Today's Trade: Volatile ASX200 creeps higher, with help from Wall St
- Iron ore prices rose on an unexpected fall in inventories
- Tax and fiscal stimulus moves are expected in Trump's speech later today
- Energy shares led gains in the S&P 500, rising 0.9% as oil prices crept higher
- There is a risk of a pullback in the gold price
- GDP numbers could decide the fate of the last two months' rally in AUDUSD
By Saxo Capital Markets Australia
Overnight and early trading
- The S&P/AX200 crept higher; it was up 0.24% to 5,738.00 at 1055 AEST (2355 GMT, on Monday evening).
- US stocks rose overnight, boosted by gains in energy and financial shares however overall moves were relatively muted, with stocks starting the session lower then drifting higher.
- The Dow Jones Industrial Average rose 16 points, or less than 0.1%, to 20838 and the S&P 500 rose 0.1%. A rally in biotechnology shares helped lift the Nasdaq Composite, which added 0.3%.
- Energy shares led gains in the S&P 500, rising 0.9% as oil prices edged higher. Financials—which have soared since Election Day on expectations of higher economic growth and looser regulation under President Donald Trump—were also among Monday’s top performers. The KBW Nasdaq Bank Index of large US commercial lenders rose 0.6%.
- The utilities sector gave back some of last week’s gains, falling 0.6% in the S&P 500, while telecommunications and consumer-staples stocks also fell. Utilities companies posted their best week since July on Friday, rallying alongside U.S. government bonds as investors pulled back on some popular postelection trades.
- President Trump is set to deliver a speech to Congress on Tuesday, where he is expected to outline his policy priorities, including simplifying the tax code and dismantling the Affordable Care Act, White House officials said Sunday.
- The S&P 500 has risen more than 10% since the November election in the US, while the Dow has risen over 13%, partly driven by hopes that Trump’s policies will boost corporate earnings.
- US government bond yields started to climb again overnight as prices fell. The yield on the 10-year Treasury note rose to 2.367% from 2.317% Friday, which was the lowest yield since November.
- While investors continue to bet that growth and inflation will help lift US equities, most expect the Federal Reserve to raise rates gradually, potentially limiting gains in US yields.
- Fed-fund futures tracked by CME Group suggest investors see a roughly 35% chance of an interest-rate increase in March.Fed officials including chair Janet Yellen are scheduled to deliver speeches this week before the US central bank meets next month.
- Apple shares rose 0.2% after Warren Buffett said Berkshire Hathaway more than doubled its stake in the technology company in 2017.
- The Stoxx Europe 600 edged down 0.1% for its fourth straight session of declines.
- Bank of New York Australia ADR Index +0.4%, BHP Billiton ADR +1.7% to A$25.17 equivalent, 0.7% premium to last Sydney close, Rio Tinto ADR +0.9% to A$54.75 equivalent, ~12% discount to last Sydney close.
- Gold for immediate delivery added less than 0.1% to $1,257.60/oz, according to Bloomberg generic pricing. On Friday, prices rallied to $1,260.23, the highest since November 11. On the Comex, gold futures for April delivery settled little changed at $1,258.80. Gold stocks in Toronto were pummelled overnight, down 4.98%. For a clue at how much anxiety there is among European investors, take a look at Xetra-Gold, the exchange-traded fund backed by bullion that lured the most money among its peers this year. Investors poured almost $906 mln into the Frankfurt- listed ETF this month, on course for its biggest inflow since inception in 2007, data compiled by Bloomberg show. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil closed near $54/barrel in New York as estimates of record U.S. stockpiles overshadow Opec’s efforts to balance the market. WTI for April delivery rose 6 cents to $54.05/b on the New York Mercantile Exchange. Total volume traded was about 28% below the 100-day average. Prices are up 65% from a year ago. Brent for April settlement declined 6 cents to $55.93/b on the London-based ICE Futures Europe exchange. April Brent expires Tuesday and the more-active May contract climbed 11 cents to $56.42/b. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore prices jumped again as sentiment in the Chinese steel market picked up. Steel traders are hopeful that this weekend’s National People’s Congress meeting will both reveal further capacity closure measures, while reiterating some infrastructure spending programs. Prices were also supported by an unexpected fall in iron ore inventories held at the port. According to Antaike data, stocks fell 5mt to 110.7mt last week. Spot iron ore rose 1.83%. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Copper swung between gains and losses Monday before the three-month contract settled up 0.1% at $5,934 a tonne on the London Metal Exchange. Copper traders were left confused over the state of play at the world’s top copper mine: the owner said wage talks had resumed, while the union said striking workers have had no contact with management for a week. While BHP-owned Escondida declined to comment further, the union said a meeting last Monday organized by Chilean labour authorities was the last time the two sides have sat down together. Escondida halted output on February 9 after a month of talks failed to produce a wage accord. Aluminium closed 0.8% up at $1900 a tonne, while zinc slipped by 0.8% to $2806 and lead lost 0.3% to finish at $2254. Tin closed with a 1% decline at $18,995 and nickel gained 1.7% to finish at $11,045. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- Fortescue Metals Group Ltd. and Apollo Global Management LLC are among bidders for Wesfarmers Ltd.’s Australian coal operations, according to people with knowledge of the matter. Apollo submitted an indicative offer for Wesfarmers’s stakes in the Curragh and Bengalla mines by a deadline around the end of last month, the people said, asking not to be identified because the information is private. Fortescue bid for Curragh, which produces mostly metallurgical coal, according to the people. The suitors are now studying detailed information on the assets, which could fetch as much as $A2 billion ($1.5 bn) combined, the people said.
- Ex-dividend: APN Property, Asaleo Care, Bega Cheese, Challenger, Greencross, Insurance Australia, Navitas, Nick Scali.
- Bega Cheese (BGA): Agrees to sell $A200mln plant to Mead Johnson Nutrition
- Bellamy’s Australia (BAL): Chairman Woolley said to prepare to resign; Extraordinary general meeting scheduled.
- Harvey Norman (HVN): H1 results expected; NOTE: Two-analyst rev. est. $A1.6bn
- Orocobre (ORE): H1 results expected.
- OZ Minerals (OZL): Red Kite’s Lilley sees 600,000 tonne copper deficit on Horizon
- Premier Investments (PMV), Woolworths Ltd. (WOW): Executive Colette Garnsey may be named next head of Big W: Australian.
- Resolute Mining (RSG): reported a 39% fall in after tax profit for the December half to $55.4 mln. Revenue fell 32% to $168.2 mln and gold production rose 11% to 170,558 ounces, tracking ahead of its current FY guidance.
- Spotless Group (SPO): H1 results expected; NOTE: 2-analys adjusted net income est. $A36.4mln.
- WorleyParsons (WOR): Dar Group confirms 13% stake purchase in company; Worley says got offer Nov. 14 for $A11.80/share.
- Woodside (WPL): Shell may be considering sale of stake in co. AFR.
Broker upgrades, downgrades
- Adairs (ADH): Cut to neutral at UBS, PT $A1.25.
- Amaysim (AYS): Cut to hold at Shaw and Partners, PT $A1.90.
- Austal (ASB): Cut to underperform at APP Securities, PT $A1.62.
- Cardno (CDD): Raised to add at Morgans Financial, PT $A1.29.
- Gateway Lifestyle (GTY): Raised to outperform at Macquarie, PT $A2.19; Cut to neutral at Goldman, PT $A2.25.
- QBE Insurance (QBE): Company says returns to rise amid Trump stimulus hopes; Cut to underperform at Credit Suisse, PT $A12.60.
Following electronics retail chain JB Hi-Fi’s (JBH:xasx) recent strong results which showed a 16% rise in net profit (for December 31), the market initially witnessed a positive reaction as the stock gapped up on the open. However it found selling in front of the previous all time high at $A31.21. Since then, the price of JBH has been falling and violated the key uptrend line (from November 15 low) which sets up a bearish tone for the stock.
Furthermore this rejection off 31 created a double top which coincides with a bearish divergence as seen in the weekly RSI, hence we are starting to add negative exposure on JBH in anticipation of further selling pressure towards potential support levels at 25.16 followed by 23. Any bounces from here should prove to be tactical and short lived and we would look to add to our short positions upon a retest of the previous uptrend.
JB Hi-Fi's share price trend
Stock to watch: Royal Bank of Scotland (RBS:xlon)
Looking at the chart below a quintuple top has emerged since breaking below the 257 level in January last year. Although the stock is still trading in an upward channel a break below the lower channel trend line and two daily settlements could provide good opportunities for the bears to drive prices lower.
Royal Bank of Scotland (RBS:xlon) share price trend
- Newcrest Mining Ltd NCM 2/28 BMO Capital Markets Global Metals & Mining Conference.
- Resolute Mining Ltd RSG 2/28 Semiannual 2017 Earnings Release.
- Bellamy's Australia Ltd BAL 2/28 Extraordinary General Meeting.
- Evolution Mining Ltd EVN 3/1 BMO Capital Markets Global Metals & Mining Conference.
- Northern Star Resources Ltd NST 3/1 BMO Capital Markets Global Metals & Mining Conference.
- Fortescue Metals Group Ltd FMG 3/1 BMO Capital Markets Global Metals & Mining Conference.
- Iron Mountain Inc IRM US 3/1 MUFG Securities Property REIT Corporate Access Day.
- OZ Minerals Ltd OZL 3/1 BMO Capital Markets Global Metals & Mining Conference.
- Sandfire Resources NL SFR 3/2 BMO Capital Markets Global Metals & Mining Conference.
- Saracen Mineral Holdings Ltd SAR 3/2 BMO Capital Markets Global Metals & Mining Conference.
- Orocobre Ltd ORE 3/3 Semiannual 2017 Earnings Release.
The S&P/ASX200 (AUS200.i) found support at exactly the 50% retracement level between the recent February low to highs as we outlined in yesterday’s note.
This level of 5,700 is expected to be a key defence for our index with an erosion of this level to shift sentiment for larger losses. Resistance is served at 5,767 to 5,784 and a claim of these resistance levels would be required for added upside moves for the week.
Yesterday afternoon, AUDUSD briefly broke 0.77 handle but never looked like maintaining price above it. It is currently sitting at the intersection of two short term uptrends which should serve as a valid support level temporarily but since AUDUSD has been struggling to stay above 77 cents this month, there are signs of fading momentum.
We would look to sell any rallies up to 0.77 and tomorrow’s GDP numbers is likely to be a major catalyst to determine a potential reversal of the last two months' rally.
Gold price pullback possibility
A triple top is visible in the daily RSI, so we could see development of further pullback in the near term.
Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
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– Edited by Robert Ryan
Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.