Article / 03 May 2016 at 1:29 GMT

Today's Trade: Surprise rebound as S&P/ASX200 shrugs off ANZ result

Trading Desk / Saxo Capital Markets
  • The S&P/ASX 200 rallied following yesterday's decline, despite bad news from ANZ
  • But the ANZ and Westpac results add weight to bearish views of Aussie banks
  • The RBA rate decision and the federal budget make this a huge day for AUDUSD
  • The Chinese Caixin manufacturing PMI could also impact the Aussie dollar

By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 was up 0.78% to 5,283.70 at 1109 AEST (0109 GMT). The benchmark index more than made up for yesterday's decline.
  • US stocks started the month of May with decent gains, rising the most in more than two weeks.
  • The Dow Jones Industrial Average climbed 117.52 points, or 0.7%, to 17891.16. The S&P 500 gained 16.13 points, or 0.8%, to 2081.43 and the Nasdaq Composite advanced 42.24 points, or 0.9%, to 4817.59.

 China's Caixin manufacturing PMI is just of the announcements likely to impact the Aussie dollar today, with the RBA rate decision and federal budget out today too. Photo: iStock

  • Goldman Sachs rallied 1.26% contributing to most of the gains in the Dow.
  • Consumer discretionary shares were the biggest gainers in the S&P 500, rising 1.4%. Wynn Resorts climbed $5.98, or 6.8%, to $94.28 and rose 24.26, or 3.7%, to 683.85, following a 9.6% increase Friday.
  • Shares of Apple fell 10 cents, or 0.1%, to 93.64 marking the eighth consecutive session of losses, its longest losing streak since July 1998.
  • Gold futures climbed as much as 1.2% to $1,306 an ounce, the highest intraday level since January 2015, before settling at $1,295.80.
  • West Texas Intermediate crude lost 2.5% to $44.78/barrel, declining for a second day as near-record Iraqi output added barrels to a worldwide supply glut. Brent oil retreated 3.3%, following a 22% surge in April, to $45.83/b.
  • While the London Metal Exchange was shut Monday, the Bloomberg Commodity Index fell 0.9%, snapping a four-day advance
  • Prices for U.S. government bonds fell: the yield on the benchmark 10-year Treasury note was 1.865%, compared with 1.821% on Friday
  • Bond prices declined as a gauge of U.S. factory activity continued to show growth, despite slipping in April. The prices-paid component, a gauge of inflation, rose to 59 from 51.5 in March. That marked the highest level for the indicator since September 2014
  • The U.S. dollar index lost half a percent for a sixth-straight day of declines, its first since the one ended in early April. Earlier, the index hit its lowest since January 2015
  • The euro topped $1.15 to its highest since August 26 and the yen hit fresh highs against the dollar, going back to October 2014.
  • The CBOE Volatility Index (VIX) declined to close near 14.7.
  • Over in Europe the Stoxx Europe 600 inched lower by 0.1%. Trading in Europe was quiet, with markets in the UK and Ireland closed for a holiday. The CAC 40 closed up 0.3%, while the Dax pushed higher, ending up 0.84%, following an upbeat manufacturing survey report.
  • The April manufacturing PMI came in at 51.8, up from March's 50.7 figure, as new orders increased at a faster pace, with demand growing both domestically and abroad. This gave a boost to Germany's Dax, and to some of its automakers, including BMW and Daimler which rose 0.77% and 0.66% respectively.
  • Italian banks took a hammering after the cash call by Banca Popolare di Vicenza ended up being a flop. The bank was looking to raise 1.5 billion euros by issuing shares but only but said on the weekend that investors only placed orders for 7.7% of the shares, underlying the negative sentiment towards the Italian banking sector. Italy's new fund Atlante, which is supposed to act as a backstop for the banks, has stepped in to buy the remaining shares.
  • Banca Monte dei Paschi di Siena fell 5.5%, while Banca Popolare di Milano slipped 6% and Unicredit was off over 3.5% as a result. This weighed on Italy's FTSE MIB, which closed 1% down.
  • Intesa Sanpaolo said on Monday it has agreed to sell its Setefi and Intesa Sanpaolo Card payments unit to a consortium of buyers for around 1.04 billion ($1.2 billion), but shares closed down 2%.
  • Deutsche Bank ended 2.7% lower after U.K. watchdog the Financial Conduct Authority (FCA) said the German lender had "serious" and "systemic" failings in its controls against money laundering, sanctions and terrorist financing, according to the Financial Times. In a statement, Deutsche Bank said it is working with the regulators.
  • Insurance giant Allianz posted a 3.5% fall in first-quarter operating profit, however shares reacted positively after the firm's net profit rose to €2.2 billion, and said it was confident it could reach its 2016 outlook. Shares jumped 2.93%.
Local markets
  • Bank of New York Australia ADR Index -1.8%. Rio Tinto ADR -0.5%. Rio Tinto ADR -0.5%
  • Spot gold traded above $1,300 for the first time in 15 months before retracing to $1,291. Speculators were taking profits and reducing their exposure with the number of non-commercial positions falling by 2.1% to 184,000 contracts last week. Its worth noting short positions were also declining, indicating a pause in market sentiment before golds next move. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Crude oil fell overnight with WTI and Brent down 1.2% and 1.9% to $44.92 and $45.92 respectfully. Market concerns were raised overnight, as OPEC member Iraq announced it had shipped 3.36m/b day in April which was just below its record high in November. Although regional instability does loom over potential future supply, the excess production does raise enough of a concern that other members will lift volumes. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore markets were closed with China being on holiday. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals saw no major trading with the LME closed for May Day. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • ANZ Bank (ANZ): Scheduled to release first half results; NOTE: Adj. net income est. $A3.577bn (5 analysts)
  • GPT Group (GPT): Plans to sell Melbourne office tower held with Frasers for as much as A$300m: AFR
  • Mirvac (MGR): Scheduled to releases 3Q update; NOTE: In Feb. forecast FY16 op. EPS A$0.127-A$0.13; distribution A$0.097- A$0.099/shr
  • SMS Mgmt (SMX): CEO resigns; sees FY EBITDA A$15.5m-A$15.6m ex-items
  •  Transurban (TCL): Scheduled to host investor day; NOTE: In Feb. forecast 2016 distribution A$0.455
  • Westpac (WBC): Said to plan A$1b hybrid issue within 2 weeks: AFR; Ratings unchanged on 1H results: S&P
  • ANZ, one of Australia's big four banks, has just reported and the figures were not good. The concern over the past six months that has been the driving force behind lower banking share prices have been confirmed. ANZ cut its interim dividend from $A0.86 to $A0.80 as the bank moves to a more sustainable dividend payout ratio. ANZ also cut its dividend in response to bad debt costs returning to a more normalised level. The bank has decided to try and clean its slate as much as possible, writing down $A717mln in charges which is not uncommon for a new CEO although the timing was not ideal. Overall cash profits fell 24% to $2.8bn. Without the write-offs ANZ would have still missed analysts targets of $A3.58bn, with profit ex specific items at $A3.5bn.
Stock to watch: ANZ

The big four bank ANZ reported this morning and it has missed analyst expectations. We’ve been bearish the banks for a while now, and Westpac's reporting yesterday as well as ANZ’s reporting today show why.

ANZ on a weekly chart from their lows in 2011 to highs in 2015 have had a triple bottom at the 76.40% retracement level this year. On the daily chart ANZ has been making lower lows as it has been slowly consolidating. ANZ is expected to open down this morning and if the momentum continues watch for ANZ breaking its floor of support just above $22.00.

This will be an indicator the bank is looking for its next step down. A target of $17.30 which is a combination of 2011 lows and a 100% Fibonacci extension is not out of the question later this year. But it will all depend on breaking the 2016 floor first.
ANZ's long-term share price trend
ANZ's recent share price trend
US earnings due out this week

  • Tuesday: Pfizer, UBS, Clorox, Archer Daniels Midland, Sprint, CVS Health, Halliburton, Estee Lauder, Encana, Cummins, Devon Energy, CBS, Newfield Exploration, Etsy, Western Union, Match Group, Zillow, Duke Energy, Emerson, BNP Paribas, HSBC, Starwood Hotels, Valero Energy, Brink's, The New York Times Company, Pitney Bowes.
  • Wednesday: Time Warner, Tesla, Fitbit, GoDaddy, Yamana Gold, Zynga, Siemens, Priceline, Royal Dutch Shell, HollyFrontier, AB InBev, Delphi Automotive, 21st Century Fox, Virtu Financial, Kate Spade, Generac, Shopify, Humana, MetLife, Allstate, CF Industries, Chubb, Kraft Heinz, Performance Food, Zoetis, Whole Foods, Weight Watchers.
  • Thursday:Alibaba, DreamWorks Animation, SeaWorld, Fortress Investment, Kellogg, Activision Blizzard, Time Inc, News Corp, Fiserv, Apollo, WageWorks, El Pollo Loco, FireEye, GoPro, Motorola Solutions, AMC Networks, Merck, Regeneron, Discovery Communications, Wingstop, Herbalife, Church & Dwight, News Corp.
  • Friday: Cigna, ArcelorMittal, Weyerhaeuser, Willis Towers Watson, Buckeye Partners, Dentsply, Exelon

Broker downgrade

  • Charter Hall Retail (CQR): Cut to sell vs hold at Moelis & Co

Big day for Aussie dollar

On the back of the disappointing ISM manufacturing PMI (50.8 vs 51.6), the US dollar index (DX) extended the losses down to the 2015 low 92.52 and the gold (XAUUSD) briefly pushed above 1,300, although it failed to settle above it. Consequently, EURUSD made a break out above the psychological resistance level 1.15 handle which is the highest level since August last year. It is difficult to find any factors why the current weakening of the US dollar would stop.

Today is a huge day for AUDUSD as we wait for China's Caixin manufacturing PMI (1145 AEST; 0145 GMT), RBA rate decision (1430 AEST; 0430 GMT) and the annual federal budget announcement (1930 AEST; 0930 GMT). The market expectation of the interest rate cut is sitting at 53% and the AUDUSD would drop below the next support level 0.75 handle if we see a surprise cut. The resistance level is at 0.7750 where we would look to sell.
S&P/ASX200 rebounds

Yesterday, the S&P/ASX200 (AUS200.I) broke below 5,200 on the early open following the disappointing reporting from the Westpac as the negative sentiment spread across the big four banks. However AUS200 recovered all the initial losses to trade back near the 5,260 level.

The e-mini S&P500 also made decent rebounds last night but the volume was very thin. The AUS200 should be under selling pressure again today as the ANZ cut the dividends as the profits dropped. Today’s focus is on both RBA decision and the budget deficit which is expected to widen to $35bn in 2016-2017. Also the Shanghai Composite index is back after the Monday public holiday, so their price actions should also be closely monitored.
S&P/ASX200 (AUS200.I) trendd
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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 our daily morning call on Periscope at 0945 AEST: #SaxoAPAC


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