Today's Trade: Wall St surge boosts S&P/ASX200, iron ore retreats
- Oil surged on signs that top crude exporters may extend or deepen supply cuts
- Gold touched its highest in nearly two weeks on Tuesday
- The softer USD and tensions in Spain and North Korea supported gold
- Iron ore prices fell sharply due to concerns about steel mill closures
- The New Zealand dollar has logged two straight weeks of decent losses
Overnight and early trading
- The S&P/ASX200 has surged higher at the open, helped by record closes on Wall St. The benchmark index was up 0.56% to 5,770.20 at 1020 AEST (2320 GMT, on Tuesday evening).
- Gains in Wal-Mart Stores and shares of other consumer-staples companies pushed major U.S. stock indexes higher on Tuesday.
- The advances helped shares recover from modest losses on Monday, when U.S. stock-trading volume fell to its lowest level of the year for a full day of trading.
- The Dow Jones Industrial Average gained 69.61 points, or 0.3%, to 22830.68—a record. The S&P 500 rose 5.91 points, or 0.2%, to 2550.64, while the Nasdaq Composite added 7.52 points, or 0.1%, to 6587.25.
Iron ore prices have tumbled on concerns about steel mill closures; slightly higher ore stockpiles at Chinese ports also weighed on the market. Photo: Shutterstock
- Wal-Mart contributed roughly 25 points to the Dow industrials’ daily gain after company executives said the retailer would keep U.S. store openings to a minimum, while focusing more on e-commerce and launching locations overseas to increase sales.
- Shares of Wal-Mart jumped $3.60, or 4.5%, to $84.13 to notch its highest close since February 2015. The company also led gains in the S&P 500 consumer-staples sector, which rose 1%. Costco Wholesale rose 2.26, or 1.5%, to 156.87, while Hormel Foods gained 50 cents, or 1.6%, to 31.75.
- Shares of airliners broadly rose after American Airlines Group raised revenue guidance for the third quarter and United Continental Holdings said a measure of airline traffic would fall, but less than it expected in early September guidance.
- American rose 2.43, or 4.8%, to 53.03, while United gained 3.02, or 4.7%, to 67.72.
- With earnings season getting under way, investors are expecting that U.S. firms will continue to deliver solid results. Improving profit and revenue at American companies has helped support stocks over the past year.
- At the end of September, analysts polled by FactSet expected companies in the S&P 500 to post earnings growth of 4.2% in the third quarter, a slightly slower rate than previous quarters in part because of the recent hurricanes.
- The US Dollar Index was down 0.4% overnight but has risen for five of the past six weeks.
- Elsewhere, the Stoxx Europe 600 slipped less than 0.1% as declines in shares of Spanish and Italian companies offset a modest advance in U.K. stocks.
- Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
- Bank of New York Australia ADR Index is up 1.0% to 272.6, BHP Billiton ADRs are up 1.0% to $A26.68 equivalent, a 0.7% premium to last Sydney close, Rio Tinto ADRs are up 0.4% to $A62.01 equivalent, a 10.3% discount to last Sydney close
- Gold touched its highest in nearly two weeks on Tuesday, supported by a softer dollar and geopolitical tensions in Spain and North Korea, though gains were capped by expectations of another U.S. interest rate increase. Investors were particularly wary on Tuesday as Pyongyang celebrated the founding of its ruling party, a day after Russia and China both called for restraint on North Korea following a Twitter post from President Donald Trump hinting that military action was on his mind. In Spain, the leader of Catalonia's government called for a reduction in tensions in its standoff with Madrid over a bid in the wealthy north-eastern region for independence. Spot gold was up 0.5% at $1,289.81/oz, having touched its highest since late September at $1,294.25. U.S. gold futures for December delivery settled up 0.7% at $1,293.80. Gold stocks in Toronto edged higher by 0.10% in the first day’s trading this week. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
- Oil surged following signals that the world’s biggest crude exporters may extend or deepen supply cuts. Futures advanced 2.7% in New York for the biggest gain in two weeks. Opec Secretary-General Mohammad Barkindo said more nations may join production limits the group hammered out with Russia and other exporters in late 2016, while the Saudi plan to restrict their own sales by a record amount within weeks. The falling U.S. dollar also spurred some investors to buy, because crude is priced in the currency. Oil has struggled to hold above $50/barrel as rising output from US shale explorers diminished the impact of supply curbs implemented by Opec and allies such as Russia. Macquarie Bank said Opec probably will extend output cuts through at least the third quarter of next year and perhaps to the end of 2018.
- West Texas Intermediate for November delivery added $1.34 to settle at $50.92/b on the New York Mercantile Exchange, the highest level in more than a week. Total volume traded was about 14% below the 100-day average. Brent for December settlement advanced 82 cents to end the session at $56.61/b on the London-based ICE Futures Europe exchange, and traded at a $5.38 premium to WTI for the same month. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
- Iron ore prices fell sharply as concerns about steel mill closures weighed on the market. While this has resulted in strong raw material prices in the past, the market appears to be taking a ‘glass half empty’ approach this time. This may be the result of rising iron ore inventories. Stockpiles at Chinese ports increased by 0.5% last week to 133.9mt according to SteelHome. This builds on the previous week’s gain of 1.8%. Spot iron ore slumped 2.6% or $1.66 to close at $61.01. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Among base metals, copper for December delivery rose 0.3% to $3.0605 a pound on the Comex—its highest close in almost a month. The IMF gave another optimistic estimate for growth in China, the world’s largest base metals consumer, in its Tuesday report. Copper stocks: OZL, SFR
- Aluminium was bid at a steady $2,155 per tonne, lead slipped 0.5% to $2,520 a tonne, while tin rose 1.2% to $20,800 a tonne. LME zinc rose 1.1% to $3,269 per tonne, edging closer to a 10-year-high it hit last week as steel prices strengthened. Meanwhile, Shanghai Futures Exchange zinc rallied to its most expensive since March 2008 at 26,935 yuan ($4,048) a tonne. Aluminium stock: AWC.
- Nickel touched its highest level in more than two weeks, supported by a softer dollar and higher steel prices, while shrugging off weak data from top metals consumer China. Benchmark nickel on the London Metal Exchange rose 2.4% to $10,850 per tonne in official trading, its highest level since September 21 and on track for its biggest intraday jump since August 21. Nickel stocks: IGO, WSA.
- Australia Forecast to Extend Lead in Lithium Production.
- ANZ Bank (ANZ), Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac (WBC): Australia considers law changes to allow banks to appeal fines from prudential regulator: AFR.
- Bluescope (BSL): Annual meeting scheduled; NOTE: Co. in August forecast 1H underlying Ebit ~80% of H2, FY17.
- Cimic (CIM): May be among potential interested parties for inland rail procurement process: AFR.
- Evolution Mining (EVN), Northern Star (NST), Perseus (PRU): Physical Gold, ‘Nuggets in the Mud’ Best Investing Bets: Citi.
- Origin Energy (ORG): Green Power a Victim of Own Success Down Under as Costs Plunge.
- Ten Network (TEN): Independent Expert Report Concludes Equity in Ten Has Nil Value.
- Ooh!Media (OML AU): New Hold at Morningstar.
- New Hope (NHC AU): Cut to Underperform at Credit Suisse, PT $A1.70.
- Clean TeQ Holdings (CLQ AU): Cut to Hold at Canaccord; PT Raised to $A1.15.
- Cromwell Property (CMW AU): Cromwell Property Raised to Neutral at JPMorgan, PT $1.05.
Last week’s gains saw the US dollar recoup 23.6% of its losses since the 2017 high. So we expect continued mild pressure here at the 94 handle with a successful break of this level to introduce scope for further gains up to the 38.2% retracement at 95.89.
US dollar index chart
NZDUSD loses ground
For now, this week’s low coincides wity the 38.2% retracement between the 2015 low to 2017 high which may temporarily hold losses.
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– Edited by Robert Ryan
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Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.