Today's Trade: Wall Street slide drags S&P/ASX200 into the red
- Gold prices rose on as the dollar weakened and stocks sold on Wall St
- The moves followed Trump's ban on citizens from several nations.
- The Australian dollar US dollar is stuck between 0.7520 and 0.76
- Trump isolationism could hurt optimism over pro-business initiatives
By Saxo Capital Markets Australia
Overnight and early trading
- The S&P/ASX200 headed lower at the opening, adding to Monday's falls. The benchmark index was down 0.54% to 5,632.30 at 1038 AEST (1038 GMT, on Monday).
- US stocks tumbled on Monday, sending the Dow Jones Industrial Average down more than 100 points in what was its worst day since the election.
- Nearly all the sectors of the S&P 500 fell—broad declines that contrasted with a stock market that has been generally buoyant since Election Day. After the Dow crossed 20,000 and major indexes hit records last week, President Donald Trump’s move to restrict immigration from seven majority-Muslim countries deflated some of the market’s optimism, some analysts and investors said.
Gold prices gained ground as the US dollar weakened and stocks sold off following Trump's immigration crackdown. Photo: Stutterstock
- Airlines and technology firms were among Monday’s biggest decliners. Financial shares, which have helped lead the rally since election day, also slumped.
- Stocks pared some of their earlier declines, but the Dow Jones Industrial Average notched its biggest drop since October 11. The blue-chip index fell 123 points, or 0.6%, to 19971, the S&P 500 fell 0.6% and the Nasdaq Composite dropped 0.8%.
- Expectations for stock swings increased, following a relatively tranquil stretch. The CBOE Volatility Index, or VIX, rose 16% to 12.22. On Friday, Wall Street’s “fear gauge” closed at 10.58, its lowest level since 2014.
- Trump’s executive order on immigration Friday spawned legal challenges, congressional criticism and widespread protests. The prospect of protectionist measures and conflict in Washington could cloud the path for pro-business initiatives like corporate tax reform and fiscal spending, which investors have been betting on since Election Day, analysts have said
- Shares in airlines were among Monday’s biggest decliners. American Airlines Group fell 4.4%, United Continental Holdings declined 3.6% and Delta Air Lines fell 4.1%. Delta said its essential information technology systems were restored following an outage on Sunday, but said it scrubbed more flights Monday and warned that further cancellations were possible.
- The outage occurred amid demonstrations at many airports across the country in opposition to Mr. Trump’s executive order.
- Technology-industry leaders criticized the temporary ban, expressing concerns about the order’s effects on their employees. The technology sector of the S&P 500 shed 0.8% Monday. Financials lost 0.7%.
- The moves came after the Dow industrials slipped Friday but still posted their best week since December as investors reacted to corporate earnings and Mr. Trump’s first week in office.
- Many investors had bet the new administration would quickly reduce taxes, cut back regulations and shore up US growth, driving the blue-chip index past the 20000 mark for the first time.
- Still to come this week: fresh readings on the global economy, updates from the world’s largest companies and meetings of the Federal Reserve and Bank of Japan. More than 100 large US companies are set to report quarterly results, including Facebook and Apple.
- The yield on the 10-year USTreasury was recently at 2.483% on Monday, compared with 2.480% Friday, according to Tradeweb. Yields fall as bond prices rise. The WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, fell around 0.4% after five weeks of declines.
- Elsewhere, the Stoxx Europe 600 shed 1%—its biggest decline since Nov. 2—with economically sensitive corners of the market, such as banks, energy and insurance companies, leading declines. Australia’s S&P/ASX 200 fell 0.9%, its worst day so far this year, while Japan’s Nikkei Stock Average fell 0.5%.
- Markets in China, Hong Kong and South Korea were closed for the Lunar New Year holiday on Monday.
Source: Bloomberg, TradingFloor.com
- Bank of New York Australia ADR Index -1.6%, most since December 14.
- BHP Billiton ADR -1.8% to A$26.82 equivalent, 2% discount to last Sydney close, Rio Tinto ADR -2.4% to A$58.63 equivalent, ~14% discount to last Sydney close.
- Gold prices rose on as the dollar weakened and stocks sold off following an executive order by President Trump to impose a temporary ban on citizens from several majority-Muslim countries. Gold for April delivery settled up 0.4% at $1,196.00/oz on the Comex division of the New York Mercantile Exchange, breaking a four-day losing streak. The US Dollar Index, which weighs the dollar against a basket of other currencies, was down 0.3%. A weaker dollar makes dollar-denominated commodities like gold more affordable for holders of other currencies. Looking forward, the upside to gold could increase if investors begin to see gold as a haven buy amid uncertainty over Trump’s presidency. On Friday, the US also saw a lackluster set of growth data for the final quarter of the year, which was bearish for the dollar. Growth in 2016 was overall in line with the previous year. Goldies in Toronto followed global stocks down, losing 0.56% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Crude oil fell a second day after drilling in the U.S. rose to the highest in more than a year, countering Opec's efforts to clear a supply glut. Rigs targeting crude in the U.S. rose last week to the most since November 2015, according to Baker Hughes Inc., while American crude output is at the highest since April, government data shows. Oil supplies from OPEC are sliding this month, according to tanker- tracker Petro-Logistics SA. Declines accelerated as U.S. equities retreated.
- Oil has fluctuated above $50/barrel since 11 nations including Russia last month joined with Opec to trim supply. While Saudi Arabia says more than 80% of the targeted cuts have been implemented since the deal took effect on January 1, the International Energy Agency predicted a gain in US shale output as prices rise.
- West Texas Intermediate for March delivery fell 54 cents to settle at $52.63/b on the New York Mercantile Exchange. Total volume traded was about 15% below the 100-day average. Prices are up 57% from a year earlier. Brent for March settlement, which expires Tuesday, dropped 29 cents, or 0.55%, to $55.23/b on the ICE Futures Europe exchange. The global benchmark crude closed at a $2.60 premium to WTI. The more-active April contract slipped 38 cents to $55.32. Energy companies were the five worst performers on the Standard & Poor’s 500 Index. The S&P Oil & Gas Exploration and Production Select Industry index was down 3%. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore spot prices were unchanged, with Singapore and China exchanges closed. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Base metals were mixed with copper, aluminium and tin ending lower. Nickel, lead and zinc advanced. Tin for three-month delivery drops as much as 1.5% to $19,635/ton on the London Metal Exchange, lowest since October 18. Tin settled at 19,650 as the metal slumps 7% this year which is the worst performance in LME. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- Beach Energy (BPT): Q2 production report expected; NOTE: Co. in August forecast FY17 output 9.7-10.3 mln barrels of oil equivalent.
- BHP Billiton Ltd. (BHP): Miner that spurned BHP offer plans more Ecuador copper sites
- Coal Of Africa (CZA): Gets environmental authorisation for Vele
- Commonwealth Bank (CBA): Colonial unit plans A$1b hybrid issue, AFR says.
- Credit Corp. (CCP): H1 results expected; NOTE: Co. in August forecast FY17 NPAT $A52mln-A$54mln, EPS $A1.09.7-$A1.14.
- CYBG (CYB): Annual meeting and Q1 update scheduled; NOTE: Co. in November forecast reaching “double digit” ROE in 2018.
- Fortescue (FMG): 2Q production report expected; NOTE: Total ore shipped estimated at 42.1mln tonnes (3 analysts); C1 cash cost est. $13.73/wmt (3 analysts).
- Graincorp (GNC): PEP in talks to buy Allied Mills from GrainCorp, Cargill: AFR
- Iluka (ILU): Q4production report expected; NOTE: Co. in October forecast zircon, rutile, synthetic rutile target 660,000 tonnes.
- Infigen (IFN): Scheduled to release Q2 sales, revenue.
- Navitas (NVT): H1 results expected; Co. in November forecast.
- FY17 Ebitda broadly in line with FY16, weighted to H2.
- Newcrest (NCM): Raised to equal-weight at Morgan Stanley.
- OceanaGold (OGC): Targets 2017 output of 550,000-610,000 oz of gold.
- Rio Tinto (RIO): Unit born in Death Valley retooled to supply battery boom.
- Senex Energy (SXY): EIG Global said to seek 15% stake in co. amid wider equity raising program: AFR.
- Sims Metal (SGM): Cut to neutral vs buy at Goldman Sachs.
- Sky Network TV (SKT): To pay $NZ0.15 div.
- Sonic Healthcare (SHL): Cut to neutral vs overweight: JPMorgan.
Broker upgrades, downgrades
- AMP (AMP), IOOF (IFL), BT Funds Mgmt (BTT), Perpetual (PPT), Challenger (CGF), Magellan (MGF): Wealth managers initiated underweight at UBS
- Cleanaway (CWY): Cut to hold vs add at Morgans Financial
- Independence Group (IGO): Cut to neutral at Credit Suisse
- Perseus Mining (PRU): Cut to neutral at Macquarie
Aussie releases due out this week
- Thursday: Tabcorp, Downer
- Friday: James Hardie
Stock to watch: Qantas Airways
Since Qantas (QAN) made a double bottom near 2.63 (50% retracement between 2013 low $A1.01 and 2015 high $A4.25), it has been making a gradual recovery and now looking to retest the key resistance level at $A3.59 which also coincides with a 61.8% retracement between 2016 high at $A4.22 and the 2016 low at $A2.58.
We anticipate a potential breakout above $A3.59 in the near term as recent sideway price actions suggest upside momentum is maintained above the interim support level at $A3.40.
Qantas Airways' turbulent share price trend
AUDUSD stuck in tight range
US dollar weakened against EUR and JPY but AUDUSD again continues to remain stuck in a tight range between 0.7520 and 0.76 handle.
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