Today's Trade: Surge on Wall St gives S&P/ASX200 an opening lift
- The S&P 500 hit a record high, extending a rally sparked by strong jobs data
- Iron ore prices have ticked up by 0.9%, to $55.68 a tonne
- Oil prices lost ground after reaching a two-month high
- Equity indices are longer correlating with crude; they have diverged for two weeks
- AUDUSD failed to hold above interim resistance at 0.7570
Overnight and early trading
- The S&P/ASX200 kicked higher at the open; it was up 0.6% to 5,369.30 at 1011 AEST (0011 GMT).
- Stocks rose overnight, sending the S&P 500 Index to an all-time high on speculation the U.S. economy remains strong enough to propel global growth without forcing the Federal Reserve to raise interest rates. The dollar climbed with industrial metals.
- The U.S. equity benchmark topped its intraday record from May 2015, extending a rally sparked by Friday’s jobs data, which restored confidence in the world’s largest economy. Treasuries fell from record highs, while emerging-market assets surged.
- Japanese shares rallied as the yen slid after Prime Minister Shinzo Abe’s success in upper house elections spurred bets he’ll boost fiscal stimulus. The FTSE 100 Index entered a bull market as political turmoil in the UK eased. Nickel advanced with copper, while oil fell from a two-month high.
- Global equities are almost back to where they were when the U.K. voted to leave the European Union, an outcome that surprised many investors and wiped almost $4 trillion off stock values. Shares are finding support from the prospect policy makers will act to stem any fallout from Brexit, with the Bank of England tipped to cut rates this week and Japanese Prime Minister Shinzo Abe expected to ramp up fiscal stimulus following victory in upper house elections at the weekend. UK assets were also supported by Theresa May’s elevation to the post of prime minister, which filled a leadership vacuum that has been in place since David Cameron notified his intention to resign on the day after the June 23 referendum.
- The S&P 500 rose 0.3% to 2,1437.16 as of 1600 in New York (2000 GMT), closing at a record for the first time in 13 months. The rally ended a drought of 285 days without a fresh all-time high, the longest stretch outside a bear market since 1985. The Dow Jones Industrial Average moved within 0.2% of its record from May 2015, while the Nasdaq Composite Index briefly topped 5,000 points for the first time this year.
- Alcoa Inc. unofficially kicked off the earnings season after markets closed Monday, reporting profit for the second quarter that topped estimates. The aluminum maker’s shares jumped about 3.9% in extended trading. Analysts forecast profit at S&P 500 firms will drop 5.7% in the period, the fifth straight quarterly drop should it eventuate, and the longest streak of declines since 2009.
- In Europe, the Stoxx 600 Index added 1.6% for a third daily advance as all 19 industry groups rose. The FTSE 100 Index climbed 1.4%, bringing its rebound from a 3 1/2- year low reached in February to more than 20%, the common definition of a bull market. The UK equity benchmark has erased its post-Brexit vote drop.
- The MSCI Emerging Markets Index rose 2.2% in a third day of gains, leaving the gauge up 6.1% this year. Exporters led Monday’s advance, with shares of Taiwan Semiconductor Manufacturing Co. climbing to a record.
- Futures pointed to a second day of gains in Asia, with contracts on the Nikkei 225 Stock Average up 2.5% in Osaka, following a 4% surge in the Japanese index on Monday. Futures on stock measures in Australia, South Korea and Hong Kong also climbed at least 0.1%.
- The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.5% after slipping 0.3% in the Friday session. Futures put the odds of a Fed rate increase this year at 21%, up from 12% before Friday’s payrolls figures. They show zero odds of a cut before the end of the year.
- The yen slumped 2.3% to 102.80 per dollar, suffering its steepest intraday slide since January, while the Korean won strengthened 1.3%, its biggest advance in a month, after last week’s U.S. payrolls report boosted prospects for the Asian nation’s exporters. The pound advanced, reversing an earlier loss, after Andrea Leadsom pulled out of the race to succeed David Cameron, paving the way for May, currently Home Secretary, to become Britain’s next prime minister. Sterling was 0.3% stronger at $1.30, having earlier depreciated by as much as 0.8%. The MSCI Emerging Markets Currency Index advanced for a third day, rising 0.5%. The Bloomberg Commodity Index fell 0.4%, building on last week’s 3.7% drop that marked its steepest weekly slide since January.
- Crude fell to a two-month low as an increase in active US oil rigs signaled a a potential easing in output declines and as the dollar’s rebound cut appetite for oil. West Texas Intermediate crude for August delivery fell 1.4% to settle at $44.76 a barrel.
- Gold fell from its highest level in more than two years as the dollar’s climb and the gains in equities reduced demand for the precious metal as a store of value. Futures dropped 0.1% to settle at $1,356.60/oz. Copper helped lead a rally in base metals as prospects for stimulus in Japan and the better-than-estimated US jobs data bolstered the outlook for metals demand. Mining stocks in the Americas rose to their highest point in a year.
- Treasuries declined, reversing much of last week’s gains, as an auction of $24 billion in three-year notes attracted the weakest demand since 2009. Benchmark 10-year yields rose seven basis points, or 0.07%age point, to 1.43%, according to Bloomberg Bond Trader data. Rates declined nine basis points last week, touching an all-time low of 1.318% on July 6.
- Similar-maturity debt in Japan yielded minus 0.27%, after yields touched an all-time low of minus 0.30% on Friday. Japan’s biggest bond bulls say the plunge in yields below zero in Tokyo foreshadows record-breaking gains for U.S. Treasuries. Mitsubishi UFJ Kokusai Asset Management says U.S. 10-year yields will drop to 1% as soon as this month, having touched an unprecedented 1.32% last week. In Europe, Portugal’s government bonds fell for a fifth day, the longest run of declines since February, as the nation faced the prospect of a fine for breaching budget-deficit limits.
- Source: Bloomberg, TradingFloor.com
US earnings due out this week
- Tuesday earnings: Fastenal, Adtran
- Wednesday Earnings: CSX, Yum Brands
- Thursdaye earnings: JPMorgan Chase, BlackRock, Delta Air Lines, Taiwan Semiconductor, Progressive, First Republic Bank
- Friday earnings: Citigroup, Wells Fargo, US Bancorp, PNC, Shaw Communications
- Bank of New York Australia ADR Index +2%, BHP Billiton ADR +1.7% to A$19.81 equivalent, 1.1% premium to last Sydney close, Rio Tinto ADR +1.7% to A$42.64 equivalent, 14% discount to last Sydney close
- Gold fell from the highest in more than two years as equities surged and the dollar advanced following a jump in US payrolls, reducing demand for the metal as a store of value. Gold futures for August delivery lost 0.1% to settle at $1,356.60 an ounce on the Comex in New York. Silver futures for September delivery climbed 1% to $20.304 an ounce on the Comex. The gold sector in Toronto were up 0.42%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Crude fell to a two-month low as a strengthening dollar reduced investor appetite and the rising US oil rig count signalled the output decline may slow. Futures dropped 1.4% in New York. Rigs targeting oil in the U.S. rose by 10 to 351 last week, Baker Hughes Inc. said on its website on June 8. Oil prices swung between gains and losses earlier Monday as the global equity rally and a strengthening dollar gave crude traders conflicting signals. A stronger greenback reduces the appeal of commodities priced in the currency.
- West Texas Intermediate crude for August delivery fell $0.65 to settle at $44.76/barrel on the New York Mercantile Exchange, the lowest close since May 10. Total volume traded was 5% above the 100-day average at 2:50 p.m. Brent for September settlement dropped $0.51, or 1.1%, to $46.25/b on the London-based ICE Futures Europe exchange. It’s the lowest close since May 10. The global benchmark oil ended the session at a $0.73 premium to WTI for September delivery. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore rose $0.51, or 0.9%, to $55.68 a ton, according to a price index compiled by Metal Bulletin. Iron ore shipments from the world’s biggest bulk-export terminal in Australia surged to a record in June, buttressing a flurry of predictions that prices are headed back below $50 a metric ton into the year-end as stockpiles at Chinese ports expand further. Exports from Port Hedland totaled 41.8 million metric tons from 39.4 million in May and 38.4mln a year earlier, according to data from the Pilbara Ports Authority on Monday. Cargoes to China were 34.5 mln tonnes, also an all-time high, from 31.7mln in May and 32.6mln in June 2015. The surge from Port Hedland adds to evidence of robust low- cost supply even as China’s steel output slows, and the increase may hurt prices that rebounded 28% in 2016 after three years of losses. Citigroup Inc. maintained it bearish outlook on iron ore in a note received on Monday, and Clarksons Platou Securities Inc. said further gains in output, including from Roy Hill Holdings Pty’s new mine, mean prices may be set to fall.. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
- Copper helped lead a rally of industrial metals as prospects for stimulus in Japan and better-than- estimated U.S. jobs data boosted the outlook for commodities demand. Mining stocks in the Americas rose to the highest in a year. Copper for delivery in three months climbed 0.8% to settle at $4,749 a tonne ($2.15 a pound) at 5:51 p.m. on the London Metal Exchange (1651 GMT), capping the first consecutive sessions of gains in a week.
- Copper futures for September delivery gained 1.3% to $2.1475 a pound on Comex. The Bloomberg Americas Mining Index rose as much as 1.2% to the highest since May 2015. Gains were led by miners including First Quantum Minerals Ltd., Freeport-McMoRan Inc. and Teck Resources Ltd., which all climbed more than 3.5%. Nickel was the biggest gainer on the LME, rising as much as 3.1%. The Philippines, the top producer of nickel ore, has put its suppliers on notice that any mines falling short of environmental standards will be shut down. In addition, Jinchuan Group Co., China’s biggest refiner, said Friday it may cut production by as much as 9% this year as smelters worldwide struggle with historically low prices. On the LME, lead and tin also gained, while aluminum and zinc dropped. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- Alcoa reported quarterly earnings and revenue that beat analysts' expectations on Monday. The company posted adjusted second-quarter earnings per share of 15 cents on revenue of $5.3 billion. Analysts expected the company to report earnings of about 9 cents per share on $5.2 billion in revenue, according to a consensus estimate from Thomson Reuters. After the announcement, Alcoa shares jumped more than 4% in after hours trading.
- Aurizon (AZJ): Said to be among bidders for Glencore’s GRail, AFR says.
- Platinum Asset (PTM): Funds under management $A23.6bn as of June 30 vs $24.8bn May 31; drop includes $A907.3mln cash distribution.
Independence Group (IGO.xasx) rose to a near-one year high on positive copper output and currently is comfortably trading above the inverse head and shoulder breakout from a week ago.
Yesterday’s high came in at exactly 50% of the head to shoulder extension range and the market may now be targeting 5.00 as the final price. Levels to exercise caution for the longs sit at 4.39 & 4.63.
Independence Group (IGO.xasx)
- SG Fleet Group (SGF): Cut to hold from buy at Bell Potter.
- Altium (ALU): Cut to sell from hold at Bell Potter.
The NAB business confidence data will be released at 1130 AEST (0130 GMT), but it should have minimal impact on the AUDUSD.
The upside momentum of the US dollar index (DX) seems to be increasing although it is still hovering at the 200 day moving average. The strength of the US dollar appears to be putting some downward pressure on the precious metal. The Fibonacci extension of the rounding bottom has been working for the silver (XAGUSD).
Yesterday’s high at 20.67 was the 200% extension and since then the topside momentum is fading. We are anticipating further pull back towards 19.50 where we would buy as we have a medium term bullish bias.
The S&P/ASX200 (AUS200) continues to benefit from the risk on sentiments of the major indices and it is now only 60 points away from the May double top level 5,430, which is expected to be a major test.
Until the AUS200 approaches close to 5,430, we do not see any clear sell signal. In the Asian session, the price actions of the Nikkei should set the tone as the Bank of Japan's stimulus move is highly likely to begin soon.
The S&P500 (US500) extended the gains to make a fresh high above the previous May 15 high of 2,136.7, but the rally was limited to line of the previous uptrend. The equity indices no longer have correlations to the price of crude oil, as they continue to diverge in the last two weeks.
Although it seems dangerous to fade the recent rally yet, we believe the US500 is trading at an overbought area, therefore we rather wait until we see a reversal daily candlestick pattern.
S&P500 (US500) trend
Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
– Edited by Robert Ryan
Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch the recording of this Week’s Macro Monday Call.