The ASX up 0.6% as miners boost market despite iron ore fall
DJIA, S&P 500 and Nasdaq rise to new highs on the same day
Gold prices lower, reversing gains under pressure from a stronger USD

At 1021 AEST (0021 GMT), the S&P/ASX 200 pushed 0.6% higher to 5542.3 points, with miners boosting the market despite a 2% fall in the price of iron ore overnight.

On the heavy-end of the index, CBA gained 0.5%, Westpac dropped 0.5%, NAB added 1.2% and ANZ gained 0.5%.

Overnight, all three US stock benchmarks rose to record highs for the first time in 16 years amid surprising earnings. European shares erased the slump that followed Britain’s secession vote. Oil climbed, while Treasuries slumped.
The S&P 500 Index, Dow Jones Industrial Average and Nasdaq Composite Index advanced amid better-than-forecast profits at retailers Macy’s and Kohl’s.

Europe’s stocks closed at the highest since May. Oil climbed on speculation producers could agree on moves to support prices during talks in September.

Treasuries fell as an auction of 30-year bonds saw a retreat from the level of investor interest at previous sales this week. Mexico’s peso led gains among major currencies as the central bank kept its interest rates unchanged.

Investors have piled into global equities amid better-than-estimated corporate earnings, improving economic data and optimism that central banks will stay supportive of growth.

The number of Americans filing applications for unemployment benefits was little changed last week, holding near four-decade lows that highlight a more robust labor market.

Still, that stronger jobs picture has yet to convince traders that the world’s largest economy is solid enough for the Federal Reserve to raise interest rates this year

The S&P 500 gained 0.5% to 2,185.79 in New York, extending this year’s advance to 6.9%. The DJIA and Nasdaq added more than 0.4%. The three indexes rose simultaneously to records for the first time since December 31, 1999.

Fresh records in US stocks are getting harder for strategists to ignore. Wells Fargo became just the second of 21 firms tracked by Bloomberg to raise its target for the S&P 500 since the measure surged past the group’s average year-end prediction a month ago.

Gina Martin-Adams, the bank’s chief US equity strategist, now expects the benchmark for American equities to climb to 2,200 in 12 months.

Macy’s jumped 17% after saying it plans to close about 14% of its stores in a bid to maintain profitability. Kohl’s rally was its best ever, while peers J.C. Penney and Nordstrom climbed at least 7.5%.

More than four-fifths of the S&P 500’s companies have posted results, of which 78% beat profit projections and 56% exceeded sales expectations
.
The Stoxx Europe 600 Index rose 0.8%, reversing an earlier drop to rise for the sixth time in seven days.

Zurich Insurance added 4.5% after saying profit fell less than projected and Belgian lender KBC Group NV advanced 5.2% after also cutting its forecast for 2016 loan-loss provisions in Ireland.

Brazil’s Ibovespa led gains among the world’s biggest equity markets after Banco do Brasil said provisions for bad loans would fall in the second half of the year and as a rebound in oil boosted state-owned crude producer Petroleo Brasileiro SA.

West Texas Intermediate for September delivery climbed 4.3% to settle at $43.49/barrel in New York. Total volume traded was 25% above the 100-day average.

Talks with oil producers in Algiers next month could include possible action to stabilise the market, Saudi Arabia’s energy minister said, according to Reuters. The rally in oil helped lift the Bloomberg Commodity Index from a two-day slide. Copper gained, while gold fell.

Benchmark 10-year note yields rose five basis points to 1.56%, Bloomberg Bond Trader data show. A gauge of demand at the $15 billion 30-year debt sale was the lowest in three months.

Investors are hesitant to buy into bond rallies amid rising speculation the Fed will raise rates this year, with the probability of a 2016 hike at about 49%, according to futures data compiled by Bloomberg. San Francisco Fed president John Williams said Thursday that an increase this year was warranted.

Sources: Bloomberg, TradingFloor

Key earnings

Friday:
Toshiba, A.P. Moeller-Maersk and Sands China.

Local markets and commodities

The S&P/ASX 200 Index futures +0.6%; futures relative to estimated fair value suggest an early gain of 0.8%.
Bank of New York Australia ADR Index -0.2%, BHP Billiton ADR +2.1% to A$20.49 equivalent, 1.2% premium to last Sydney close, Rio Tinto ADR +1.2% to A$42.16 equivalent, ~15% discount to last Sydney close.
Gold prices ended lower, reversing gains under pressure from a stronger USD. Gold for December delivery settled down 0.1% at $1,350/oz on Comex, after trading as high as $1,359.40/oz earlier in the session. Goldies in Toronto dropped 0.88% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
Oil rallied on Thursday as Saudi Arabia’s energy minister said the country would be prepared to take “any possible action” necessarily to stabilise the global crude oil market. Khalid al-Falih’s comments come as oil prices hang well below the price many nations in the Opec need to balance their national budgets.
A surge in production from traditional oil giants like Saudi Arabia and Iraq, as well as nations such as the US and Canada, has pressured the market and kept oil prices below $50 a barrel recently. On Thursday, Falih made remarks that hinted that Saudi Arabia might be willing to revisit talks with Opec on limiting production. US crude oil for September delivery settled up $1.78, or 4.3%, to $43.49/b on the New York Mercantile Exchange. Brent, the global benchmark, gained $1.99, or 4.52%, to $46.04/b.
Prices also gained earlier in the session after the International Energy Agency said its balances showed “essentially no oversupply during the second half of the year.” The Paris agency, whose monthly oil market report is closely watched by the industry, said it predicts global production of crude oil will fall behind demand by almost one million barrels a day from July through September.
Despite the rally in oil, many analysts warn prices could remain under pressure as data show signs of slowing demand around the world. In its same report, the IEA cut its forecast for growth in global oil demand next year by 100,000 barrels a day to 1.2 million barrels, citing a dimmer economic outlook after the UK’s surprise vote to leave the European Union. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SX.
Iron ore lost ground again, down $1.22 to $59.36/tonne. According to Chinese brokerage houses, short-term pressure on prices is being experienced as increased supply hits Chinese ports.
In specific news on Rio Tinto Group, bond investors’ confidence is reviving along with global commodity prices, raising the prospect of an improved outlook for its debt ratings. The Anglo-Australian miner, which took an axe to costs after a multi-year decline in iron ore prices, is benefiting from a near 40% surge this year in the ore that accounts for more than half its profits. Aluminum, coal and copper have also gained.
Standard & Poor’s Global Ratings said it may shift its negative outlook on the company’s A- rating to stable, stressing that the improvement in commodities remains tied to Chinese demand growth. As prices have gained this year, the cost of insuring Rio’s debt has fallen and it’s the best performer this year in the 25-member iTraxx Australia index of credit-default swaps. Contracts for Rio have fallen 62 basis points to 139 as of Wednesday, near the lowest level in 10 months, according to CMA data. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
Copper posted its biggest two-day gain in almost a month as a decline in inventories tracked by the London Metal Exchange eased concern about slowing demand. Stockpiles slipped 0.4% to 203,925 tonnes, the lowest since July 5, LME data compiled by Bloomberg show. Orders to withdraw the metal gained for a second day, boosted by withdrawals from warehouses in Singapore.
Copper futures for September delivery advanced 0.9% to settle at $2.191/lb at 1310 on the Comex in New York, taking the two-day rally to 1.9%, the biggest since July 13. Glencore’s production of copper declined 3% to 368,000 tons in the second quarter, as the commodities trader responded to the rout in prices that eroded profits. The metal has slumped more than 50% from a 2011 peak. A gauge of 18 large industrial metal producers rose 1.1%. On the LME, copper, aluminum and lead also gained, while zinc, nickel and tin fell. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
In other news: AGL Energy (AGL): Raised to hold vs sell at Shaw & Partners; Arrium (ARI): UBS, Macquarie join Deutsche Bank to manage Moly-Cop IPO: AFR; BHP (BHP): Says Caroona coal license in Australia canceled by govt; Cabcharge (CAB): Says Queensland’s proposed 5% cap to lower taxi income; Hunter Hall (HHL): FUM A$1.14b as at June 30; James Hardie (JHX): Scheduled to release Q1 results; NOTE: Adj. EPS est. A$0.17 (2 analysts); Macquarie (MQG): Co. and UBS join Deutsche Bank to manage Moly-Cop IPO: AFR; Mayne Pharma (MYX): Co.’s $427.5m-equiv. dual-currency loan draws four banks; Qube (QUB): Prepares for last stand with ACCC on AAT: AFR; Rio Tinto (RIO): Plunging debt risk seen prompting rtg outlook rethink; Peru minister says La Granja mine has big potential; Scentre Group (SCG), Suncorp (SUN): Trades ex-div; Seven Group (SVW): Caterpillar sees improving outlook in China after demand slump; Westpac (WBC): Prices $5b debt offering in 5 parts; Cut to neutral vs overweight at JPMorgan.

Broker upgrades and downgrades

- SeaLink Travel (SLK): Cut to hold from buy at Bell Potter
- Carsales (CAR): Cut to sell vs hold at Shaw & Partners
- Magellan Financial (MFG): Cut to neutral vs outperform at Credit Suisse
- Crown Resorts (CWN): Melco Crown rated net neutral at Buckingham

US500.i and AUDUSD

Positive sentiments are growing stronger as all three major US equity indices (Dow Jones, Nasdaq and S&P500) closed at all-time highs on the same day for the first time since 1999.

The interim support level remains at 2,175 and the key resistance level would be the upper line of the rising wedge. Tonight’s close will be crucial to determine the validity of the wedge formation.

On the back of the sell-offs from the banks, AUS200.i looked weak as it broke below 5,500 but it reversed to recover all the losses last night. The current level 5,550 is equivalent to 5,500 in SPI futures and this level should be the interim resistance level.

AUDUSD made another attempt to test the previous swing high 0.7755 in early hours yesterday when RBNZ cut interest rate by 25 basis points but the rally failed to last long.

Since then AUDUSD has been struggling to stay above 0.77 handle as the US dollar is regathering strength again. In a bigger picture, AUDUSD seems to have broken the neckline of the inverse head and shoulders but we need to a clear weekly close above 0.77 to confirm the breakout.