Optimism from Australia's central bank drove Chinese shares sharply higher overnight, with investors looking to the Aussie statement as a proxy for bullishness on the mainland economy.
Article / 18 October 2016 at 23:38 GMT

Today's Trade: Tabcorp, Tatts gaming mega merger confirmed

Trading Desk / Saxo Capital Markets
  • Local shares were 0.3% higher at the start 
  • Gambling giants Tabcorp and Tatts have agreed to merge
  • Stocks rallied around the world, while the US dollar fell 
  • Gold had its first back-to-back gains in almost a month
  • Iron ore was subdued overnight, adding 0.1% to $58.41/tonne 

By Saxo Capital Markets (Australia)

Local markets opened higher in early trade after the US dollar eased, which led to relief for commodities. At the open, the ASX200 was up 0.3% to 5425. Investors were also digesting the news that gambling giants Tabcorp and Tatts will join forces to create an $A11.3 billion wagering powerhouse.


Stocks rallied around the world, while the dollar fell amid speculation the Federal Reserve will stick to a gradual tightening of monetary policy.
Equities jumped the most in almost four weeks as investors parsed earnings reports and energy shares rebounded. The greenback extended its retreat from a seven-month high as data showed consumer prices excluding food and fuel costs in the US rose less than forecast. Oil rallied, closing above $50/barrel as investors mulled the likelihood of Opec following through with the production cuts agreed on last month.
Speculation is mounting that the Federal Reserve will boost interest rates in December but take a slow path when it comes to further increases amid mixed signals from the US economy. While the cost of living rose at the fastest pace in five months in September, the increase in prices excluding volatile food and fuel costs trailed estimates, data Tuesday showed. Fed Chair Janet Yellen laid out arguments last week for remaining accommodative without excluding a 2016 hike, a move that would see US policy further diverge from the approaches taken by central bankers from Japan to Europe.
The MSCI All-Country World Index rose 0.9%, bringing its advance this year to 3.5%.
The S&P 500 Index climbed 0.6% to 2,139.60, rising from a one-month low. Goldman Sachs Group gained 2.2% after posting a 47% increase in earnings, while Netflix surged 19% after reporting a jump in subscribers that alleviated concern about slowing growth. The VIX dropped 5.74% to 15.28.

International Business Machines slipped the most since June after saying that profit margins shrank for the fourth quarter in a row.
While only 57 S&P 500 members have reported so far, 84% have posted earnings that exceeded analysts’ estimates, with expectations on sales beaten for 68% of companies, according to data compiled by Bloomberg.
Banks in the Stoxx Europe 600 Index rallied ahead of the European Central Bank’s meeting on Thursday, with the regional benchmark adding 1.5%. Glencore and Fresnillo paced an advance in miners. Benchmark gauges in Hong Kong, India and the Philippines led gains in emerging-market equities. Index futures foreshadowed more gains in Asian equities, with index futures on Japan’s Nikkei 225 Stock Average up 0.6%. Contracts on stock gauges in Australia, South Korea and China rose at least 0.1%.

The dollar has weakened this year as ructions in global markets and uneven economic data deterred the Fed from tightening policy further. The losses had narrowed in recent weeks on odds the central bank is getting closer to a hike, prompting hedge funds and money managers to boost net bullish bets on the greenback. 

Futures pricing indicates a gradual pace of rate increases, with traders seeing a 63% odds of a move by December, down from 68% a week ago. The pound advanced versus the dollar as signs of quickening inflation suggested the Bank of England may have limited scope to ease monetary policy further.
West Texas Intermediate oil for November delivery advanced 0.7% Tuesday to settle at $50.29/barrel. Brent for December settlement climbed 16 cents to $51.68, leaving the global benchmark at a $1.06 premium to December WTI. Speculators have bolstered bullish oil bets since the Opec accord was reached on September 28 in Algiers, but fractures have emerged within the group that threaten to derail a final agreement on quotas, expected in Vienna on November 30. US crude inventories probably rose last week, reviving concern about oversupply, according to analysts surveyed by Bloomberg.
Industrial metals rebounded from their lowest point in almost four weeks as a surge in new credit in China pointed to stabilisation in the economy of the world’s biggest commodities buyer. Nickel and tin climbed more than 1%.
Treasuries gained after the weaker-than-expected core inflation reading. Yields on five-year notes fell to the lowest level in two weeks and a gauge of the US yield curve steepened, with the gap between five- and 30-year rates near the widest since June, as shorter maturities outperformed longer-dated debt. 

The US five-year bond yield declined three basis points, or 0.03 of a percentage point, to 1.23%, touching its lowest intraday level since October 5, according to Bloomberg Bond Trader data. Benchmark 10-year note yields fell three basis points as well, to 1.74%, while the gap between five- and 30-year debt expanded to about 1.28%. 

The 10-year break-even rate, a gauge of inflation expectations that measures the difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, was about 1.68%.

Source: Bloomberg,

 Tabcorp and Tatts are joining forces to create an $A11.3 billion gaming merger. Photo: iStock

Local markets and commodities

  • Bank of New York Australia ADR Index +1.5%, BHP Billiton ADR 1.8% to A$22.51 equivalent, 0.5% discount to last Sydney close, Rio Tinto ADR +2.3% to A$42.48 equivalent, 16% discount to last Sydney close
  • Gold had its first back-to-back gains in almost a month as the dollar weakened amid speculation that the Federal Reserve will stick to gradual monetary tightening. 
  • While a Labor Department report showed the cost of living in the US rose at the fastest pace in five months, consumer prices excluding food and fuel gained 0.1%, missing an estimate of 0.2%. 
  • The odds that US interest rates will rise in December fell to 64% after the inflation data, down from 66% a day earlier. The Fed has been monitoring data, including inflation, for signs of economic resilience before raising borrowing costs. 
  • Gold futures for December delivery rose 0.5% to settle at $1,262.90/ounce on Comex. The metal hasn’t seen two straight gains since September 22. Holdings in gold-backed ETFs rose 1.5 tonnes to 2,052.8 tonnes as of Monday, data compiled by Bloomberg showed. Goldies rallied 3.28% in Toronto overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil rose, closing above $50/barrel in New York as investors ponder whether Opec will follow through with production cuts. Futures extended gains after an industry report was said to show a US supply drop. 
  • West Texas Intermediate for November delivery advanced 35 cents to settle at $50.29/barrel on the New York Mercantile Exchange. WTI traded at $50.77 at 5:01 p.m. after the API report. Total volume traded was 21% below the 100-day average. 
  • Brent for December settlement climbed 16 cents to settle at $51.68/barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $1.06 premium to December WTI’s closing price. 
  • Speculators have bolstered bullish bets since the Opec accord was reached on September 28 in Algiers. Fractures have emerged within the group that threaten to derail a final agreement on quotas, expected in Vienna on November 30. 
  • Prices rose from the close after the American Petroleum Institute was said to report US stockpiles fell by 3.8 million barrels last week. The decline contrasted with analysts surveyed by Bloomberg who projected a government report Wednesday will show supplies rose. 
  • Oil is up about 13% since Opec reached the deal to manage supply, and prices have closed above $50 for six of the last eight sessions as investors await a November meeting where the group is due to implement the agreement. The Energy Information Administration will release its report on inventories Wednesday. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore was subdued overnight, adding 0.1% to $58.41/tonne as profit-taking capped further gains. In an early morning reporting, BHP Billiton reported that its first-quarter iron ore production fell 6% as it carries out a rail maintenance program, has lower volumes from its Yandi mine and with an operation in Brazil halted. Production was 57.6 million tonnes in the three months ended September 30. That compares with 61.3 million tonnes a year earlier, which included output from the Samarco joint venture, and beat the 56.6 million tonnes median estimate of five analysts surveyed by Bloomberg. 
  • Output remains halted at Samarco following November’s deadly tailings dam spill. About 200,000 tonnes of forecast full-year copper output is under review after a two-week power outage in South Australia, which halted some production at the Olympic Dam mine. 
  • BHP currently estimates copper output in the year to June 30 of 1.66 million tons, it said. Petroleum output fell 15% to 55 million barrels of oil equivalent following the deferral of some activities in its US onshore unit amid weaker prices, BHP said. That beat a 53.5 million barrel median estimate among six analysts surveyed by Bloomberg. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Nickel led gains in industrial metals as a surge in new credit in China pointed to a stabilising economy in the world’s biggest commodities buyer. Aggregate financing of 1.72 trillion yuan ($255 billion) in China last month exceeded a median estimate of 1.39 trillion yuan in a Bloomberg survey. 
  • Metals also advanced as the dollar weakened, making materials priced in greenbacks cheaper for buyers using other currencies. Nickel for delivery in three months gained 1.2% to settle at $10,410/tonne on the London Metal Exchange, the biggest advance among six main metals traded on the bourse. 
  • Zinc jumped as much as 1.7% to a one-week high as Citigroup said it remains positive on the metal through year-end and beyond. Prices will average $2,600 in the final quarter of next year, compared with $2,285 now, the bank said in an e-mailed report. 
  • LME copper finished 0.1 per cent firmer at $4681 after ending flat in the previous session, not far from Friday's one-month trough of $4623.25. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Thermal coal from Australia’s Newcastle Port sold for $100/tonne for the first time in four years as slumping output in China, which produces half the world’s coal, spurred demand for imports. The price advanced 6.4% to $100/tonne on Tuesday, almost doubling this year, according to Globalcoal data. That compares with a 10% gain in 2016 for the Bloomberg Commodities Index of 22 raw materials. 
  • After spending years in the doldrums amid too much supply, the global coal market has been upended by China’s decision to restrict the number of working days at mines to support prices for its struggling producers and curb pollution. The rally in the fuel used by power stations is a boon for the world’s top exporters including Glencore, which has a number of operations that export from Newcastle on Australia’s east coast. Metallurgical coal, used to make steel, also surged. 
  • Spot prices for hard coking coal from Australia tripled this year and rose 2.8% to $232.60 a ton on Monday, according to The Steel Index Ltd. Coal stocks: WHC, NHC, YAL
  • Ansell (ANN): Annual meeting scheduled; NOTE: Co. in Aug. forecast FY17 EPS $0.998-$1.12; Review of sexual wellness unit
  • Arrium (ARI): Liberty House Group is among bidders to have submitted offer for co.’s steel and iron ore assets
  • Bellamy’s Australia (BAL): Annual meeting scheduled
  • Crown Resorts (CWN): Australian officials visited 2 of 3 citizens detained in China; Co., Imperial Pacific more at risk among casinos with China ops: Fitch
  • Fonterra (FSF): Whole milk powder average price rises to $2,760/t; ANZ raises 2016-17 Fonterra milk price forecast to NZ$5.25-NZ$5.50
  • Henderson Group (HGG): Henderson’s $6b fund manager hedging for equity slumps
  • Origin Energy (ORG): Annual meeting scheduled; NOTE: Co. in Aug. forecast FY17 underlying Ebitda +45%-60%
  • Tabcorp (TAH): Said to offer premium for $4b betting firm Tatts
  • Tegel Group (TGH): Expects to achieve FY2017 earnings forecast
  • Westfield (WFD): Scheduled to host analyst meeting; NOTE: Co. in Aug. forecast 2016 FFO 33.7c-34c

Broker upgrades and downgrades

  • Sydney Airport (SYD): Raised to neutral at Credit Suisse

Stock to watch: Computershare (CPU.xasx)

Computershare (CPU.xasx) has clearly broken a primary downtrend (from a record high of $13.56) back in September, but it is now approaching a key resistance level at $11 near the 200 weekly moving average. Furthermore, $11 acted a solid support level back at the end of 2014 and early 2015, therefore we see a shorting opportunity in the anticipation of potential pull back until there is a clear breakout above $11 where stops would lie for any short positions.

Computershare monthly  
 Source: Saxo Trader


The currencies showed muted reactions on the US CPI numbers and US dollar maintained resilience. Australia's 10-year yield has been strengthening throughout this month and this seems to be one of the major drivers behind the recent rally in AUDUSD. The triangle pattern still remains valid and the resistance level would be 0.77 handle where we expect some retracements.
AUDUSD monthly
Source: Saxo Trader 

An early sell off from the big four banks was quickly reversed to the upside yesterday but the AUS200 faced resistance at 5,436. The downtrend (from Aug high 5,612) is visible and expected to be a resistance level in the near term.  The Shanghai Composite index rallied to fill the gap that was created back in early September but we could see a reversal if Chinese data disappoints at 1pm. The major figures to watch are GDP and industrial production.
AUS200 monthly
Source: Saxo Trader
Today's information 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

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