IG Markets - Close Of Markets Wrap July 29, 2010

IG Markets - Close Of Markets Wrap

Across Asia, regional markets are mostly lower in line with overnight leads and ongoing scepticism about the strength and sustainability of the US recovery. While the Nikkei 225, Hang Seng and Kospi are all lower between 0.1% and 0.6%, the Shanghai Composite is once again happy to do its own thing and is currently firmer by 0.2%.

In Australia, the ASX 200 closed 0.1% weaker at 4524 but well off its earlier lows of 4503. While the materials and consumer staples sectors are offering small amounts of resistance, losses across the consumer discretionary, utilities and energy sectors have been more than enough to keep the market underwater from the opening bell. With the index rallying into the close it did manage to close in positive territory, however selling in the post market auction pushed the index lower on the day.

Not surprisingly, the financial sector was not a star performer closing down 0.2% after the negative lead in from US banks. A Moody’s downgrade to the outlook for Bank of America, Citigroup and Wells Fargo to “negative” from “stable” was the catalyst for the losses.

Locally, our four major banks were mixed with strong gains in CBA, up 0.8% and Westpac up 0.4%, while Macquarie Group was lower by 1.2%. Insurance peers IAG and QBE were also lower by 0.3% and 0.1% respectively; continuing their recent runs of losses after both companies issued profit downgrades earlier in the week.

The energy sector was weaker by more than 0.8% and another of the day’s worst performers. Overnight, the softening economic outlook painted in the Beige Book saw crude prices retreat by 0.7% to US$76.80 which in turn has seen some profit taking across the major energy names – Woodside Petroleum, Oil Search, Santos and Origin Energy closed down between 0.1% and 1.8%.
Stemming today’s losses to a certain degree was the materials sector, closed 0.3% higher. While the US materials sector was modestly lower, base metals (with the exception of nickel) were mainly higher. These higher metals prices and a generally more optimistic outlook for the major resource names heading into next month’s reporting season, is allowing the sector to hold its ground amidst a generally weak market. Heavyweight names BHP Billiton and Rio Tinto were off earlier highs but held onto gains of 0.7% and 0.6% respectively while Fortescue Metals rallied throughout the session to close up 0.5%

In a nutshell though, it’s a fairly uneventful day on the local market. Yesterday’s highly anticipated CPI data has come and gone and the market now seems both comfortable (and relieved) that it can move forward through the next few months without the constant speculation and uncertainty as to whether a rate hike is imminently around the corner. As we have previously suggested we see the market being quite choppy, moody and indecisive at least through until the end of August when the local Australian reporting season is complete. At that point, both local and US corporate would have provided their assessments of their prospects for the short to medium term, thus allowing investors to make more informed decisions on whether equity weightings deserve to be scaled up over the remainder of the year.

As it stands, analysts are expecting to see around 6% earnings per share growth with 20% growth in 2011. What will be of key interest is company outlook statements, as views from CEO’s on potential earnings will drive share price momentum. Looking back to the February earnings season, one thing is worth remembering - companies that not only beat expectations but provided a positive outlook generally outperformed over the following 6 month period.

Kind regards,
Chris Weston
Institutional Dealing
IG Markets

ENDS

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