ETF WATCH: Australian Dollar Pointing Lower

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The Australian Dollar is under pressure going into the weekend and in front of next Thursday’s key employment report.

This week’s RBA statement reflected a neutral stance regarding future interest rate policy, but the currency was mentioned as a potential headwind to Australia’s terms of trade should the AUD/USD continue to appreciate.

The tone of the RBA statement illustrates the bias the central bank has for a weaker AUD/USD as a means to help domestic exporters. In short, the RBA would much rather see the AUD/USD at .7000 than at .8000.

Technically, the AUD/USD has posted a lower high everyday this week after failing to break the .7700 level last Friday. The relative strength indicator (RSI) is rolling over and pointing lower at 60.50, which suggests range extension below .7500 in the near-term.

For investors who want to profit from a lower AUD/USD, the ASX offers two dynamic Exchange Traded Funds (ETFs): the BetaShare USD and the BetaShare YANK.

The USD is an unweighted, inverse unit trust which gains a percentage value tied to the AUD/USD. The YANK is also an inverse unit trust, but has a 2.5% weighting. This means that a 1% drop in the AUD/USD will see a 2.5% increase in the BetaShare YANK ETF.

AGL Shares Spike Higher

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AGL reported a 3.7% rise in underlying profits of $389 million to December 31st. This figure was inline with analysts’ forecasts.

However, shares of the energy retailer jumped to an all-time high of $24.05 at today’s open as company officials gave positive guidance into 2017 as retail power prices are expected to climb higher.

AGL said its full year underlying profit would reach the upper half of its forecast range of $720 to $800 million, up from $700 million last year.

The company also raised its half year dividend to 41 cents per share from 32 cents per share last year.

Chart – AGL

Suncorp

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Suncorp shares have traded over .5% higher to $13.20 today after announcing a 1.3% increase in its half year profit results.

The company reported a net profit after tax of $537 million for the six months up to December 31, which is up from $530 million a year ago.

This represents top-line growth of 4.3% and, based on forward guidance, will raise its fully-franked interim divided by 10% to 33 cents per share.

This 33 cent dividend represents a payout ratio of 72% of cash earnings.

Chart - SUN

ETF Watch – Crude Oil Falls On Increased Storage Data

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West Texas Crude Oil prices dropped over 2.5% overnight as weekly stockpiles rose much greater than expected.

The American Petroleum Institute (API) reported crude oil in storage rose by 14.2 million barrels. That surge in storage was more than 5 times analysts’ forecast and the second largest increase in the history of the data series.

The front month futures contract traded as low 51.30, which is over 5.5% lower than last week’s high close of $54.40.

Some market commentators are pointing to increased US shale production and decreasing global demand as a headwind for crude prices going forward.  The next key price support  will be found at the psychologically important $50.00 level.

Chart – OOO ETF

Gold Catches Safe-Haven Bid

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Spot Gold prices hit a 3-month high of USD 1,235.00 as geopolitical tensions increased the yellow metal’s safe haven appeal.

Political uncertainty regarding upcoming elections in Europe, the US and Iran exchanging threats and unstable banking sectors in Italy and Greece have all added to investors’ interest in Gold.

From a technical perspective, the next key price target is at the November 11th high of USD 1292.00. We would suggest exiting long positions in that area.

Shares of Newcrest Mining have followed the gold price higher and have rallied over $3.50 during the last eight trading sessions. We expect to see the $24.50 level offer the next area of resistance and look to exit long positions in that range.

Chart – NCM

 

Transurban Lifts H1 profit

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Shares of Transurban are up over 3.5% in early trade as the toll road developer increased H1 net profit 41.9% to $88 million on the back of strong traffic flows and operational performance.

The company also lifted revenue by 26.3% to $1.3 billion in the six months to December 31st.

As a result, Transurban will pay a partially franked interim dividend of 25 cents per share, up from 22.5 cents from the year ago period.

At $10.75 per share, we consider TCL a defensive income play. With limited scope on the upside, we suggest selling covered calls in the $11.25 area  for an annual return in the 10 to 12 % range.

Chart – TCL

PBoC Surprising Rate Hike

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The People’s Bank of China (PBoC) surprised the market by tightening monetary policy on Friday for the first time in almost 6 years.

On the first day back from the Lunar New Year Holiday, the PBoC increased the cost of borrowing across their short-term curve from 1-month to 2-years. This move also raised the overnight deposit rate from 2.75% to 3.10%.

A rate hike on the first working day after a holiday signals the start of a different policy direction away from Central bank stimulus and towards more fiscal and domestic demand policy measures.

With Chinese factory orders rebounding after several years of deflation, Friday’s move reflects  the PBoC’s determination to rein in leverage which has seen rapid expansion in the bond and property markets.

As a result of the higher rates, the Chinese Yuan traded to a 4-month high of of 6.79  against the US Dollar into the weekend.

Mixed Payroll Data Lifts The Dow

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US January Non-Farm Payrolls increased 227,000, which was well above consensus expectations of around 175,000.

The December revision was little changed at 157,000 from the 156,000 reported last month and the three-month average increased to 183,000 from 148,000 previously.

Unemployment rose to 4.8% from 4.7% the previous month and compared with expectations of an unchanged rate on the month.

Average earnings rose 0.1% for the month and this was well below consensus forecasts for a 0.3% gain. The December increase in average earnings was also revised down to 0.2% from the originally reported 0.4%.

The annual increase in earnings, therefore, slowed to 2.5% from 2.9% previously and was well below the 2.9% expected rate.

The stronger headline jobs number combined with weaker wages reduced the pressure on the FOMC to raise rates at their March meeting. This is reflected in the Fed Funds futures market where the implied probability of a rate hike fell from 18% prior to the payroll data to 9% by the New York close.

This market sentiment that rates could stay “lower for longer” lifted US Stock Indexes with the Dow and SP 500 gaining just under 1% for the day and the NASDAQ adding just over .50%

Chart – Dow Jones

James Hardie

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Shares of James Hardie have opened over 3% lower on an announcement that a weaker-than-expected December quarter has forced the company to cut earnings guidance.

Shares traded down to a 3-month low of $19.60 as the the company announced that the group’s net profits fell 6% to USD 52.6 million.

This prompted a warning that earnings for the financial year up to March  would come in at between USD 245 and USD 255 million, versus expectations of between USD 252 to USD 269 million.

Chart – James Hardie

Amazon Shares Lower On Weaker Guidance

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Shares of Amazon are down over 4% to $805.40, in after-hours trade, as negative Q1 revenue guidance overshadowed a solid Q4 earnings report.

Q4 earnings were announced at $1.54 per share versus a consensus of $1.35 per share. Q4 revenues came in at $3.5 billion versus $3.6 billion, which reflects a 47% increase on a year-on-year basis.

The Q4 revenue miss disappointed shareholders, but the Q1 guidance miss is what is really driving the stock price lower.

The company gave Q1 guidance in the range of $33.25 to $35 billion, lower than the expected range of $34.52 billion to $36.95 billion.

Key chart support for Amazon is now seen at or near $700.00.

Chart – Amazon