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Article / 16 March 2016 at 23:33 GMT

Today's Trade: Strong start for ASX200 buoyed by FOMC comments

Trading Desk / Saxo Capital Markets
Australia
  • Local markets opened strongly following comments from the FOMC
  • Retailer Myer is up nearly 8% at the open after posting strong sales growth figures
  • As expected the FOMC held rates at the current level in a dovish statement
  • US crude oil rocketed 5.8% to $38.46 a barrel
  • The key event for AUDUSD today will be the unemployment rate announcement

By Saxo Capital Markets (Australia)

Local markets opened strongly as expected, fuelled by overnight comments from the FOMC. The ASX200 has added 0.65% to 5152.4, while the broader All Ords is up by the same amount at 5209.6.

Banks and miners are leading the charge, while retailer Myer posted its strongest sales growth for six years and is up nearly 8%.


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 Hard at work ... the key event for AUDUSD today is the unemployment rate, which is
expected to hold steady at 6%. Photo: iStock

Overnight

  • US stocks rose overnight after the FOMC announced a more cautious plan for interest-rate increases. Additionally the rally was spurred by a surge in the price of oil
  • The Dow Jones Industrial Average gained 74.23 points, or 0.4%, to 17325.76, its highest close of the year. The S&P 500 rose 11.29 points, or 0.6%, to 2027.22. The Nasdaq Composite advanced 35.30 points, or 0.7%, to 4763.97. Ahead of the decision all indexes were trading slightly lower
  • Freeport-McMoRan (FCX) and Southwestern Energy (SWN) were the biggest gainers on the S&P overnight, rising 10.25% & 9.27% respectively
  • US crude oil rocketed 5.8% to $38.46 a barrel, on the back of news that officials from Opec would limit their output even if Iran does not cooperate. The Qatar energy minister also commented that producers were looking to meet on April 17 in Doha
  • As expected the FOMC held rates at the current level, however more importantly investors have said officials now expect the FOMC to raise the rate to 0.875% by the end on 2016. This is implying just two interest-rate increases, half of the initial expectation in December
  • The dovish actions seen overnight reflect the Fed’s uncertainty about the global economy
  • The US dollar fell against most of the major currency pairs, with the dollar index last trading at 95.70, falling more than 1% after the Fed announcement. The euro broke $1.12 against the greenback, currently trading at $1.1212, its highest level in over a month
  • The CBOE Volatility Index (VIX), which is widely considered the best fear gauge in the market, fell below 15.5, its lowest intraday level since Christmas Eve last year
  • European equites finished mixed overnight as a raft of announcements loomed over the market: the UK budget announcement was digested by investors as well as the market looking forward to the FOMC announcement (European equities were closed around the FOMC release)
  • The Stoxx 600 index ended flat, the German Dax rose 0.5%, the French CAC dropped 0.22% while outside the currency bloc the FTSE rose 0.58%
  • UK bank shares closed out the day mixed, with HSBC closing up close to 1%, while Lloyds and Standard Chartered closed in the red down 1.66% and 0.61% respectively
  • Credit Suisse bounced off intraday lows, however finished 4.9% lower, after the former prime minister of Georgia filled a criminal complaint against the bank, with allegations related to money laundering

Local markets and commodities

  • Bank of New York Australia ADR Index +3.2%. BHP Billiton ADR +4%. Rio Tinto ADR +4%
  • Spot gold has rallied on the back of the Fed meeting, up 2.2% to $1,261. The comments by Yellen adjusted the expectation of four rate rises in December to two rate rises this morning. This has seen strong buying in gold as US interest rates look less appealing than before. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Crude oil prices jumped for a number of factors. Firstly was the weaker USD. Then there was lower than expected increases to inventories for the week. Finally the Qatar energy minister said that producers were looking to meet on April 17 in Doha, before the next FOMC gathering. WTI and Brent both closed up 4.3% and $2.9% to $38.41 and $40.23 respectively. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore prices have risen for the first time in seven days, up 1.3% to $53.57. Shorts appear to be entering the market again, admittedly a little shyly, after last Monday’s 19% rally. Steel rebar prices rose giving support to iron ore. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were mixed. Zinc was of interest as supply fell 1.12mt in January, which has put the market more in balance. Zinc finished the day up 0.3% to $1,748. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • Australia seen adding 13,500 jobs in February, according to estimates of 28 economists compiled by Bloomberg
  • Unemployment rate seen unchanged at 6%; data due 1130 AEDT; Preview
  • Aurizon (AZJ), Qube (QUB), Asciano (AIO): Glencore said to discuss selling Hunter Valley train unit
  • ANZ Bank (ANZ): CEO says still committed to Asia
  • BHP (BHP): CEO Mackenzie says too early to call bottom in cycle; Eyes possible copper, petroleum asset buys
  • Insurance Australia Group (IAG): S&P affirms company at A rating
  • Newcrest (NCM): Baa3 rating affirmed, outlook stable at Moody’s
  • Mirvac (MGR), Dexus (DXS), Investa Office Fund (IOF): Mirvac consortium planning A$2.3b bid for Investa
  • Myer (MYR): Scheduled to release 1H results; Underlying profit est. $A55.4mln (3 analysts)
  • Whitehaven (WHC), New Hope (NHC): Peabody says may need to file bankruptcy amid coal rout; NOTE: Peabody has six mining operations in Queensland, three in NSW
  • Woolworths (WOW), Wesfarmers (WES): Woolworths plans to extend supplier payments to 60 days, 2-3x terms at Coles, to free cash

Stock to watch: Freelancer (FLN.xasx)

FLN.xasx offered promise on a cup-and-handle formation with a new breakout to the upside. However, after reporting below expectations the market has seen a selloff take place.

October's upside breakout price had been tested in January before consolidating in February and selling through this level in March. This failure to hold at the 38.2% Fibonacci retracement level has shown FLN.xasx is out of favour with the market, in particular during a time when the XJO has rallied 10%. 

FLN is now at the 50% retracement level and at the floor of support that was offered from June to September 2015. Failing to hold this level, we could expect FLN’s next level to be the key $1.00 price point.

1
 Source: Saxo Bank

Broker upgrades and downgrades

  • Bendigo & Adelaide Bank (BEN): Cut to hold vs buy at Shaw & Partners
  • Iress (IRE): Rated new sector perform at RBC Capital
  • Westpac (WBC): Cut to hold vs buy at Shaw & Partners

Performance

2
 
AUDUSD

The US dollar sank to its lowest level in close to five months (see chart below) as the Federal Reserve scaled back expectations for the path of interest-rate increases in 2016, after holding its benchmark target steady. EURUSD surged to break last week’s top and our Aussie also rallied on the back of this weakening US dollar as well as strengthening commodity prices overnight. 

The key event for AUDUSD today will be the unemployment rate due for release at 1130 AEDT where it is expected to hold steady at 6%. The 100% inverse head and shoulder target over our local currency today is within reach and any positive prints at 1130 AEDT may aid AUDUSD to spike into this target level we have been flagging for weeks now.

Our sell level of 0.7600 from the March 8 report still stands as an attractive entry level:

Sell: AUDUSD good till cancel.

Entry: limit 0.76.

Stop loss: 0.7670.

Target 1: 0.75.

Target 2: 0.7380 previous double top.

Target 3: 0.7250 breakout level of the pennant.

3
 Source: Saxo Bank

4
 Source: Saxo Bank

AUS200.I

The AUS200.i index traded with positive momentum in line with US equities and is set to open strong this morning as mining heavyweights are expected to be well bid. Equity volumes were relatively light during yesterday’s ASX day session, especially across our banks, which leads us to think that the uptick we saw yesterday will go on to form a lower high. 

Monday’s top is now being keenly watched as it was met with resistance coinciding with the 200DMA (see chart again). Key event again for our local stocks is our unemployment rate due for release at 1130 AEDT.

Points of resistance should be between 5170 – 5180 while key support is at 5100. (5180 is a 75% Fibo retracement from this Monday’s top to the Tuesday’s low).

5
 Source: Saxo Bank

6
Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more 
 
Today's data sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Gayle Bryant

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch our daily morning call on Periscope at 0945 AEST: #SaxoAPAC 

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