Article / 29 January 2018 at 0:03 GMT

Today's Trade: Weak USD lifts black gold, coal and ore under pressure

Trading Desk / Saxo Capital Markets
Australia
  • The S&P 500 Index surged to a fresh all-time high on Friday
  • AUD has soared to a high against USD, and there is a bright outlook for AUDNZD
  • Oil just got an extra tailwind from the weakening US dollar
  • This month is shaping up to be the best January for black gold in 12 years
  • Bulks are under pressure: iron ore and coking coal prices had another weekly loss

Overnight and early trading 
  • The S&P/ASX200 surged higher at the open. It was up 0.26% to 6,065.90 at 1101 AEST (0001 GMT).
  • Asian equities looked poised to build on this year’s strong start that’s pushed the regional benchmark index to a record high as investors bet an expansion in corporate earnings won’t falter any time soon.
  • Futures signaled gains for stock markets in Japan, South Korea, Hong Kong and Australia on Monday after the S&P 500 Index surged on Friday to a fresh all-time high. The yen steadied after the Bank of Japan clarified comments from Governor Haruhiko Kuroda at the WEF summit in Davos on Friday did not mean a change to its forecast.


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Chair Janet Yellen will preside over her final meeting of the Federal Open Market Committee this week. Photo: Shutterstock

  • Investor focus is back on earnings and economic data this week after markets were roiled last week by protectionist rhetoric and conflicting positions on the dollar from U.S. President Donald Trump and some of his top officials. The week will also include the final Federal Reserve meeting presided over by Chair Janet Yellen. The value of global equities has surpassed $60 trillion this year and government bond yields have rallied as investors assess the outlook for inflation alongside a gentle improvement in global economic growth.
  • U.S. stocks extended their weeks long rally and the dollar resumed its slide Friday, capping a week of increased volatility.
  • Major U.S. indexes were lifted by a new batch of strong corporate earnings reports and fresh data showing continued economic growth around the world, while intraday stock swings picked up slightly.
  • The S&P 500 rose 33.62 points, or 1.2%, to 2872.87 Friday, surging into the close for its 14th record in January. That marks the most records for the S&P 500 in a single month since June 1955.
  • The Dow Jones Industrial Average climbed 223.92 points, or 0.8%, to 26616.71 and the Nasdaq Composite gained 94.61 points, or 1.3%, to 7505.77, both setting new highs as well.
  • Gross domestic product—the value of goods and services produced in the U.S.—rose at a 2.6% annual rate in the fourth quarter, the government said Friday. That didn’t match the second and third quarters’ growth rates, but it exceeded the 2% average that has prevailed since the early 2000s.
  • Earnings also continue to boost major stock indexes. Of the roughly quarter of companies in the S&P 500 that have reported fourth-quarter results through Friday, 77% have beat earnings estimates, according to FactSet. That puts earnings for the companies in the index on track to rise 12% from the prior year, FactSet data show.
  • Intel was among the companies whose shares rose after reporting quarterly results. The chip giant late Thursday posted record revenue growth in the fourth quarter. The stock surged $4.78, or 11%, to $50.08, its highest close in more than 17 years.
  • Meanwhile, Wynn Resorts shares fell 20.31, or 10%, to 180.29 after The Wall Street Journal reported allegations of sexual misconduct by founder Steve Wynn. He has denied the allegations.
US earnings this week
  • Monday: Lockheed Martin, Seagate Technology, Crane, Equity LifeStyle Properties, Hawaiian Holding.
  • Tuesday: McDonald's, Pfizer, Aetna, Autoliv, Corning, Danaher, CIT Group, Pulte Group, Harley-Davidson, Chubb, Equity Residential, Boston Properties, Stryker, Electronic Arts, SAP, AK Steel, Scotts Miracle-Gro.
  • Wednesday: Boeing, AT&T, Microsoft, Facebook, MetLife, Mondelez International, PayPal, Eli Lilly, Johnson Controls, Nintendo, Qualcomm, Samsung Electronics, Vertex Pharma, U.S. Steel, Citrix, Tractor Supply, Textron, Anthem, Nasdaq OMX, Johnson Controls, Sirius XM, DR Horton, Siemens.
  • Thursday: Apple, Alphabet, Amazon, Alibaba, Tableau Software, Blackstone, Mastercard, DowDuPont, ConocoPhillips, AutoNation, Amgen, GoPro, Ralph Lauren, Hershey, CME Group, Cigna, Brunswick, Mattel, Time Warner, International Paper, UPS, Daimler, Royal Dutch Shell, Altria.
  • Friday: Exxon Mobil, Chevron, AstraZeneca, Deutsche Bank, Merck, Clorox, Sony, Philips 66, Estee Lauder, BT Group, Charter Communications, Aon, Weyerhaeuser, Roper Industries, LyondellBasell.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC.
Local markets
  • Bank of New York Australia ADR Index is up 1.6% to 297.9, BHP Billiton ADRs are up 2.2% to $A30.84 equivalent, a 0.0% discount to last Sydney close, Rio Tinto ADRs are up 1.0% to $A69.42 equivalent, a 11.9% discount to last Sydney close
  • The weaker USD certainly helped investor demand for gold, with prices closing out its sixth weekly gain in seven to close around $1,350/oz. Price direction was volatile over the course of the week, as conflicting signals from the US administration saw USD reverse course several times. Gold did briefly hit $1,366/oz last week, it highest level since July 2014 after the US Treasury Secretary endorsed a weaker USD. Physical demand is also improving. Gold imports into China from Hong Kong rose to 30.47 tonnes in December, from 27.15 tonnes in November as consumer demand ahead of the Spring Festival picks up. Gold stocks in Toronto added 0.30% on Friday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Crude oil just got an extra tailwind from a weakening dollar as this month is shaping up to be the best January for black gold in 12 years. That’s because when the greenback is losing value, investors tend to flock to commodities as a store of value, and this is coming on the back of a record streak of declines in American spare supplies of crude. Futures climbed 1% on Friday in New York to their highest since December 2014, pushing this month’s gain to 9.5%. The last time oil rose more than that for any month of the year was in April 2016. Meanwhile, the dollar was poised for its longest stretch of weekly declines since 2010. Crude stowed in U.S. tanks and terminals has never been in more demand, as evidenced by the unprecedented 10-week drawdown on American inventories. West Texas Intermediate for March delivery added 63 cents to settle at $66.14/b on the New York Mercantile Exchange. Total volume traded was about 12% above the 100-day average. Brent for March settlement added 10 cents to end the session at $70.52 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $4.38 to WTI, the smallest since early September. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Bulks remained under pressure, as both iron ore and coking coal prices record another weekly loss. Iron ore futures in Asia were down around 1% for the week, with signs that the physical market is starting to soften. Inventories at Chinese ports recorded another gain, rising 0.8% to 153.1 million tonnes, according to Steelhome data. The seasonally low level of disruptions to exports is also weighing on the prices. Exports from Australia and Brazil are usually impacted by weather related issues in the first couple of months of the year; however so far there has been little such disruption. Spot iron ore fell 0.2% or $0.15 to close at $75.84. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Three-month copper fell 0.7% to $7085 per tonne but ended 1% higher on the week. On-warrant copper stocks, those not earmarked for delivery, have shot up 70% since January 17 to 258,675 tonnes. Copper stocks: OZL, SFR.
  • Zinc touched a fresh a 10-year high over the weekend due to a weaker dollar and as inventories slipped to their lowest levels since 2008, indicating tight supply. Benchmark LME zinc ended 0.4% higher at $3,478 per tonne, after touching its highest since 2008 at $3,481.85. It recorded its seventh straight week of gains, the longest weekly winning streak since early 2016.
  • Nickel inched up 0.3% to $13,650 per tonne and ended the week 8% higher on the week. This is the biggest weekly jump since early November. Freeport-McMoRan said it was edging closer to a permit deal with Indonesia for its massive Grasberg mine, but the world's second-biggest copper producer said that it had not yet struck any formal agreements. Aluminium gained 0.7% to $2,257 per tonne, lead dropped 0.5% to $2593, and tin finished 1% higher at $21,600 after hitting its highest since November 2016. Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • AMA Group (AMA): Blackstone Is Said to Conduct Due Diligence on AMA Group: AFR
  • Commonwealth Bank (CBA AU): May Take Trade Sale Route For A$5b Colonial First State Global Asset Mgmt: Australian
  • CSL (CSL): Hizentra Gets Use Extension Recommendation in Europe.
  • Iluka Resources (ILU): Q4 Production Report Scheduled; NOTE: Co. in October forecast 2017 zircon, rutile, synthetic rutile output 795,000 t.
  • Macquarie Group (MQG): HSBC North America Loan Trading Head Said to Leave for Macquarie.
  • South32 (S32): South Africa 2017 Richards Bay Coal Exports Climb to Record.
  • Synlait Milk (SM1): 2017/2018 Forecast Milk Price Remains Steady.
  • Transurban (TCL): Mgmt presentation for WestConnex Bidders Started Last Week, First Round Bids Due End-February: Australian.
  • Westpac (WBC): Westpac Is Said to Plan $A1bn to $A1.5bn Hybrid Debt Offering: AFR.
  • Tassal, Orocobre, Pilbara Minerals, Fortescue had the next largest gains for the top quintile of shorted stocks in the week ending January 19.
  • TPG Telecom posted the largest percentage decline the past week; followed by Domino’s Pizza, Western Areas, JB Hi-Fi, Genworth Australia.
  • Altium, Lynas, Steadfast had the largest percentage increase in total short positions on the overall index
  • A2 Milk, IOOF, Seek had largest percentage decrease in total positions
  • Healthscope, Mayne Pharma, Pilbara Minerals have most total short positions on the ASX 200 index.
  • Flight Centre, Independence Group, Syrah Resources have largest short interest as a percentage of free float.
  • Companies with highest ratio of short interest to volume traded include Adelaide Brighton, JB Hi-Fi, TPG Telecom; lowest ratio: Mantra Group, Qantas, Altium.
Broker upgrades, downgrades
  • JB Hi-Fi (JBH): Upgraded to Overweight at JPMorgan; PT $A31.50.
  • Fortescue (FMG): Downgraded to Neutral at JPMorgan; PT $A5.50.
Australian earnings releases
  • Tuesday: Credit Corp Group Ltd, Navitas Ltd: Earnings // Fortescue Metals Group Ltd, Newcrest Mining Ltd: Qrtly release // CYBG PLC: Trading Update
  • Wednesday: GUD Holdings Ltd: Earnings // Independence Group NL, Origin Energy Ltd: Qrtly release. CYBG PLC: AGM
  • Friday: James Hardie Industries PLC: Q3 Earnings // Downer EDI Ltd: Earnings
Stock to watch: Goldminer Newcrest

Ahead of the release of a quarterly production update from Newcrest mining (NCM) tomorrow, price action looks liklely to end the long term triangle that has formed since July 2016.

The price has been converging, but the recent strength from gold is expected to support the price of NCM. We are anticipating a break out to the topside as solid production numbers are likely tomorrow given the recent gains on the precious metal prices.

Newcrest chart
1
 

AUDUSD hits historical high

The two month long rally in the Aussie dollar has now seen prices cross over the 200 monthly average to trade at historically important levels going back to 1996. So the Aussie is currently trading at the 2015 rejection level, as well as last year’s high.

So we have a scenario of an extremely bullish break out or a triple top formation. The release of Australia's CPI data this week is key.

AUDUSD looks bullish
2


















Bright outlook for AUDNZD

AUDNZD saw brief losses hold again at the 2017 support trendline, with the pair now trading above a triple bottom support as well as clearing the 2017 downtrend.

This translates to a bright outlook for the pair: we explore long positions at market (refer 1.1032) with further opportunities to add, upon a retracement to the 1.10 handle.
3
 
Positive outlook for USDJPY

Losses continued for the USDJPY with prices now resting at the long term 2012 trendline. Now should last week’s low is able to hold, this would translate to prices respecting this 2012 trendline as well as the 2017 base (see second chart). So a topside move is highly likely for the USDJPY, as it may start to enjoy converging price pattern.

We start the week with a positive outlook with any long positions taken from here to have stops upon 2 settlements below the 2012 trendline.

USDJPY chart
4
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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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