Article / 04 May 2016 at 0:52 GMT

Today's Trade: Top miners drag S&P/ASX 200 sharply lower

Trading Desk / Saxo Capital Markets
  • The banks and miners are weighing on the S&P/ASX 200 today
  • The Australian dollar plunged sharply after the RBA cut the interest rate
  • The Reserve Bank of New Zealand may need to follow suit with a June 9 cut
  • Copper prices fell sharply, in a slide in Chinese manufacturing for April
  • Iron ore prices took a hit, selling off 4.3% to just $63.41/tonne

By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX 200 lost ground, surrendering some of Tuesday's gains. The benchmark index as down 0.56% to just 5,323.70 at 1039 AEST (0039 GMT).
  • Stocks fell overnight with the Nasdaq down 1% to close its lowest level since mid-March despite Apple gaining over 1.5%.
  • The Dow Jones Industrial Average lost 140.25 points (after losing as much as 220 points), or 0.8%, to 17750.91. The S&P 500 fell 18.06 points, or 0.9%, to 2063.37, and the Nasdaq Composite dropped 54.37 points, or 1.1%, to 4763.22.

It's been a roller coaster ride in Australian resources stocks, with China iron ore demand fears driving sharp falls for top miners Rio Tinto and BHP Billiton today. Photo: iStock

  • US-traded crude oil fell 2.5% to $43.65/barrel, weighing on energy stocks.
  • Among the biggest decliners in the sector were Chesapeake Energy, which fell $0.79, or 12%, to $5.80 and Marathon Oil, which dropped $0.76, or 5.6%, to $12.79.
  • The yield on the 10-year U.S. Treasury note fell to 1.800% from 1.865% on Monday
  • In corporate news, quarterly results from Pfizer and CVS Health came in above forecasts. Shares of Pfizer gained $0.90, or 2.7%, to $33.70, and CVS shares gained 2.47, or 2.4%, to $103.92.
  • Apple shares gained $1.54, or 1.6%, to $95.18, snapping an eight-session losing streak which was its longest since July 1998. Apple was the top contributor to the Dow while Goldman Sachs, down 1.83% was the greatest weight on the index.
  • Copper prices fell sharply, down 2.6% after a private gauge of Chinese manufacturing showed a decline in April, adding to concerns over the health of the world’s second-largest economy.
  • The Dow transports closed 1.2% lower after earlier falling more than 2%
  • The CBOE Volatility Index (VIX) rose 6% to 15.6.
  • Over in Europe the Stoxx Europe 600 declined 1.7%. Mixed first-quarter earnings results weighed on shares of European banks. Shares in UBS fell 7.5% after the Swiss lender reported a sharp fall in first-quarter profit, while Germany’s Commerzbank declined 9.6% after it missed consensus estimates and reduced its profit outlook for the full year
  • The Dax tanked 1.94%, the FTSE lost 0.90% & the CAC shed 1.59%.
  • Basic resources stocks took a hit on the back of the latest China data, closing down 6.4% as a sector. Anglo American shares slumped 12.8%, while Rio Tinto, Glencore and BHP Billiton all closed over 6% lower.
  • Precious metals firm Fresnillo, slipped over 3.5% despite reporting that it had achieved record gold and silver production in 2015, and said that 2016 will "see a turnaround" after "operational challenges" last year.
  • Shares in German carmaker BMW fell 3.8% after it reported a 2.5% fall in first-quarter earnings before interest and tax (EBIT), missing market expectations.
  • German airline Lufthansa said it was slowing its capacity growth due to price pressures, adding that the attacks in Brussels and Paris are affecting customers' booking behaviour. The carrier reported a first-quarter adjusted loss before interest and tax of €53 mln, narrowing from the €167 mln loss in the same period last year. Shares closed over 5% lower.
Local markets
  • Bank of New York Australia ADR Index -3%. BHP Billiton ADR -5.1%. Rio Tinto ADR -6.2%
  • Spot gold held up relatively well under the pressure of a rising USD. Gold in the end only gave up 0.3% to finish at $1,287. Gold holdings within ETFs surged by 20.8t on Monday to 825,000. This is the greatest one day surge since early 2011 when gold moved from $1,300 to $1,900 in a matter of three quarters. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil is facing uncertainty within the market place as a strong surge in pricing has made it riskier to speculate to the upside. WTI and Brent were both down, losing 2.3% and 1.7% to $43.99 and $45.33 respectfully. Analysts are expecting a surplus of 750k barrels in the EIA reporting tonight in the U.S. We at the desk anticipate inventories will be higher than this and the temporary risk off approach will see a quick sell off on poor numbers. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore took a hit, selling off 4.3% to $63.41. The fall is being pointed at disappointing manufacturing data in China, raising doubts over strong buying from investors recently. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were mixed. Aluminium and copper were down 2.5% and 2.8% respectfully. Copper is now touching the 200 day moving average and will prove to be an important level. Breaking to the downside risks further weakness in copper as supply side concerns over demand side needs remain to be balanced. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • A2 Milk (ATM), MG Unit Trust (MGC), Fonterra (FSF): Whole milk powder avg. price rises to $2,176/t. After RBA interest rate cut yesterday, give consideration to the Reserve Bank of New Zealand needing to cut on June 9 to weaken the NZ currency. Dairy makes up 30% of their exports and weak dairy prices along with stronger currency will weigh on decision makers.
  • AMP (AMP), Challenger (CGF), Suncorp (SUN), Perpetual (PPT), Magellan Financial (MFG), BT Funds Mgmt (BTT): May be impacted by overhaul of Australian pension rules in budget.
  • ANZ Bank (ANZ), Commonwealth Bank (CBA), Westpac (WBC): Cut variable home loan rates after RBA lowered benchmark interest rate to record; RBA confounds hedge funds from Aussie bulls to bank stock bears.
  • BHP Billiton (BHP): Samarco faces $43b suit for dam disaster.
  • Macquarie Group (MQG): Said to plan sale of Oceania Healthcare: AFR.
  • Oz Minerals (OZL): In talks with Arrium for treatment plant at Whyalla.
  • QBE Insurance (QBE): Scheduled to host AGM; NOTE: In February it forecast 2016 GWP $A14.2bn-$A14.6bn; Net earned premium $A11.6bn- $A12bn.
  • Regis Healthcare (REG): Sees FY16 NPAT A$45m-A$47m vs adj. net income est. $A51.7m (nine analysts).
  • Wesfarmers (WES), Woolworths (WOW), JB Hi-Fi (JBH), Harvey Norman (HVN), Myer (MYR): May benefit from extension of instant asset write-off.
US earnings this week
  • 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
  • Cover-More (CVO): Cut to equal weight vs overweight at Morgan Stanley

AUDUSD plunges sharply

AUDUSD plunged more than 200 pips and closed below the previous support level 0.75 handle on the back of the 25 basis point interest cut from the Reserve Bank of Australia yesterday. The resistance level should now be the 0.76 handle and the next support level is 0.7380 where we expect to see some rebounds.

As the US dollar index (DX) strengthened for the first time in two weeks, gold (XAUUSD) again failed to stay above 1,300, which should be the interim resistance level. The next key resistance level we are focusing is 1,320 where the 200 weekly DMA crosses the long term downtrend.

 XAUUSD retreats
S&P/ASX 200 outperforms global peers

On the announcement of the RBA rate cut, the S&P/ASX 200 (AUS200.I) ralled and broke through the December high of 5,348, although it pulled back some of the gains, as both copper and crude oil declined overnight. Yesterday’s high of 5,363 was near the 50% retracement between the 2015 high of 6,017 and the 2016 low of 4,701.

The Dax has been showing weakness over the last couple of weeks, and the Nikkei 225 continues to remain under selling pressure. So AUS200 is currently outperforming the major indices. The mining and the energy stocks should weigh down on the AUS200 and we should see some profit taking today. The support for today should be at 5,300.

S&P/ASX 200 (AUS200.I) trend
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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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