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The story in Australia is clearly the moves in commodities and the materials sector, IG's Chris Weston says:
The bottom line is that if you are a momentum, trend trader or even a quant guy this space is flashing red hot right now and if you are not exposed to the space then you are missing out on what is arguably the best place to drive outperformance in a portfolio.
In recent reports, I had highlighted that really since the January 10 sellers had pulled the ASX 200 lower from the unwind of the morning auction, but at 10:28am (AEDT) that changed yesterday and investors and traders pushed into materials names. Volume was good, with $6.076 billion turnover through the market and 15.8% above the 30-day average. The bulls will take a market closing at its highs every day, but the big flows are in the mining space, although with 196 million shares traded (through the sector this was strong but not breathtaking.
The good-will should flow through again today with the ASX 200 materials sub-sector likely breaking out to the highest levels since August 2014, with BHP at the heart of this move with an open some 1.7% higher to $27.46. The pure plays will likely rally more aggressively.
Aluminium looks super strong and trading at the highest levels since May 2015, with talk of producers cutting capacity. Copper has pushed 2.5% higher and eyeing a break of the November highs of $2.75p/lb level, while the bulks have seen modest upside in the overnight session after strong gains yesterday.
By way of a guide, just look at Freeport-McMoran (FCX: US) which has well and truly broken out and now trading at the highest levels since July 2015, gaining 7.3% on the session. Shorting in this space is ill advised, it is long positions all the way, and that is until price action tells us otherwise.
By way of a lead, the S&500 has shown real signs of life and the bulls have pushed the S&P 500 to new all-time highs. A market at all-time highs is bullish and despite the climate of political uncertainty I still can't understand how we can think of this any other way. Earnings are coming in thick and fast and names like DR Horton and Dupont have reported well. Still, if we look at the sectors it's a story of financials, energy and industrials putting in the points, helped by a rise in US treasury yield. Clearly fixed income trader have it tough right now, with the yields all over the place!
These leads and the moves in commodities should push the ASX 200 into 5683 on open and through the January downtrend of 5664. Traders will be focused on moves today in copper, iron ore and steel futures (on the Dalian exchange) through the session to give mining stocks another leg up, while the FX traders have the bigger event risk in the form of Aussie Q4 CPI at 11:30 AEDT.
Sticking with metals, BHP Billiton has been able to cash in on surging iron ore prices, boosting output here to record levels in the December quarter as it continued to restrain oil and gas production in the US.
Iron ore output hit a record 60 million tonnes in the quarter, up 9 per cent from the same period a year earlier as it benefited from the ramp-up in output at the Jimblebar mine which also allowed it to access the rebound in prices recorded in the quarter.
It maintained full-year guidance of between 265 million and 275 million tonnes.
The price of iron ore received by the miner hit $US55 a tonne in the quarter, rising 28 per cent year on year. It was outpaced by surges in the price of coking coal which more than doubled to $US179 a tonne and the price of steaming coal which rose 51 per cent to $US74 a tonne.
Concern among forecasters is rising that millions of tonnes of additional low cost supply from Australia and Brazil will soon send iron ore prices into retreat.
Petroleum division output declined 15 per cent from a year earlier as it waits for prices to improve. The drop here was directly in line with the 15 per cent fall recorded in the September quarter.
With copper, BHP said it has cut its production forecast 2 per cent to 1.62 million tonnes due to an extensive power outage at the Olympic Dam project in South Australia. In the half, copper output declined by 7 per cent to 712,000 tonnes.
This revision coupled with lower grades at the Escondida mine in Chile resulted in copper production declining.
Aluminium climbed to a 20-month peak after reports of potential capacity cuts in China while zinc touched a five-week high as funds remained bullish on the sector and the dollar weakened.
Copper hit its highest in nearly seven weeks, but some analysts were wary of demand weakness and said the market is vulnerable to a correction.
Copper & aluminium having a great run higher. So what is this telling us about global economic pulse? Certainly still looks strong at moment pic.twitter.com/euxxL7reW8
— Robert Rennie (@R0bertRennie) January 24, 2017
Three-month aluminium on the London Metal Exchange closed with a 1 per cent gain at $US1867 a tonne, having earlier touched $US1883, its strongest since May 2015.
Traders cited a Bloomberg story saying that China is drawing up plans that would halt about 3.3 million tonnes of operational aluminium capacity during the winter to combat air pollution.
China's top environment watchdog delivered verbal warnings last month to Chalco, the nation's top aluminium producer, for failing to deal with pollution appropriately, state news agency Xinhua had reported.
Also supporting base metals was a weaker US dollar, making commodities priced in the greenback cheaper for buyers using other currencies. The dollar index slipped after data showed that US home resales declined by more than expected in December to a 17-year low.
LME zinc finished 1.3 per cent higher at $2,827 a tonne, having earlier touched $US2829.50, its highest since December 15.
Copper, meanwhile, climbed 2.6 per cent to end at $5,943, its highest since Dec. 7.
"Copper and zinc prices are artificially higher," said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan, citing interest from funds.
"But demand is weak, the physical market is not chasing these gains, they're waiting for lower prices. The market is at serious risk of a correction lower."
Here's the overnight scoreboard:
- SPI futures up 37 points or 0.7% to 5631
- AUD +0.1% to 75.83 US cents
- On Wall St, Dow +0.6%, S&P 500 +0.7%, Nasdaq +0.9%
- In New York, Rio +4.4%, BHP +3.2%
- In Europe, Stoxx 50 +0.3%, FTSE flat, CAC +0.2%, DAX +0.4%
- Spot gold -0.6% to $US1210.80 an ounce
- Brent crude +0.3% to $US55.41 a barrel
- Iron ore +1.9% to $US82.69 a tonne
- Thermal coal +0.1% to $US83.75 a tonne, coking coal flat at $US185
- LME aluminium +1% to $US1867 a tonne
- LME copper +2.6% to $US5943 a tonne
- 10-year bond yield: US 2.46%; Germany 0.40%; Australia 2.69%
The S&P 500 and Nasdaq set record highs overnight in a broad rally led by financial and technology stocks.
The advance comes as quarterly earnings season heats up and investors become optimistic that clarity on President Donald Trump's economic policies will be forthcoming.
Trump signed two executive orders on Tuesday to move forward with construction of the controversial Keystone XL and Dakota Access oil pipelines, rolling back key Obama administration environmental actions in favour of expanding energy infrastructure.
He also met with chief executives of the Big Three US automakers to push for more cars to be built in the United States.
"He is coming out of the gate strong and he is doing a lot of the things he said he would," said Joe Saluzzi, co-manager of trading at Themis Trading.
If Trump weren't saying crazy stuff every day, he would be being applauded for strong start (decisive, active, etc) https://t.co/hdO8SX9upG
— Henry Blodget (@hblodget) January 24, 2017
"On top of that, earnings aren't a disaster so far, so why not - you've been stuck in a range and why not lift off to the next level?"
Profits of S&P 500 companies are estimated to have risen 6.7 per cent in the latest quarter, marking the strongest growth in two years.
Despite stalling in recent weeks, the post-election rally has contributed to somewhat lofty valuations. The S&P 500 is trading at about 17 times forward 12-month earnings, compared with the 10-year median of 14.2.
The Dow Jones Industrial Average rose 112.86 points, or 0.57 per cent, to 19,912.71, the S&P 500 gained 14.87 points, or 0.66 per cent, to 2,280.07 and the Nasdaq Composite added 48.01 points, or 0.86 per cent, to 5,600.96.
Car maker shares advanced, with GM up 1.0 per cent, Ford up 2.4 per cent and Fiat Chrysler surging 5.8 per cent.
The S&P financial sector climbed 1.2 per cent. The index had surged more than 16 per cent in the wake of the election to the end of 2016 but has struggled in the new year, losing more than 1 per cent through Monday.
Materials jumped 2.5 per cent for their best day since March. The sector was bolstered by a 4.5-percent rise in DuPont, which reported a better-than-expected quarterly profit.
IBM, up 2.8 per cent, and Intel, up 2.3 per cent, were among the top boosts to the S&P 500 and helped lift the tech sector by 1 per cent for its best day this year.
Yahoo rose 3.5 per cent after the company reported better-than-expected quarterly profit and revenue and said the sale of its core internet business to Verizon should be completed in the second quarter.
Good morning and welcome to the Markets Live blog for Wednesday.
Your editor today is Jens Meyer - please send any tips, suggestions, feedback, jokes, criticism, praise etc to jmeyer@fairfaxmedia.com.au
This blog is not intended as investment advice.
Fairfax Media with wires.
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