Today's Trade: Top miners give S&P/ASX200 an early boost
- US stocks have hit their highest level in almost a month
- Robust US housing demand is good news for copper prices
- Gains for the leading miners give S&P/ASX200 an early boost
- Oil rose after a report showed US crude stockpiles and production declines
Overnight and early trading
- The S&P/ASX 200 made strong early gains; the index was up 0.25% to 5,386.00 at 1032 AEST (0032 GMT).
- US stocks rose to their highest level in almost a month amid mounting investor optimism that the world economy can withstand higher interest rates from the Federal Reserve. European equities extended gains, while emerging-market stocks rose the most in six weeks. Gold fell amid a retreat in the dollar, while oil jumped to a seven-month high on declining US output and supplies.
- Canada’s currency strengthened from near a seven-week low after the nation’s central bank kept key interest rates on hold.
- The S&P 500 Index rose a second day, adding 0.7% to 2,090.54, the highest level since April 27. The index notched up a set of consecutive advances after seven sessions of swinging from gains to losses.
- Commodity producers and banks drove Wednesday’s move in the S&P 500, with financial stocks rising to their highest level this year amid bets higher U.S. rates will boost profits. Bank of America Corp. and Citigroup Inc. rallied more than 1.6%. Energy shares followed oil higher, with US crude closing above $49/barrel, helped by a retreating dollar that also supported the gains in raw-materials companies.
- AT&T Inc. made a bid for Yahoo! Inc. and remains a contender to acquire the California-based company’s core Internet business, according to people familiar with the matter, who asked not to be identified as the information isn’t public. While AT&T stock climbed 0.3%, Yahoo’s slumped 5.2%, the most since January.
- Traders are pricing in a one-in-three chance of a rate hike at the Fed’s next meeting in June. That’s up from 4% on May 16. July is the first month which has more than even odds on a hike in borrowing costs. Fed chair Janet Yellen is scheduled to speak at Harvard University on Friday, after the closure of Asian and European markets.
- The Stoxx Europe 600 Index added 1.3% Wednesday, as almost all industry groups climbed. Banks and energy producers posted the biggest gains. The equity measure closed above its 50-day moving average on Tuesday for the first time after slipping below it earlier this month. That sent a short-term bullish signal in technical analysis, according to Saxo Bank A/S trader Pierre Martin.
- The MSCI Emerging Markets Index rose 1.5%, with technology and energy shares leading the advance. The Hang Seng China Enterprises Index of mainland Chinese stocks listed in Hong Kong jumped 2.8%, the most in more than a month. Benchmark gauges in South Korea, Taiwan, the Philippines, Russia and Dubai increased at least 1%. Futures on Asian stock indexes signaled another day of gains across the board, with contracts on Japan’s Nikkei 225 Stock Average rising at least 1% in Osaka and Chicago.
- The Bloomberg Dollar Spot Index fell 0.2%, paring its advance in the month to 3.4%, while the yen weakened 0.2% to 110.19 per dollar after Goldman Sachs Group Inc. predicted the Japanese currency would slide 12% by this time next year.
- The Canadian dollar strengthened 0.8% after policy makers held the interest-rate target unchanged and said economic growth would rebound next quarter.
- The MSCI Emerging Markets Currency Index climbed 0.2%. The won rose 0.8%, bolstered by optimism that strength in the US economy will shore up demand for South Korean exports. Malaysia’s ringgit strengthened 0.5% and Russia’s ruble gained for a second day to a one-week high amid the rally in crude.
- Crude oil rose after a government report showed that US crude inventories and production declined, easing concern over a global glut in the commodity. West Texas Intermediate crude climbed 1.9% to settle at $49.56 a barrel, while Brent added 2.3% to end at $49.74. WTI closed at a premium to Brent on Tuesday for the first time in almost two weeks. (see crude trade set up here: WTI July future races to key resistance level).
- Gold dropped to its lowest level in seven weeks, with the August contract falling a sixth day, its longest losing streak since November 6. Futures fell 0.5% to settle at $1,226.60/oz, after touching $1,220.60/oz, the lowest level for a most-active contract since April 6.
- Yields on 10-year Treasury notes were little changed at 1.87%, while two-year rates climbed one basis point, or 0.01% point, to 0.92%. Wall Street dealers have been left with the fewest Treasuries on record at two note auctions this week as shrinking balance sheets and rising yields boost investor demand.
- The CBOE Volatility Index (VIX) traded lower near 13.8 (see VIX Bull Call Spread trade idea).
- Source: Bloomberg, TradingFloor.com
- Bank of New York Australia ADR Index +2.2%. BHP Billiton ADR +4.3%. Rio Tinto ADR +3%.
- Spot gold edged lower 0.2% to $1,225. Gold dropped to a seven-week low as equities rallied amid signs the U.S. economy is resilient enough to withstand an increase in borrowing costs. Gold has fallen 5% this month, paring this year’s rally. The odds of a Fed rate increase by July rose to 55%, from 54% Tuesday, Fed fund futures data show. Venezuela cut its gold reserves by 16% in the first quarter , as the Latin American nation’s economic crisis deepened and the government faced concerns that it may struggle to honour its bond payments. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
- Crude oil continued to be accumulated, with WTI and Brent up 0.9% and 1.3% to $49.69/barrel and $49.88/b respectively. Oil prices were higher on Wednesday after the U.S. government reported a larger-than-expected drop in crude stocks. The U.S. Energy Information Administration said crude inventories fell 4.2 million barrels in the week to May 20.
- While the decline was steeper than the 2.5 million barrels forecast by analysts in a Reuters poll, it was not as much as the 5.1 million expected by trade group American Petroleum Institute. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore has been sold down further and back within cents of $50 price tag. Losing 1.8%, our largest export closed at $50.41. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Base metals were mixed. Aluminium and nickel were down 0.6% and 0.8% while copper and zinc rose 2% and 0.6% respectfully. Copper rose for a second day as further signs of an improving US housing market boosted prospects for demand for the metal used in wires and cables. Home prices rose 5.7% in the first quarter, a government report showed Wednesday. Adding to evidence of a strengthening housing market, new homes surged in April to the highest since 2008. Construction accounts for about 30% of global copper demand. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWCAristocrat Leisure (ALL): 1H results expected; NOTE: Earlier this month co. forecast H1 NPATA ~$A183m; 2H broadly in line with H1.
- Asciano (AIO), Qube (QUB): ACCC said to have further concerns about Asciano merger, delay decision another month: AFR.
- Fonterra (FSF), A2 Milk (ATM), Murray Goulburn (MGC): Fonterra milk forecast falls short of expectations, NZ dollar drops.
- Rio Tinto (RIO): Capital returns seen rising as M&A unlikely: Barclays.
- Freeport bid makes sense, unlikely for now: investment firm Jefferies.
- Seven West (SWM): Acquisition of Sunday Times newspaper from News Corp. could be completed by end of month: AFR.
- South32 (S32): Colombia nickel union says wage talks remain deadlocked.
- Thursday: Canadian Imperial, Royal Bank of Canada, Toronto Dominion Bank, Signet, Abercrombie and Fitch, Seadrill, International Game Technology, GameStop.
- Iluka (ILU): Raised to overweight vs equal weight at Morgan Stanley.
- Navitas (NVT): Cut to sell vs hold at Moelis & Co.
- Primary Health (PRY): Raised to neutral vs sell at Goldman Sachs.
- Suncorp (SUN): Cut to neutral vs outperform at Credit Suisse; Cut to neutral vs buy at UBS.
- Wesfarmers (WES): Raised to neutral vs underweight at JPMorgan.
We are eyeing the 76.4% retracement level at 0.7064 as a potential buy level should we see the Aussie trade to this zone. For the day, attention will be on the capex data due out at 1130 AEST (0130 GMT) where expectations are for minus 3.2% versus 0.8% for previous print.
AUDUSD finds temporary support
The key support level for the US dollar index is 95 and as long as this level holds, the EURUSD will continue to remain under further selling pressure. The next support levels for EURUSD are 1.11 and 1.1070.
A break and settlement above 5,400 opens up a new zone with resistance to potentially come in at around 5430~5450 as indicated on the chart below
S&P/ASX 200 trend
The overnight high at 2,094.73 was the 61.8% extension of the range of the previous descending channel, and the 100% extension sits near the April high 2,111. Unless we see a clear pullback from the crude oil, the US500 is likely to remain strong.
S&P500 (US500.I) trend
– 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 9:45am: #SaxoStratsAPAC