Market Services Australia

SIMPLE. EASY. PROFITABLE

[marketsandyou]

Gold Price Jumps Higher as Hedge Fund Bulls Soar 

Gold price jumps higher hitting levels last seen a year ago as safe haven buyers seek refuge amid escalating tensions on the Korean peninsula and weakness on equity markets see investors rotate back into gold.

Gold for delivery in December, contract on the Comex market in New York gained nearly $20 an ounce hitting a high of $1,349.70 in afternoon trade before settling at $1,344.50. Year to date gold is up 17%.

Volumes were some of the highest recorded for the Comex with futures contracts equivalent to more than 56m ounces or some 1,750 tonnes exchanging hands. That’s more than 85% above average daily volumes during August which was already a record trading month. 

The all time high for trading volumes on the exchange was set on the day after Donald Trump was elected president when nearly 90m ounces swopped owners.

The North Korean hydrogen bomb test over the weekend that resulted in a break between the great powers involved in the standoff sparked the latest rally in the metal.

President Trump’s warnings that the US will stop trading with any country that does business with the rogue nation drew scorn from Beijing. Yesterday US Ambassador to the United Nations Nikki Haley said Kim Jong Un  was “begging for war” which prompted Moscow on Tuesday to warn of a “global catastrophe” if  "military hysteria" is not replaced with diplomacy.

Managed money investors such as hedge funds which abandoned the gold market for equities and other yield-producing investments in what became known as the Trump trade even before the latest geopolitical escalation, have been returning to the precious metal market in droves.

Hedge funds added to their exposure to the yellow metal for the sixth straight week according to trader positioning data supplied by the government. Net longs bets that gold will be more expensive in the future – rose 18% to the equivalent of 23.2m ounces, the highest since September.

A trading note from Saxo Bank points out that the ratio between longs and short positions has jumped from 1 to almost 19 in the past few weeks. That’s the highest ratio since December 2012.

[marketsandyou]

Shares in Asia Declined as North Korea Tensions Continue to Raves Up

Shares in Asia declined today as investors remained jittery about North Korea. Japan’s Nikkei 225 declined 0.3 percent as the dollar remained soft. Across the Korean Strait, the Kospi slipped 0.28 percent.

In Australia, the S&P/ASX 200 fell 0.24 percent, with the 1.07 percent fall in the financials sub-index weighing on the broader market. Gold mining and energy stocks made moderate gains. Greater China markets were also pressured. The Hang Seng Index was down 0.88 percent. On the mainland, the Shanghai Composite shed 0.44 percent and the Shenzhen Composite slipped 0.223 percent.

In economic news, Australia second-quarter GDP rose 1.8 percent compared to the previous year. The Australian dollar fell to trade at $0.7998 from levels around $0.8017 after the release of GDP data. The Aussie dollar fetched $0.7993 at 9:53 a.m. HK/SIN.

Stocks in the U.S. fell as markets re-opened for trade after the Labor Day holiday, with the Dow Jones industrial average tumbling 1.07 percent, or 234.25 points, to close at 21,753.31.

Yields of the U.S. Treasurys were also lower. The yield of the 10-year Treasury note stood at 2.06 percent at the end of the U.S. trading day, around its lowest levels since Nov. 10. Bond yields move inversely to their prices.

The dollar fetched 108.75 yen at 9:54 a.m. HK/SIN after earlier falling as low as 108.49, close to its lowest levels since mid-April. The dollar index, which tracks the dollar against a basket of currencies, stood at 92.338, compared to the 92.2 handle seen on Tuesday.

Although risk aversion weighed on the dollar/yen, “an unabashedly dovish Brainard was unquestionably the reason” for the deeper move into the 108 level, Stephen Innes, APAC head of trading at OANDA, said in a note.

In corporate news, the sale of Toshiba’s memory chip business returned to the spotlight after Western Digital offered to leave a consortium in talks to buy the unit from Toshiba. Instead, Western Digital would strengthen its position in its existing joint venture with Toshiba. The company shares were up 3.21 percent despite most other Japanese tech stocks sliding in early trade.

Other market movers in the session included stocks affected in the annual review of the Nikkei Stock Average. Japan Post Holdings and Recruit Holdings rose 2.5 percent and 7.35 percent respectively after being added to the index, while Hokuetsu Kishu Paper and Meidenshatumbled 7.65 percent and 7.09 percent after being removed.

[marketsandyou]

DAX Slumps 0.17% as Sentix Investor Confidence climbed to 28.2 HIgher than Expected

The DAX index has started the week with small losses. In the Monday session, the DAX is currently trading at 12,123.50, down 0.17% on the day. On the release front, there are no major events on the schedule. 

Eurozone Sentix Investor Confidence climbed to 28.2, above the forecast of 27.4 points. Eurozone PPI continues to improve, coming in at 0.0%, short of the estimate of 0.1%.

The eurozone economy continues accelerate, as economic indicators point upwards in the second half of 2017. The Sentix Investor Confidence rose in September, as investors and analysts like what they see from the euro-area economy. 

Germany, the largest economy in the bloc, continues to look very strong, but other countries such as France and Italy have also posted better numbers in 2017. In August, the German and eurozone manufacturing sectors continued to show strong expansion, buoyed by domestic demand as well as a stronger global economy which has increased demand for German and European exports. 

A stronger economy has raised questions as to what monetary moves the ECB has planned will it finally taper its ultra-accommodative monetary policy? The bank’s asset purchases program is scheduled to end in December, and analysts expect the ECB to withdraw stimulus in early 2018. 

Still, the ECB has not provided much guidance as to its plans. ECB President Mario Draghi was mum on monetary policy at last week’s meeting of central bankers at Jackson Hole, following the lead of Federal Reserve Chair Janet Yellen. 

However, the ECB head will not get another free pass this week, as the ECB holds its next policy meeting on Thursday. Any discussion about tapering the ECB’s asset purchase program could have a strong effect on the euro’s movement.

Global markets are keeping a close eye on key numbers in the US, as the guessing game continues with regard to a rate hike by the Federal Reserve. US employment numbers were unexpectedly soft on Friday, but the dollar shrugged off the weak numbers and managed to post gains against the euro. 

Nonfarm employment change slowed to 156 thousand, well below the estimate of 180 thousand. This marked a 3-month low. However, with the US labor market still close to capacity (the unemployment rate is just 4.4%), the markets can be forgiving over a softer nonfarm payroll report. 

Wage growth, or the lack of it, is a more pressing concern. Average Hourly Earnings posted a small gain of 0.1%, missing the estimate of 0.2%. This was down from 0.3% in the previous report, and matched the weakest gain seen in 2017. 

[marketsandyou]

Bitcoin Price Drops After a Ban on Raising Funds Using ICOs

Bitcoin price fell sharply after Chinese regulators announced a ban on organizations from raising funds using initial coin offerings (ICOs).

ICOs allow start-ups to raise investment by selling new cryptocurrencies, which are similar to bitcoin, in return for cash. However, the People’s Bank of China says this practice, which has become popular around the world as well as in China, constitutes illegal fundraising.

Despite bitcoin’s price falling, some expect this move to be shortlived. While the ban on ICOs does not directly affect bitcoin, the news created negative market sentiment which is weighing on the prices of several virtual currencies.

Bitcoin’s price fell from $4,584 shortly before the announcement to around $4,350 per bitcoin. It was trading around the $4,429 level. 

The move by China is not the first time the country’s regulators have attempted to crack down on the cryptocurrency space. In January and February, the central bank warned several digital currency exchanges they would be shut down if they violated anti-money laundering rules.

Furthermore, while bitcoin dropped sharply on the news, its price has been trending down since hitting the $5,000 milestone at the weekend. 

[marketsandyou]

Rio Tinto Opened its 16th Iron Ore Mine in Western Australia

Rio Tinto formally opened its 16th iron ore mine in the Pilbara region of Western Australia. The Silvergrass mine is due to be commissioned during the final quarter and the $338 million brownfield development is set to produce 10m tonnes of low-sulphurous ore a year.

The company said that Silvergrass was a great example of its value over volume approach, as the mine would provide low cost, high grade material to maintain the quality of the miner’s brandname Pilbara Blend.

Silvergrass is located adjacent to Rio’s Nammuldi mine and ore would be moved to the Namuldi plant by a 9-km conveyer system currently under construction. The initial phase, with a five million tonne per annum capacity, began production in the fourth quarter of 2015. 

Final capacity could be in excess of 20m tonnes per year, but most of Silvergrass output would replace depleting resources elsewhere.

Rio is also moving ahead with its $2.2 billion Koodaideri iron ore project in Western Australia, 110km west-north-west of Newman. The project would begin construction in 2019 and enter production two years later.

Rio Tinto said it shipped its five billionth tonne of iron ore last year after 50 years of operations in the Pilbara and has invested some $20 billion in Western Australia over the past decade.

Last month, the Melbourne-based giant cut back guidance for iron ore output in 2017 by up to 10m tonnes to around 330m tonnes. Iron ore accounts for just less than half Rio’s earnings.

[marketsandyou]

U.S. Stocks Surged as Technology Climbed Higher

The S&P 500 surged 0.46 percent to close at 2,457.59 with information technology leading eight sectors higher. The S&P also posted a four day winning streak.

Nasdaq composite climbed 1.05 percent to 6,368.31, leading other major U.S. indexes, and notched a three-day winning streak. Lifting the index higher were shares of Netflix, which advanced more than 3 percent after analysts at Bernstein said that Disney pulling its content from the platform wouldn’t hinder Netflix’s stock performance.

Shares of Apple also contributed to the Nasdaq’s gains, rising 0.2 percent to hit a record high earlier in the session. Other major stocks in the sector also rose, including Facebook and Google-parent Alphabet. Tech is by far the best-performing sector this year, advancing more than 20 percent.

The Dow Jones industrial average, meanwhile, rose 27.06 points to close at 21,892.43, with Goldman Sachs contributing the most to the gains.

The ADP report is often used by traders as a preview to the government’s monthly jobs report, which is set for release on Friday. Meanwhile, the second estimate for gross domestic product data in the second quarter showed the U.S. economy grew by 3.0 percent, more than the expected increase of 2.7 percent..

Market expectations for a rate hike in December were at 41 percent on Wednesday, up from 34 percent on Tuesday, according to the CME Group’s FedWatch tool.

The two-year note yield, which is the most sensitive to changes in Fed monetary policy, climbed higher to about 1.33 percent. As of Wednesday afternoon, just over 13 billion shares had been traded for the week. At that rate, the weekly volume is on track for its lowest level since the week of last Christmas.

Equities closed higher after rebounding from the concern of further escalation in tension between the U.S. and North Korea. The Dow opened more than 130 points lower before closing 57 points higher.

[marketservicesaustralia]

China Hedge Funds Bounces after 5 Years Low

Greater China hedge funds added more than 13% on average in the first half of 2017 to rank among the top performing strategies in the world. Hedge funds from Greenwoods Asset Management, Springs Capital and SPQ Asia Capital were among standout performers with gains of 20% or more.

Hedge funds worldwide are struggling with investor redemption after central bank intervention suppressed volatility and sapped returns. China funds were a rare pocket of out performance as global hedge funds on average gained about 2.4% in the first half. 

China hedge funds bounced back after five years of worst performance.  Investors are taking notice that the majority of hedge funds in China saw inflows in May for the first time since 2015.

While Greater China equity funds overall benefited from surging Hong Kong listed shares and large cap stocks on the mainland, mainly bets on technology, Internet and consumer companies drove returns at some of the top performers. 

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong touched post October 2015 highs in the first half. The MSCI China Index added about 24% through June 30. China’s initiation into MSCI Inc.’s indexes has further boosted the outlook for the nation’s largest stocks.

Greenwoods’ $1.6 billion Golden China Fund made nearly 27% in the first half. Performance was boosted by bullish bets on consumer stocks listed in Hong Kong and China.

Other managers found opportunities in overlooked areas. Springs Capital’s China Opportunities Fund added more than 7.5% in June, with 2017 gains topping 24%.

Profit at the fund, one of the rare offshore stock hedge funds that focuses on yuan-denominated shares traded in China, was driven by gains in chemical materials, high-end manufacturing and healthcare stocks. It avoided large cap stocks most popular with foreign investors in the yuan shares market.

Large companies, including blue-chips and leaders of small industries, may outperform small and mid-cap stocks over the next three years as large companies gain share when China’s slowing economy spurs industry consolidation.

[marketsandyou]

Host Plus to Invest 12% of Funds Capital in Infrastructure

Host Plus Pty Ltd. is seeking board approval to invest about 12% of the fund’s capital in infrastructure, from 10% ongoing. Australian funds managing retirement savings now hold $100 billion in infrastructure assets, double the amount four years ago. 

According to Preqin data, the soaring worldwide investor demand has pushed the average size of such deals to a record $519 million.

The Chief Investment Officer of Host Plus sees potential to acquire more stakes in attractive assets, which he views as offering steady, predictable income for his fund’s almost 1 million members. 

Host Plus which has stakes in airports and office buildings to water filtration plants and wind farms, beat its local peers with a 9.5% return over the three years ended May 31.

Prices for infrastructure assets reached eye watering levels as opportunities to invest dwindled. There were 650 sales in the six months ended June 30, from 1,110 a year earlier. 

While equities provide investors with dividend yields, volatility can be a deterrent. Infrastructure and real estate investments are good alternatives.

Last month, a group of senior executives from Australian retirement funds along with IFM Investors have visited the Vice President of U.S.A to canvass potential cross border infrastructure deals and explore ways pension money can be used to improve American roads and airports.

Discussions were centered around how pension funds can work as long-term financial backers as opposed to private equity funds, which typically sell their investments after making a profit.

About $800 billion of President Donald Trump’s touted $1 trillion infrastructure program is expected to come from states, cities and private capital, including pension money.

[marketsandyou]

RBA Expected to Keep Interest Rates on Hold

The Reserve Bank of Australia is expected to keep interest rates on hold at its policy meeting today. The risk is the RBA adopts more upbeat views on Australian economic activity considering the solid growth in employment. The RBA has kept its benchmark rates at a record low of 1.5% since August last year. Economic growth has appeared slightly sluggish. 

Last month, Australia reported gross domestic product for the first quarter rose 1.7% on year but economists have said growth would likely improve in the second quarter, as economic activity was hindered by Cyclone Debbie earlier in the year. The RBA’s is optimistic that the growth will increase to a little above 3% in the next few years. The central bank said the global environment has continued to pick up and improvements had been made in the domestic economy. 

According to RBA, the recent supervisory measures on the housing market should help address the risks associated with high and rising levels of indebtedness.

The housing market has been the challenge. If the RBA were to cut rates further, then the easier liquidity would drive property prices even higher. The CoreLogic Hedonic Home Value Index, released yesterday it showed that in the April to June quarter, capital city dwelling values rose 0.8% on quarter and 9.6% on year.

[marketsandyou]

CEFC will Invest  $20 Million on Lithium Mine to Support Power Stability in Australia

Clean Energy Finance Corporation will invest on a lithium mine to support  power stability in Australia as the market increasingly dependent on variable wind and solar power.

The government will make a $20 million investment as part of a $132 million secured bond issued by an offshoot of Pilbara Minerals, an ASX listed company that hopes to extract lithium and supply the market for lithium ion battery storage products for electricity and electric vehicles.

The lithium concentrate supplies to be produced by this project will help build Australia’s capacity to supply much needed resources for the clean energy technologies that are set to play a vital role in increasing the use of renewable in our future energy mix.

The move comes as the government looks to prove it is being technology neutral in its efforts to beef up power supply in tackling over whether that should include subsidies for coal fired power.

The proceeds of the bond issue together with $80 million raised in a share sale will underpin the $234 million required for the project’s first stage of development. Construction is expected to start in early 2018.

The government also awarded a $2 million grant to Australian researchers developing ultra thin, screen printed batteries for use in both large scale energy storage and in cheap, portable devices.

[marketservicesaustralia]

Australian Stocks Jumped 0.6% Higher in Early Trade

Australian stocks, ASX 200 index climb 0.6% higher in early trade. With more than three quarters of the top 200 names are on rally, the uplift is spread across all sectors. 

Notable is a 6.4% jump in Metcash after the independent grocery wholesaler reported upbeat annual profits. Wesfarmers and Woolies, which are both up around 0.8%.

Major banks are up a uniform 0.5% and miners are also enjoying support, ticking off two major components of the market. CSL and Telstra are also higher.

The Australian dollar launched a spirited recovery after four days of losses. Prices moved inversely of front end US Treasury yields and alongside an advance in gold, hinting that soft US PMIs weighed against Fed rate hike bets that bolstered the relative appeal of the higher-yielding Aussie. 

More of the same may be on tap this week as data flow continues to undermine the case for further tightening but external political jitters remain a potent downside risk.

[marketsandyou]

Commodities Weekly Outlook

Gold prices rose to one-week highs on Friday, boosted by the weaker dollar which fell amid persistent fears over prospects for further U.S. interest rate hikes this year.

Gold for August delivery closed up 0.71% at $1,258.31 on the Comex division of the New York Mercantile Exchange, after rising as high as $1,260.00 earlier.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.37% at 96.98 late Friday, posting its largest one day decline in three weeks.

Gold and the dollar typically move in opposite directions, which means if the dollar goes down, gold futures, which are denominated in the U.S. currency, will rise.

The precious metal is also highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar.

Silver gained 1.13%% to $16.69 a troy ounce late Friday. While copper rose 1% to $2.624 a pound, platinum added 0.9% to $929.25 and palladium fell 3.1% to $853.23 an ounce.

Investors will be closely watching remarks this week by Fed Chair Janet Yellen on Tuesday for fresh indications on the timing of further rate hikes and signals on plans to trim the Fed’s balance sheet.

Market watchers will also be awaiting Friday’s euro zone inflation data and speeches by central bank heads at the ECB’s forum on central banking.

[marketsandyou]

Banking Stocks Traded Lower as State Gov. Announced New Tax on Big Banks

Australian Markets traded sideways today. The S&P/ASX 200 edged higher by 0.06%, buoyed by gains in its health care and telecommunications sub indexes which were up 1.03% and 1.25% respectively. Australian financials remained under pressure, with the sub-index edging lower by 0.58%.

Banking stocks traded mostly lower after the South Australia government announced a new tax on the nations big banks. Shares of ANZ declined 0.93% and NAB fell 0.95%. Westpac gave up earlier gains to trade 0.05% lower.

Losses in the banks were higher in the first minutes of trade, showing that the reaction may be overdone. The overall impact of the tax on the banks earnings is likely to be negligible but investors are worried about the possibility of other states introducing similar taxes.

In general terms this serves as a reminder that Australian shareholders generally and bank shareholders in particular, are in a period of heightened political risk that needs to be factored into investment decisions.  

The Australian dollar is hovering near more than a week lows at 75.53 cents in four straight sessions. It has also been pressured by an interest rate hike in the United States this month, while the RBA has made it clear it is in nor rush to tighten monetary policy.

Also narrowed the rate differential between the two to plus 25 basis points, with some traders speculating the spread might turn negative if the US Federal Reserve continues to tighten further.

[marketsandyou]

Atlas Iron in Australia delays New Iron Ore Mine 

Atlas Iron delays the construction of its new mine due to the dropping prices of the commodity. The development of the Corunna Downs mine was announced when iron ore was trading at around $95 a tonne that is way back early this year. 

Since oversupply and weak demand from steelmakers around the world,   prices have retreated to under $60 a tonne.

According to the company, they will proceed with the development when commodity market conditions improves as Corunna Downs remains an important project for Atlas to sustain its production base.

The mine was a key plank in efforts to rebuild the company’s yearly production rate to 12 million tonnes, after the firm almost collapsed during a previous down cycle before being rescued by creditors.

Atlas was forced to suspend mining in April 2015 when it was losing $15 for each tonne mined. It faces higher costs than some other Australian producers because it uses road, not rail, to ship ore up to 230 kilometers (140 miles) to port. 

Within a year, the mines were back running, after 70% of Atlas was transferred to creditors in exchange for a 48% reduction in debt. Inventories of imported iron ore at Chinese ports last stood at 138.95 million tonnes. 

[marketsandyou]

Ethereum Plummeted 15% as Demand Rapidly Growing

Ethereum a new generation currency rival of bitcoin plummeted more than 15% overnight due to the growing demand and increased worries it may face a divisive debate on how to upgrade its network. 

It dropped as low as $303 before steadying at $328. Earlier this month the digital currency reached a record $402. 

The sharp fall comes after Ethereum shot up more than 3,000% this year, far surpassing bitcoin’s already stellar 180% gain and coming close to beating bitcoin as the digital currency with the greatest market value.

It has grown in popularity for its ability to support applications, potentially becoming a structure for a decentralized, next generation internet.

Investors demand at the funding launch for Status clogged the Ethereum network. Online investors were also reportedly unable to withdraw funds from digital currency depositories known as Wallets.

Ethereum trading on Wednesday was also affected by an outage of the GDAX exchange run by Coinbase. Some traders online noted orders for ethereum being placed this afternoon at far below the $300 price. 

In the last several weeks, a surge in digital currency prices has contributed to a flood of investor demand, which has overwhelmed websites and attracted cyber attacks. Growing pains have affected both as well. Bitcoin’s price fluctuated in the last few months as developers debated the best way to upgrade the network. 

News last week that two upgrade methods, BIP148 and SegWit2x, may be able to work together helped bitcoin recover from its lows of the month. Now, a flood of demand for Ethereum has increased similar concerns.

[marketservicesaustralia]

Unemployment Rate in Australia Declined to 5.5% lowest in 4 years

Unemployment rate in Australia fell to a lower than expected seasonally-adjusted 5.5% in May from 5.7% in April, the Australian Bureau of Statistics said. It’s Australia’s lowest jobless rate in 4 years.

The number of people employed rose by 42,000, compared with an expected 10,000 rise. The number of people in full-time work increased by 52,100 in May, while those in part-time work fell by 10,100.

According to the bureau,  its seasonally adjusted workforce participation rate rose to 64.9% in May from 64.8% in April, and a consensus expectation of 64.8%.

The economy has added around 150,000 new jobs since January. Data supports the view that there is underlying strength in the economy even after Australian GDP grew at its slowest on year pace since 2009 in the first quarter.

CommSec chief economist Craig James said the positive employment trend would provide momentum for the economy, as May’s job creation follows almost 100,000 jobs being added across March and April.

The job market data now comes into line with upbeat business surveys and strong forward looking employment indicators.

RBA has its eye on the job market, but has indicated it will largely ignore the weak first quarter GDP data. Interest rates have been held at a record low since August last year and the RBA has indicated its preparedness to remain sidelined for some time yet as it allows inflation to rise slowly.

[marketservicesaustralia]

Stock Market in Australia Extends Rally 

Australian stock market is higher today, extending gains from the previous session, following the positive lead overnight from Wall Street. In mid-day trades, the benchmark S&P/ASX 200 Index is adding 24.90 points or 0.43% to 5,797.70, off a high of 5,804.80. The broader All Ordinaries Index is rising 25.20 points or 0.43% to 5,827.00.

The AUD is lower against the U.S. dollar today after iron ore prices fell sharply. In early trades, the local unit was trading at US$0.7537, down from US$0.7550 on Tuesday. 

Gold miners are also advancing. Newcrest Mining is adding 0.4 percent and Evolution Mining is rising more than 1 percent. The major miners are mostly lower amid the sharp fall in iron ore prices. 

BHP Billiton is adding 0.7 percent, while Rio Tinto is losing 1 percent and Fortescue Metals is lower by more than 1 percent.

Among oil stocks, Oil Search is up 0.6 percent and Woodside Petroleum is rising 0.3 percent, while Santos is declining almost 1 percent. 

Westpac Bank revealed that consumer confidence in Australia ebbed again in June, as its index slipped 1.8 percent to a score of 96.2. That follows the 1.1 percent decline in May to 98.0. 

The index has declined in three straight months and continues to rest beneath the break-even line of 100 that separates optimists from pessimists.

Nevertheless, investors are cautious ahead of the release of Chinese economic data and the Federal Reserve's monetary policy decision later in the day.