Today's Trade: Tech equities rattled by low demand forecast
By Saxo Capital Markets Australia
Overnight and early trading
Asian stocks were poised for a marginally lower start but ultimately finished far lower as technology shares came under earnings-related pressure. Bonds from the US to Germany declined as investors assessed rising commodity prices and the outlook for inflation.
Futures on equity indexes in Japan and Hong Kong slipped.
The S&P 500 snapped a three-day winning streak, as tumbling shares of consumer-staples companies pulled the broad index lower.
Weak earnings reports of some of the world’s biggest consumer-products firms sent their shares into a tailspin and dashed what could have been the S&P 500’s first four-day run of gains since mid-February.
Philip Morris International suffered its biggest single-day percentage decline since becoming a public company in 2008, while Procter & Gamble reported disappointing sales amid signs the broader industry is struggling to raise prices.
The S&P 500 fell 15.51 points, or 0.6%, to 2693.13, while the Dow Jones Industrial Average slipped 83.18 points, or 0.3%, to 24664.89. The Nasdaq Composite declined 57.18 points, or 0.8%, to 7238.06.
Philip Morris, the seller of Marlboro cigarettes, was the biggest drag on the broad index after it reported revenue that missed analysts’ expectations and cautioned investors that slowing sales volume in the Middle East and other markets, along with pricing competition, could be a drag on earnings this year.
Shares fell $15.80, or 16%, to $85.64, to hit their lowest level since 2015.
Procter & Gamble, the maker of Tide detergent and Bounty paper towels, reported weak sales growth in some markets, especially in its Gillette shaving business. Shares slipped 2.53, or 3.3%, to 74.95.
European consumer-goods companies were also under pressure after Unilever, which sells Dove soap and Ben & Jerry’s ice cream, and Nestlé both struggled to raise prices in the first quarter and logged some of their weakest sales growth in years. Unilever’s shares fell 2.2%, while Nestlé pared earlier losses to end the day up 0.2%.
The broader consumer-staples group in the S&P 500 fell 3.1%, as cigarette makers and household-products companies declined. Clorox sank 6%, while Church & Dwight slipped 3.1%.
Technology companies stumbled, with chip makers among the biggest decliners. The Technology Select Sector SPDR exchange-traded fund fell 1%, cutting its weekly gain nearly in half.
Financial stocks, meanwhile, rose as bond yields moved higher, but the gains weren’t enough to offset the broad declines suffered in most of the S&P 500’s other sectors.
The KBW Nasdaq Bank Index of the biggest U.S. banks added 2.1%, with many of its constituents rising on a jump in yield of the 10-year Treasury note. Higher interest rates typically widen the spread between what banks charge on loans and what they pay on deposits, which should boost their earnings.
Elsewhere, the Stoxx Europe 600 rose less than 0.1%.
Sources: Bloomberg, TradingFloor.com, WSJ.com, CNBC, AFR
Friday: Procter and Gamble, Honeywell, General Electric, Baker Hughes, Synchrony Financial, Manpower Group, Steve Madden, SunTrust, Schlumberger, Kansas City Southern, State Street, Stanley Black and Decker, Cleveland-Cliffs, Roper Industries
- S&P/ASX 200 Index futures down 0.2% to 5,844.
- Bank of New York Australia ADR Index is down 0.8% to 274.7, BHP Billiton ADRs are down 0.8% to A$30.89 equivalent, a 0.1% discount to last Sydney close, Rio Tinto ADRs are down 0.5% to A$73.17 equivalent, a 10.1% discount to last Sydney close
- Gold prices dipped overnight, breaking a string of gains for four successive sessions, in response to a decline in global political tensions. June US gold futures settled down $4.70, or 0.4 percent, at $1,348.80 per ounce. Lending pressure to the price of gold overnight was the strength in the US Dollar which put a lid on most commodities. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil prices were mixed overnight, with the U.S. benchmark retreating from a more-than-three-year high as investors took profits. U.S. crude futures settled down 18 cents, or 0.26%, to $68.29 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 30 cents, or 0.41%, to $73.78—its highest since November 26, 2014. Both benchmarks pulled back from even higher levels in earlier trading. The US benchmark rose as high as $69.56 at one point. Oil markets shot up on Wednesday after the US Energy Information Administration reported crude and product stocks had fallen in the week ended April 13, indicating healthy demand is helping a global glut continue to recede. Record high fuel demand bolstered confidence and helped push U.S. crude prices to their highest since December 2014, said Gene McGillian, research manager at Tradition Energy. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
- Spot iron ore bucked weakness in commodities, rallying 3.9% to $US68.45 a tonne. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Three-month nickel on the London Metal Exchange rose 9.3% to a three-year high of $US16,690 a tonne before retreating to end 1.3% down at $US15,075. It has risen nearly a third since sanctions were imposed on Rusal on April 6. Aluminium hit its highest in almost seven years at $US2718 a tonne before closing 2.1% down at $US2485. It has risen nearly 40% since the Rusal sanctions were imposed. Copper ended 0.5% down at $US6984 a tonne, zinc fell 1.3% to $US3223, lead ended 1.7% down at $US2337 and tin finished down 0.1% at $US21,450. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- Ex-Dividend: MG Unit Trust
- Sydney Airport (SYD AU): Scheduled to Release March Traffic Results
- Fletcher Building (FBU AU): Expected to Name Adviser for Formica Unit Sale Mid-Next Month: AFR
- Infigen (IFN AU): Brookfield Would Need to Offer A$1.20- A$1.30/Share to Lure Holder TCI Into Talks: AFR
- PropertyLink (PLG AU): Warburg Pincus Unit Said to Consider Bid for Co.: Australian
- Santos (STO AU): Bernstein Skeptical Harbour’s Bid for Santos Will Succeed
- Wesfarmers (WES AU), BWP Trust (BWP AU): Wesfarmers Said to Mull Sale of A$400m Stake in BWP Trust: Australian
- ANZ Bank (ANZ AU), Commonwealth Bank (CBA AU), National Australia Bank (NAB AU), Westpac (WBC AU): Govt to Announce New Criminal Penalties For Breaching Corporations Act in Response to Bank Inquiry: AFR
- APN Outdoor (APO AU): Annual Meeting Scheduled; NOTE: Co. in Feb. Forecast Ebitda Skewed to 2H
- BHP (BHP AU): Bernstein Says Top Iron Ore Miners to Raise 2Q Exports 11% YoY
- Evolution Mining (EVN AU): Holder Seeks Up to A$282m in Placement: Terms
- G8 Education (GEM AU): Annual Meeting Scheduled
- Woolworths (WOW AU): Aldi, Lidl Expanding Market Share Faster Than Rivals: Moody’s
- Western Areas (WSA AU): Nickel Soars 9% to Highest Since 2014 on Russian Supply Fears
Broker upgrades and downgrades
- Computershare (CPU AU): Downgraded to Underweight at JPMorgan; PT A$16.20
- Evolution Mining (EVN AU): Cut to Underperform at Credit Suisse; PT A$2.65
- St Barbara (SBM AU): St Barbara Raised to Hold at Argonaut Securities; PT A$3.84
USDJPY & USDCHF
USDJPY continued to trade in a tight range hovering near 107 handle and it appears to be clearly underperforming USDCHF this month. The upward momentum of USDCHF look strong as it is approaching to test 2018 high 0.9845. While the current divergence could widen further, we see better reward-risk ratio on buying USDJPY as long as weekly close stays above 107.50.
Chart Source: Saxo Bank. Other sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters