The S&P 500 is coming off its best week of 2015 and has rallied 12 per cent from its August low. Photo: Richard DrewLocal shares are set to open higher, lifted by a bounce in base metals and an afternoon recovery in New York but iron ore’s slide continued.
What you need2know
SPI futures up 15 points at 5245
AUD at 72.44 US cents, 88.65 Japanese yen, 67.99 Euro cents and 48.01 British pence
On Wall St, late, S&P 500 +0.2%, Dow +0.3%, Nasdaq flat
In Europe, Stoxx 50 -1%, FTSE -0.5%, CAC -1.4%, DAX -1.4%
Spot gold up 0.6% to $US1075.52/oz
Brent crude adds 2.4% to $US45.90/bbl
Iron ore slides 1.9% to $US43.89/tonne
What’s on today
construction work done; Bank of Japan minutes; UK speech by RBA assistant governor Guy Debelle speech at the FX Week Europe in London; US durable goods, new home sales
Stocks in focus
Woodside Petroleum hosted a site tour of the Karratha and Pluto onshore gas plants and a meeting with senior management in Perth. On an integrated basis, these two assets alone underpin around 80 per cent of Macquarie’s risked enterprise valuation for WPL. Macquarie Wealth Management has a $32 a share price target on the stock and a “neutral” recommendation. “With WPL apparently not ready to call an end to its pursuit of Oil Search just yet and with a higher price required to engage the OSH board and/or shareholders, there is growing concern that WPL could depart from the capital discipline it has exhibited in the past.”
Bell Potter has initiated coverage of Huon Aquaculture with a “buy” recommendation and a price target of $4.55 a share. “HUO is a vertically integrated salmon producer in Tasmania with operations that span the entire supply chain across hatcheries, marine farms and harvesting & processing.”
Easy Forex currency dealer Andreas Tjahja said the n dollar is consolidating after it lost some ground because of falls in metals prices. “There’s been some recovery in base metals from earlier losses, that’s why the currency is slightly higher.” Mr Tjahja said a key event for currency markets this week will be the release of September quarter official business investment figures on Thursday, also known as capital expenditure (capex). “The capex will be one definitely to look at, not so much for the mining but to see if there’s been any improvements in (other) business investment,” he said.
Commonwealth Bank’s New Zealand economics team changed their forecast for the low in the Reserve Bank of New Zealand’s cash rate from 2.50 per cent to 2.00 per cent. “Our economics team now expect the RBNZ to cut the cash rate by 0.25 per cent on December 10, 2015, by 0.25 per cent on June 9, 2016, and by 0.25 per cent on August 11, 2016. By contrast, the OIS market currently suggests the low point in the cash rate will be only 2.40 per cent in August 2016,” writes Peter Dragicevich.
Ore with 62 per cent content delivered to Qingdao fell 1.9 per cent to $US43.89 a dry metric ton, the lowest in daily data dating back to May 2009, according to Metal Bulletin Ltd. The commodity is headed for a third annual retreat, and Tuesday’s fall eclipsed the previous low of $US44.59 set in July. For “low-cost producers, it makes sense for them to continue to increase production”, Ivan Szpakowski, a commodities strategist at Citigroup, said in a Bloomberg TV interview on Tuesday, referring to the largest miners. “They’re still profitable.”
Copper and nickel led an industrial-metals rebound on speculation that the slump encouraged some traders to close out bearish bets and as oil prices surged. The 14-day relative-strength indexes for each of the six main contracts on the London Metal Exchange were near or below the level of 30 that indicates to some traders that prices may be poised to rebound. Crude oil helped spark a rally in commodities as tensions in the Mideast rose after Turkey shot down a Russian warplane.
Copper added 2.6 per cent in London. Aluminum, lead, tin and zinc also advanced. In New York, copper futures for delivery in March gained 2.3 per cent to $US2.069 a pound, the biggest increase since October 9.
The LME’s gauge of metals reached the lowest since April 2009 on Monday and has slumped 26 per cent this year as a slowdown in China, the top commodities user, cut demand and added to a glut of metal.
The S&P 500 was higher in late trade, after falling as much as 0.8 per cent earlier. The index is coming off its best week of 2015 and has rallied 12 per cent from its August low, though gains have stalled about 2 per cent from the May record.
Energy producers surged 2.6 per cent as crude oil jumped as much as 4.1 per cent in New York. Transportation and airline stocks led declines, with the Bloomberg US Airlines Index plunging 2.9 per cent. The Conference Board’s index of consumer confidence fell to the lowest since September 2014. The Chicago Board Options Exchange Volatility Index climbed 0.5 per cent.
US banks earned $US40.4 billion in profits for the third quarter, a 5.1 per cent increase from a year earlier, the Federal Deposit Insurance Corp said Tuesday. Lower non-interest expenses were the main reason for the higher earnings in the three-month period that ended September 30, the FDIC said in its quarterly report on industry performance. Reductions in costs tied to litigation outweighed weaknesses in operating revenue at large banks, the agency said.
The Commerce Department on Tuesday said the nation’s gross domestic product grew at a 2.1 per cent annual pace, not the 1.5 per cent rate it reported last month, as businesses reduced an inventory bloat less aggressively than previously believed. The economy continues to move along at a good clip relative to its potential. With growth like this, the Fed has the data it needs to light the candle finally and lift off on December 16,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.
European shares dropped to one-week lows as mounting geopolitical tensions following the downing of a Russian warplane near the Syrian border. Travel stocks were among the hardest hit following a US travel warning, while sentiment was also depressed by disappointing updates from companies such as Zodiac Aerospace.
Bearish sentiment is taking over after the Stoxx 600 pulled off a 13 per cent rebound from its low in September to a three-month high at the end of last week. Investors grew more optimistic on speculation the European Central Bank will add to its stimulus program and on speculation that higher US interest rates won’t hamper growth. Traders are placing a 74 per cent chance that the Federal Reserve will act next month. Yet the optimism didn’t last. The Stoxx 600 had its biggest slide in more than a week on Monday, amid declines in metals that dragged commodity producers lower. As of yesterday, the Stoxx 600 was more than 8 per cent below its record in April, paring its annual advance to 11 per cent.
In London, mining stocks rebounded along with commodities. Glencore added 3.9 per cent, BHP Billiton advanced 0.52pc. Rio Tinto slipped 0.26pc.
What happened yesterday
The n sharemarket snapped a five-day winning streak, with a broad-based sell-off intensified by the miners on more weakness in commodity prices. Taking a weak lead from Wall Street, the market slipped early and after managing to pare some losses got hit again late in the session to close at the day’s lows. The benchmark S&P/ASX 200 fell 50 points, or 1 per cent, to 5226.4. The All Ordinaries fell 49 points or 0.9 per cent to 5277.2.
BHP Billiton slipped back below the critical level of $20 a share, down 1.8 per cent to a new seven-year closing low of $19.77. “BHP is at risk of becoming comfortable under $20 with continued pressure on the iron ore price and fallout in the Brazil mine disaster,” FP Markets senior technical analyst Gary Burton said.