Article / 13 October 2016 at 23:40 GMT

Today's Trade: Top miners lose ground as materials weigh on S&P/ASX200

Trading Desk / Saxo Capital Markets
  • Soft China trade data has stoked fears of slowing growth in China and worldwide
  • Copper was the worst performer on the LME, with tin and zinc losing ground
  • Australian miners were hammered in London overnight
  • Materials will constrain any gains on the S&P/ASX200 today
  • Traders have flocked to havens including government bonds, gold and the yen
By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 edged higher at the open, but materials will weigh on the index today. The benchmark index was up 0.03% to 5,437.30 at 1021 AEST (2321 GMT, on Thursday).
  • Traders rushed into the safety of government bonds, the yen and gold on concern weakness in Chinese exports portends even slower global growth just as the Federal Reserve considers raising interest rates.

 The miners are likely to weigh on the S&P/ASX200 today, following falls for metals prices in the wake of the release of bleak China trade figures. Photo: iStock

  • Treasuries rebounded from a four-month low, joining gains in European and Asian sovereign debt. Japan’s currency climbed against most major peers, while the pound fluctuated on concern over Britain's plan to exit the European Union. The cost of insuring investment-grade corporate debt against losses jumped to a two-week high. Equities pared their slide as defensive companies rose. Oil topped $50 a barrel after a drop in US fuel stockpiles.
  • Investors piled into safer assets after Chinese data showed exports fell the most since February amid weak global demand, while imports also declined. The figures came after minutes of the Fed’s last meeting showed policy makers see no reason to not raise benchmark rates in December. When combined with one of the worst starts to an earnings season for stocks since the bull market began seven years ago and concern over the stability of the U.K.’s currency, traders see no little reason to take added risks.
  • The Dow Jones Industrial Average closed little changed Thursday, nearly recovering from an earlier 184-point drop that followed weak Chinese trade data.
  • The Dow industrials declined 45 points, or 0.3%, to 18099. Stocks pared losses in afternoon trading, which some fund managers and traders attributed to investors stepping in to buy the dip. Material and energy stocks were among the biggest decliners in the U.S. on fears that weakness in China could damp demand for energy and raw materials. The S&P 500’s materials sector fell 0.5%, while the energy sector declined 0.7%. The S&P 500 dropped 0.3%, and the Nasdaq Composite lost 0.5%.
  • The VIX continued to climb, up 4.9% to 16.69.
  • The big banks posted steep losses Thursday, with the KBW Nasdaq Bank Index falling 1.9%. Slowing growth in China could decelerate the Federal Reserve’s plans for future interest-rate increases, some traders said, which may be a reason for Thursday’s drop. In September 2015, the Fed didn’t raise interest rates, as many investors had previously expected them to do, after market turbulence related to China.
  • European miners fell from near a 14-month high, with BHP Billiton Ltd. and Rio Tinto Group dropping at least 4.4%. Carmakers also declined, dragging down Germany’s DAX Index. The Stoxx Europe 600 Index dropped 0.9%.
  • The yen rose 0.6% against the dollar. The euro briefly fell below $1.10 for the first time since July. China’s yuan touched a six-year low, while a gauge of the greenback dropped 0.3%.
  • The market-implied probability that the Fed will increase rates by its December meeting is about 66%, the lowest this week, according to fed fund futures data. The calculation is based on the assumption that the effective fed funds rate will trade at the middle of the new Federal Open Market Committee target range after the next increase.
  • The pound rose, after swinging between gains and losses amid concern over Prime Minister Theresa May’s perceived hard-line stance on leaving the EU. The currency rallied Wednesday after she agreed to give British lawmakers a chance to scrutinize the Brexit plan.
  • Oil rose as declines in US fuel supplies and crude inventories at the key American storage hub offset the first nationwide oil stockpile gain since August. West Texas Intermediate for November delivery climbed 26 cents to close at $50.44/barrel on the New York Mercantile Exchange. Brent for December settlement rose 22 cents to $52.03/b on the London-based ICE Futures Europe exchange. The global benchmark closed at a $1.18 premium to December WTI.
  • Gold futures for December delivery gained 0.3% to $1,257.60 an ounce on the Comex in New York. The metal has surged 19% this year as slower global growth coupled with stimulus policies by central banks outside the US added to its appeal.
  • Copper posted the biggest loss since June as uncertainty in China, the world’s biggest metal consumer, damped prospects of more demand growth ahead.
  • Source: Bloomberg,
Local markets
  • Bank of New York Australia ADR Index -1.7%, BHP Billiton ADR -2.7% to A$22.50 equivalent, 1% discount to last Sydney close, Rio Tinto ADR -3.1% to A$42.03 equivalent, 18% discount to last Sydney close
  • Gold futures for December delivery gained 0.3% to $1,257.60 an ounce, settled higher Thursday as the dollar retreated, a day after largely as-expected policy meeting minutes from the Federal Reserve did little to sway expectations for slow, data-driven rate increases by the central bank. Gold stocks in Toronto 1.29% on Friday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • West Texas Intermediate for November delivery climbed 26 cents to close at $50.44 a barrel on the New York Mercantile Exchange. Total volume traded was 48% above the 100-day average. Brent for December settlement rose 22 cents to $52.03 a barrel on the London-based ICE Futures Europe exchange. The global benchmark closed at a $1.18 premium to December WTI. Although inventories rose 4.85 million barrels last week refinery inputs of crude and other feedstocks fell to 15.8 million barrels a day, the lowest level since February. Increased drilling by shale producers buoyed by higher prices is slowing the decline in US crude production. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore inched up 0.2% to $US56.60 a tonne overnight, according to The Steel Index, even as Australia’s major miners were hammered in London trade after Citi cut its rating on both BHP Billiton and Rio Tinto to a sell rating. UBS also warned traders not to become complacent over the outlook for iron ore after its surprising strength this year. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper dropped as weak Chinese trade data undermined confidence in the global economy. Chinese exports unexpectedly shrank the most since February, while imports also declined. The figures signaled slower growth in the world’s second-largest economy just as the US prepares to raise interest rates, boosting gold’s appeal as a haven. Copper is the worst performer among the six major base metals traded on the LME, little changed this year, as uncertainty in China, damped prospects of more demand growth ahead. Nickel led a decline in industrial metals after China trade data pointed to a deeper slowdown.
  • Mining stocks fell the most in a month. Copper fell 0.8% to $4,773.50 a ton. Tin and zinc dropped more than 1% on the LME. Nickel for delivery in three months slipped as much as 1.9% to $10,360 a metric ton Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • ARB Corp. (ARB): Annual meeting scheduled; No specific guidance given when earnings reported Aug. 17
  • BHP Billiton (BHP): Apollo said close to deal for Anglo’s Australian coal mines, beating BHP; Olympic Dam mine preparing to resume full production
  • Gold One (GDO): S.Africa NUM says 66 members sit-in at Modder East mine
  • Newcrest (NCM): Said to win SolGold holder backing to take 10% stake: AFR
  • News Corp. (NWS): Sky holders protest James Murdoch’s return as chairman
  • Regis Resources (RRL): Scheduled to release 1Q production report; NOTE: Co. in July forecast FY17 gold output 300k-330k ozs; AISC A$980-A$1,050/oz
  • Super Retail (SUL): Director John Skippen said to face opposition to re-election at AGM: AFR
Rio Tinto: stock to watch

Leading miner Rio Tinto most recently broke out of an inverse head and shoulder formation with the most recent high coming in slightly shy of the 23.6% inverse head and shoulder extension target.

The most recent high also coincides with a 200 monthly moving average which explains the rejection Rio has received. We will continue to monitor a lower retracement in the stock price and may explore long opportunities upon a retest of the neckline.

Rio Tinto's share price chart1

 Rio Tinto chart
S&P/ASX200 (AUS200) slips through support

Prices moves for the S&P/ASX200 (AUS200) were weak as the benchmark index broke the support level 5,436 and also threatened to test the psychological level 5,400. But the selloff was reversed on the US cash open.

Crude oil prices jumped again despite the massive inventory numbers (4.9 million barrels) and equity indices seem to benefit from that. Materials stocks may weigh on the AUS200 as copper has headed lower.

 S&P/ASX200 (AUS200) trend
AUDUSD moves

AUDUSD appears to have bounced off the uptrend (from its January 16 low of 0.6827) as the US dollar retreated from the recent rally. The topside momentum of the 10 year bond yield is starting to fade off. So the US dollar is expected to remain subdued.

There are some key data releases today including Chinese CPI, PPI and US retail sales numbers.
AUDUSD trend
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Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Robert Ryan

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Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.

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