in Vienna a week before the organization holds talks in Algeria.
  • Futures rose 2.2% to $46.32/barrel in New York. Officials from Saudi Arabia and Iran, whose rivalry derailed an oil supply accord earlier this year, along with fellow Opec member Qatar, met at the bloc’s headquarters. US crude supplies have dropped to the lowest level since February, trimming stockpiles that remain at the highest seasonal level in at least three decades, government data showed Wednesday.
  • Aluminium and nickel led a surge in industrial metals, with the London Metal Exchange LMEX Index jumping 2.1% Thursday, the most since July 12. Nickel has been surging since the Philippines began checking mines as part of an environmental audit that may lead to mass suspensions. The Southeast Asian country is the world’s largest mined nickel supplier.
  • Gold futures jumped 1% to $1,344.70, their highest price in more than a month.
Source: Bloomberg,

Local markets

  • Bank of New York Australia ADR Index +0.7%, BHP Billiton ADR +0.9% to A$21.24 equivalent, broadly in line with last Sydney close, Rio Tinto ADR +1.5% to A$42.55 equivalent, 13.5% discount to last Sydney close
  • Gold prices rose to a two-week high Thursday after the Federal Reserve left interest rates unchanged at its latest policy meeting. Gold for December delivery settled up 1% to $1,344.70 a troy ounce on Comex, marking its fourth straight day of gains. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil prices continued their rise Thursday, pushed higher by the previous day’s surprise drop in U.S. inventory levels and the weakening U.S. dollar. U.S. oil for November delivery rose 98 cents, or 2.16%, to $46.32/barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained 82 cents, or 1.99%, to $47.65/b on ICE Futures Europe. Oil has fluctuated since August’s rally on speculation the Organization of Petroleum Exporting Countries and Russia will agree on ways to stabilize the market when they meet Sept. 28. While Venezuelan President Nicolas Maduro said members are close to a deal, all but two of 23 analysts surveyed by Bloomberg said an agreement to limit production is unlikely. Freezing output was proposed in February, but a meeting in April ended with no final accord. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore lifted 0.8% to $US56.34 a tonne as a surge in coal prices lifts sentiment. According to brokerage houses in China, speculation of a coal shortage has lifted coal prices and bolstered other raw materials in the steel supply chain. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper rallied to a six-week high. Benchmark copper on the London Metal Exchange ended up 1.9 per cent to $US4855 a tonne, having touched $US4858.50, its highest since August 12. Zinc gained one% to $US2294, while lead rose 0.7% to $US1949 and tin climbed 0.9% to $US19,485. Nickel added 3.1% to end at a six-week high of $US10,660. It has been boosted in recent weeks by worries about supplies from the Philippines, where the government is carrying out an environmental audit of mines. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • ANZ Bank (ANZ): Prices EUR1b 10-yr debt
  • Estia Health (EHE): U.S. and Chinese groups said to be potential suitors for co.: Australian; NOTE: Shares have fallen ~30% in past mo.
  • Fonterra (FSF): Plans to cut board size to 11
  • Metals X (MLX): Accepted A$3m settlement from Tanami Gold
  • Mesoblast (MSB): U.S.-traded shares halted on limit up trading pause
  • News Corp. (NWS): Expects strong Ebitda growth this yr: CEO
  • Qube (QUB): Raised to outperform vs neutral at Macquarie
  • Shine (SHJ): Says no law firm contacted co. on potential class action
Broker upgrades, downgrades
  • Brickworks (BKW): Raised to neutral vs underperform at Macquarie
  • Iluka Resources (ILU): Raised to buy vs neutral at UBS
  • Insurance Australia Group (IAG): Raised to buy from hold at Bell Potter

AUDUSD strengthens

AUDUSD continue to strengthen but failed to stay above the 76.4% retracement level of 0.7664. Key resistance level remains at 0.77 and the support level would be 0.76.

Plunging volatilities (VIX) usually supports AUDUSD to the upside but US dollar index (DX) bounced off the uptrend near 95, so we may see some retracements towards 0.76 in the near term.

AUDUSD trend
Resistance may curb rising S&P/ASX200

The S&P500 gapped up last night but at the same time it also filled the previous gap at 2,177.50 so potential pull back is possible tonight. The S&P/ASX200 has now rallied over 5% from the recent September low of 5,150 as the mining and energy sectors are driving it up; however 5,400 is expected to remain as a key resistance level. A weekly close above 5,400 is likely to signal further continuation of the current upward momentum.
S&P/ASX200 rallies
Source: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters. Create your own charts with SaxoTrader; click here to learn more. 

– Edited by Robert Ryan

For more on forex, click here.

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


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