Article / 15 February 2017 at 23:43 GMT

Today's Trade: Telstra result weighs on market

Trading Desk / Saxo Capital Markets
Australia
  • ASX200 was slightly higher at the start, up 0.2% at 5820.1
  • Telstra's net profit for the December half slumped by 14.4% to $A1.791 billion
  • AUDUSD broke above its recent resistance level and is stabilising at above US77¢

By Saxo Capital Markets (Australia)

The ASX200 was slightly up at the start but weighed down by Telstra, which reported its net profit was down by 14.4%. Telstra fell 5% in early trading. Meanwhile, the big banks and CSL were behind the lift in the index.

Overnight

  • Investors bought financial stocks and sold government bonds overnight following data that suggested ongoing growth in the US economy.
  • The Dow Jones Industrial Average climbed 0.5%, to 20611. The S&P 500 added 0.5%, and the Nasdaq Composite rose 0.6%.
  • The strongest monthly gain for inflation in almost four years in January and retail sales that rose more than expected helped boost confidence in ongoing US growth, some analysts said. Along with an upbeat assessment of the economy from Federal Reserve chair Janet Yellen, who returned to Capitol Hill Wednesday to testify before the House Financial Services Committee, that data could spur the central bank to raise rates sooner than some expected.
  • Yellen on Tuesday suggested the Federal Reserve could raise interest rates as soon as its March meeting.
  • Low interest rates have helped underpin stock and bond prices in recent years. Still, many investors say the kind of gradual path of rate increases the Fed has signalled amid a growing economy shouldn’t derail major stock indices and would be positive for financial stocks that tend to benefit from higher rates.
  • Financial stocks in the S&P 500 rose 0.7% as investors bet rising interest rates would boost profits of lenders. Shares of utilities, which are often considered bond proxies because they typically pay high dividends, fell 1.1%. The yield on the 10-year Treasury note rose to 2.509%, according to Tradeweb, from 2.470% Tuesday. 
  • The US Dollar Index, which measures the dollar against a basket of currencies, was up 0.1% Wednesday after edging higher Tuesday. The US currency tends to gain on expectations of higher interest rates that make dollar-denominated assets more attractive to yield-hunting investors.
  • The probability of a Fed rate increase in March, as implied by futures markets, rose to 27% from 18% the previous day, according to CME Group data. CME Group said current market pricing underestimates the number of rate rises that are likely to come in 2017. It is betting on three to four rate increases, most likely starting at the Fed’s June meeting.
  • Shares in Procter & Gamble rose 3.2% to lead gains in the Dow industrials following news that activist investor Trian Fund Management LP had built up a more than $3 billion stake in the Cincinnati-based company. JP Morgan Chase added 0.9%.
  • An 8.9% fall in shares of American International Group weighed on the S&P 500, after the company posted a larger-than-expected $5.6 billion pretax charge, leading to one of the worst quarterly results since the financial crisis.
  • The Stoxx Europe 600 rose 0.4%, led by banking stocks. Shares in Credit Agricole rose 4.6% after the French bank reported a strong rise in fourth-quarter profit, excluding one-off write-downs at its domestic retail arm. Other European lenders saw their stock price rise, with Deutsche Bank up 2.5%.

Source: Bloomberg, TradingFloor.com

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 Disappointing call. Telstra announced profits fell 14.4% while 
revenue was down 3.6%. Photo: Shutterstock

Local markets and commodities

  • Bank of New York Australia ADR Index +1.6% to highest since June 2015, BHP Billiton ADR +0.6% to $A26.42 equivalent, 0.5% discount to last Sydney close, Rio Tinto ADR minus 0.8% to $A59.57 equivalent, 13% discount to last Sydney close
  • Gold futures rose, ending the longest losing streak in two weeks, as political uncertainties in the US and Europe overshadowed prospects for rising US interest rates. Contract for April delivery gains 0.6% to settle at $1,233.10/ounce, after falling as much as 0.6%. 
  • Demand continues to come from ETFs, as investors across Asia and Europe continue to send funds into the safe haven. Gold stocks in Toronto were down 0.20% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil closed near $53/barrel as record US inventories tempered the impact of Opec's production cuts. American crude supplies climbed 9.53 million barrels to 518.1 million, the highest level in weekly data going back to 1982 and more than twice the 3.5 million-barrel gain forecast by analysts surveyed by Bloomberg before a government report Wednesday.
  • West Texas Intermediate for March delivery slipped 9 cents to settle at $53.11/barrel. Total volume traded was about 8% below the 100-day average. Brent for April settlement decreased 22 cents to $55.75/barrel. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Spot iron ore prices slipped a little overnight, down 0.7% to $91.05. All eyes are on Vale’s production report, which is scheduled for today. Analysts expect to see record levels of iron ore production for the second year running. 
  • Chinese mills were still not actively buying iron ore from the ports, despite their inventory levels falling to about 10 days' worth compared with at least 20 days before the Chinese New Year holiday, a mill source in north China told Metal Bulletin. At current price levels, steelmakers are taking a more cautious approach with buying. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper prices nudged higher by 0.1%, as the standoff at Chile’s Escondida mine extended into a sixth day, with talks deferred. The prospect of an extended strike has seen prices rally strongly, but the resumption of talks could see some of this unwind. 
  • Nickel prices continued their strong run of the past month; rising a further 1.1% as supply fears in the Philippines remain. Zinc closed down 1.1% at $2870. The global zinc market had a deficit of 286,000 tonnes last year versus a surplus of 189,000 tonnes in 2015, industry data showed. 
  • Lead ended the day 1.1% lower at $2329. The global lead market had a surplus of 11,000 tonnes last year from a deficit of 23,000 tonnes in 2015. Aluminium closed up 1.4% at $1913, having earlier hit its highest since May 2015 at $1916, while tin ended down 0.2% at $19,880. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Aristocrat (ALL): $1bn 1L TL for repricing; call February 16
  • ASX (ASX): Customers may have faced disconnections due to power outage
  • Bapcor (BAP): Interim profit rose 44% to $A27.82 million from $A19.3 million, A5.5¢ interim dividend, up from last year's A5¢ payout
  • Commonwealth Bank (CBA): MTN seeks financial deal after axing Tyme
  • Evolution Mining (EVN): Posted is back in the black, posting a $A136.7 million net profit for the six months ended December from a $A15.47 million loss a year ago
  • Goodman Group (GMG): Strong net profit of $A557million driven by $A275 million in property valuation gains.
  • Lendlease (LLC): Fitch affirms ’Bbb-’; outlook stable
  • Macquarie Group (MQG): May complete Thames Water stake sale in March: FT
  • Mirvac (MGR): Profit for the December half of $A508 million, up 7% on the previous year
  • Oil Search (OSH): Exxon’s Pacific gas partner courts Total to unlock PNG riches
  • South32 (S32): Swung into the black with a $620 million profit after tax
  • Spark NZ (SPK): First-half profit rises, maintains FY guidance
  • Star Entertainment (SGR): Net profit after tax of $A141.8 million, which is up 135.2% on the previous year
  • Sydney Airports (SYD): Posted a 13.4% rise in full year net profit of $A320.9 million on revenue of $A1.36 billion, up 11% on a year ago
  • Tatts Group (TTS): Results have been hit by a falling revenue for its lotteries business and a soft wagering performance
  • Telstra (TLS): Net profit for the December half slumped by 14.4% to $A1.791 billion on revenue of $A12.8 billion, down 6.4% on a year ago

Broker upgrades and downgrades

  • A2 Milk (ATM): Cut to neutral at Forsyth Barr, PT $NZ2.90
  • IOOF (IFL): Cut to hold at Bell Potter, PT $A9; Cut to neutral at Credit Suisse; Cut to neutral at Macquarie, PT $A8.50
  • Paladin (PDN): Cut to reduce at TD, PT $C0.10
  • Sims Metal (SGM): Raised to outperform at Macquarie, PT $A13.60

Stock to watch: ASX Ltd (ASX.xasx) 

ASX Ltd, which is due to report tomorrow sits at a critical level. The technical picture points to further gains upon a clearance of the post subprime highs at $A52.40 and the earnings may be that catalyst that aids the ASX to break above here. A failure to take out these levels (a low probability event) should see ASX retrace lower and to find support at $A50.50, which sits at the current sharp uptrend.
 
ASX Ltd monthly
1
 Source: SaxoTrader

The level 2.12 served as a major resistance for Evolution Mining (EVN) during 2010-12 but it became a decent support level last year. Although this level was broken late 2016, it seems to be restricting further losses this year. Recently EVN broke the recent downtrend (from the Jul 16 high of $A3.10), which also intersects 200 DMA. Yesterday’s close of $A2.35 coincides with 50% retracements between the Jul 16 high and Dec 16 low, but this morning’s positive profit announcements are likely to boost the current upward momentum towards the next resistance level of $A2.53.
 
Evolution Mining monthly
2
Source: SaxoTrader 

AUDUSD

AUDUSD dropped sharply lower initially on the back of the strong US CPI and retail sales numbers but it didn’t take long to recover all of these losses to eventually break above the recent resistance level of 0.7695. 

We are yet to be convinced whether this was a genuine breakout as we still have to digest today’s AU employment figures at 1130 AEDT. It seems quite bizarre to see US Treasury yields moving in the same direction as gold (XAUUSD) and monitoring this divergence could be relevant for anticipating the price actions of AUDUSD, which has been showing strong correlation to gold.

AUDUSD monthly
3
Source: SaxoTrader. 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. Follow the team on Twitter at: twitter.com/SaxoAustralia.

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