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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 24 April 2018 at 7:37 GMT

Today's Trade: Upside pressure in copper stalling

Trading Desk / Saxo Capital Markets
Australia

By Saxo Capital Markets

Overnight

A weaker yen may support Japanese equities at the start of Tuesday trading after the dollar climbed while investors maintained focus on the US Treasury market, where the 10-year note flirted with a 3% yield. 

The greenback strengthened against major peers as the yield on 10-year Treasuries hit 2.99% percent for the first time since 2014 before paring the rise. As the yen retreated, equity futures in Japan climbed. Stock markets in Hong Kong and Australia indicated small gains, though tech may suffer after US semiconductor stocks continued their slide from last week following another chipmaker’s weak earnings. 

Aluminium prices plunged after the US softened its position on sanctions against Rusal. 

The S&P 500 was largely unchanged Monday as a stock market rally that once appeared unstoppable entered its longest stretch of vulnerability since the financial crisis. Monday’s increase of less than 0.1% marked the 51st trading day since the index suffered a correction—a decline of at least 10% from a recent high its longest stretch in correction territory since 2008.

Investors tepidly traded most of the day, with the fewest number of shares changing hands since December 29. Analysts said many investors held off on making any meaningful changes to stock portfolios to see whether a selloff in government bonds would push the benchmark 10-year US Treasury note past the milestone of 3%, a level it hasn’t reached since 2013.

The S&P 500 rose 0.15 points, or less than 0.1%, to 2670.29, while the Dow Jones Industrial Average fell 14.25 points, or less than 0.1%, to 24448.69. The Nasdaq Composite declined 17.52 points, or 0.2%, to 7128.60. 

Energy stocks, which tend to benefit from some inflationary pressures such as rising commodity prices, rose 0.6% in the S&P 500, extending the sector’s gain for the month to 9.3%, the best of any other industry in the index. 

A half a percentage-point increase in the 10-year US Treasury note earlier this year forced investors to consider whether the run-up in stock valuations could still be supported in an environment where less-risky assets offer a greater yield. That contributed heavily to the February selloff that initially knocked the Dow industrials and S&P 500 into correction territory.

Major indexes have attempted to mount a recovery since then as many investors said strong corporate earnings and continuing global growth would help keep equity valuations desirable.
But if the 10-year Treasury note climbs past 3% and shows signs of moving toward 3.25% and higher, investors will again be forced to ask whether it makes sense to stay invested in riskier assets with lower yields. 

The yield on the S&P 500 was about 2% as of earlier this month, according to S&P Dow Jones Indices.

Earlier, the Stoxx Europe 600 rose 0.4%, while most indexes in Asia inched lower. Japan’s Nikkei Stock Average edged down 0.3%, and Hong Kong’s Hang Seng fell 0.5%.

International earnings

Tuesday: 3M, Coca-Cola, Caterpillar, Biogen, Amgen, Capital One, Equity Residential, Travelers, United Technologies, Corning, Fifth Third, Freeport-McMoRan, PulteGroup, Eli Lilly, Verizon, Lockheed Martin, JetBlue, Six Flags, Chubb, Boston Properties, Illumina, Trustmark

Wednesday: Boeing, GlaxoSmithKline, AT&T, Viacom, Comcast, Facebook, Twitter, General Dynamics, Norfolk Southern, Anthem, Credit Suisse, Dr. Pepper Snapple, Nasdaq OMX, Boston Scientific, Northrop Grumman, Visa, Ford, Samsung, Qualcomm, Advanced Micro Devices, Aflac, Chipotle Mexican Grill, Cheesecake Factory, Boston Beer, Morningstar, Sirius XM, PayPal

Thursday: Amazon.com, Microsoft, Intel, Bristol-Myers Squibb, ConocoPhillips, Pepsico, Starbucks, Southwest Air, UPS, Union Pacific, Time Warner, General Motors, Barclays, Deutsche Bank, Fiat Chrysler, Volkswagen, Dunkin Brands, Illinois Tool Works, CME Group, Nintendo, Hershey, Nokia, DR Horton, Spirit Airlines, Tractor Supply, Brunswick, Marsh and McLennan, Air Products, Discover Financial, Expedia, Mattel, Lattice Semiconductor, U.S. Steel

Friday: Exxon Mobil, Chevron, TransCanada, Phillips 66, Autoliv, Tenneco, Honda Motor, Sanofi, Colgate-Palmolive, Charter Communications

Local markets

  • S&P/ASX 200 Index futures rose 0.1% to 5,874.  
  • Bank of New York Australia ADR Index is down 0.4% to 272.3. BHP Billiton ADRs are down 0.9% to A$31.06 equivalent, a 0.5% discount to last Sydney close. Rio Tinto ADRs are down 1.9% to A$72.99 equivalent, a 10.6% discount to last Sydney close. 
  • Gold declines to a 2-week low as demand for a haven eased amid cooling geopolitical tensions and a rally in the dollar. US gold futures for June delivery settled down -1.1% to settle at $1,324/oz. Third consecutive decline, touched $1,323.80, lowest since Apr. 6.  
  • In other precious metals, Silver futures for May delivery -3.4% to $16.587/oz, biggest loss for most-active contract in 9 months. Palladium futures for June delivery -4.9% to $979.55/oz, after climbing 5% last week. Platinum futures for July delivery -1% to $922.40/oz. Goldies in Toronto closed down 1%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR 
  • Oil prices rose to three-year highs Monday as tightening supplies and escalating geopolitical risks helped the market climb back from earlier losses. US crude futures settled up 24 cents, or 0.35%, to $68.64 a barrel on the New York Mercantile exchange. Brent, the global benchmark, rose 65 cents, or 0.88%, to $74.71 a barrel on ICE Futures Europe. Oil prices are at their highest since late 2014, but trading Friday and Monday has been volatile. President Donald Trump weighed in via Twitter Friday, blaming Opec for “artificially high” oil prices. On Monday, Iran’s oil minister indicated that rising oil prices could mean Opec’s efforts are no longer needed. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY 
  • Chinese steel futures climbed to their strongest level in five weeks on Monday, supported by falling stockpiles that pointed to a pickup in construction demand, with raw material iron ore scaling a one-month peak. At US 65.77/tonne, it is said that Chinese steelmakers have increased prices over the weekend in anticipation of firmer demand. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL 
  • In other metals, aluminium and shares of aluminium producers plunged after the United States on Monday gave American customers of Russia's biggest aluminium producer more time to comply with sanctions, and said it would consider lifting them if United Company Rusal's major shareholder, Russian tycoon Oleg Deripaska, ceded control of the company. Rusal now has more time to sell off its supply. Even if sanctions are not ultimately lifted, buyers also have more time to seek other suppliers. LME aluminium -7% to $US2295 a tonne, and LME copper -0.7% to $US6943 a tonne. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC 
  • Blackmores (BKL) sees supply constraints easing in 4Q, plans to invest more in brand, particularly in China. Expects current growth trajectory to continue, deliver good profit growth for FY. Acquires tablet and soft-gel capsule manufacturing facility in Australia for A$43.2m. 3Q rev. A$147.1m, up 7.3% y/y; 9-month rev. A$434.4m, up 8.5% y/y.  
  • Fortescue (FMG) Raises FY18 C1 cost target to $12-$12.50/wmt vs prev. target $11-$12/wmt. Sees FY price realization ~65% of Platts 62 CFR index based on actual prices, outlook for rest of yr. FMG Expects FID on Eliwana by end of FY18; Expects decision on Iron Bridge during 2018. 3Q total ore shipped 38.7m tons vs est. 39m tons (3 analysts, range 38.3m-39.6m tons). Non-China markets accounted for ~11% total shipments in March qtr.  
  • Beach Energy (BPT) says tightened FY18 proforma CAPEX guidance to A$370-400m and tightened FY18 proforma production guidance to 26-27MMBOE. 3Q output 6.575 MMBOE and 3Q sales revenue A$393mln. 
  • Iluka Resources (ILU AU): Annual Meeting Scheduled 
  • Macquarie Atlas (MQA AU): 1Q Traffic Data 
  • OZ Minerals (OZL AU): Annual Meeting Scheduled 
  • Resolute Mining (RSG AU): 3Q Production Reported Expected 
  • Alumina (AWC AU): U.S. Softens Stance on Rusal Sanctions; Aluminum Plunges 
  • Aristocrat Leisure (ALL AU): Investor Day Scheduled 
  • AVZ Minerals (AVZ AU): Clarifies Manono Proj. Exploration Target Comments 
  • BHP (BHP AU): Mining Investors Are More Positive Than Expected, Jefferies Says 
  • Origin Energy (ORG AU): APLNG Commits More Gas to Australian Power Market 
  • Santos (STO AU): Santos Says FEED Work to Start on Barossa Project For Darwin LNG


Broker upgrades and downgrades

  • Acrow Formwork and Construction Services (ACF AU): Rated New Buy at Bell Potter
  • Fortescue (FMG AU): Downgraded to Neutral at Clarksons Platou
  • Netwealth Group (NWL AU): Rated New Buy at Bell Potter; PT A$8.06
  • iSelect (ISU AU): Downgraded to Hold at Bell Potter; PT A$0.48

Copper (HG)

Base metals extended heavy losses on the back of the sanction relief speculations.  Aluminium is down almost 18% from the recent swing high, however copper (HG) looks resilient holding above its 200 DMA although it has been struggling to stay above uptrend (from the October 2016 low at 208.45). Upside momentum seems to be stalling and resurgence of US dollar strength could put further selling pressure on HG. We look to short any rallies up to 320 and add more bearish exposure if we see a weekly close below last week’s low of 304.40.

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Source: Bloomberg

— Edited by Michael McKenna

1y
bargee bargee
Very informative well put together article.

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