IG Markets - Australian Market Wrap August 9, 2010

IG Markets - Australian Market Wrap

Across Asia, regional markets are mixed and seemingly still trying to digest what Friday’s sluggish US jobs report means for the near term outlook for equities. While the Nikkei 225 is clearly the worst regional performer, lower by more than 0.7%, the Hang Seng and Shanghai Composite are flat and the Kospi is higher by 0.3%.

In Australia, the ASX 200 closed 0.6% higher at 4594 having reversed earlier losses where it traded as low as 4540. The day’s advance was paced by the materials and consumer staples sectors while the energy and financial sectors also turned around earlier losses to make positive contributions on the day. The consumer discretionary, information technology and property trust sectors were the laggards of the day.

Friday night’s weak jobs data once again saw money flow out of the USD and into the Euro, resulting in mixed base metals prices. The general consensus though seems to be that base metals are set to move higher over the remainder of the year on positive demand fundamentals and this is buoying the materials sector which ended firmer by 1%.

Sector gains were driven by heavyweights BHP Billiton and Rio Tinto which closed up by 1% and 1.1% respectively, while Fortescue Metals saw gains of more than 2.9%. The US$8/oz surge in the gold price on Friday (back above US$1200/oz) was the catalyst for Newcrest Mining and Lihir Gold to finish the session higher by 1.1% and 1.4% respectively.

After seeing losses earlier in the session, the financial sector also reversed course to end the day higher by 0.7%. Performances of the big-4 banks were mixed with CBA, Westpac and the ANZ finishing firmer between 0.2% and 0.9% while NAB was essentially flat. Elsewhere in the sector, Macquarie Group was firmer by 1.9%, Bendigo and Adelaide Bank was higher by 4.5% after posting a FY profit in line with expectations, while Axa Asia Pacific surged by more than 5.3% after the ACCC agreed to conduct market enquiries into NAB’s revised bid for the company.

Despite the price of crude oil falling 1.6% in Friday’s US session, the energy sector also saw gains of 0.4% with Whitehaven Coal up 3.8% and again leading the charge on continuing takeover speculation. Elsewhere, sector leaders Origin Energy, Caltex and Woodside Petroleum were all stronger between 0.3% and 09% while Oil Search and Santos were both flat.

A notable laggard on the session was the consumer discretionary sector which closed 0.2% weaker. Despite posting a FY profit of $118.7m that was in line with consensus estimates, JB Hi-Fi closed 0.5% lower. Myer and Harvey Norman were both flat while Crown and News Corporation were weaker by 0.4% and 1.4% respectively.

In economic news, ANZ job ads rose 1.3% in July pointing to continued improvements in the Australian labour market while Australian Housing finance fell 3.9% (more than the 2.1% expected fall) in June from May suggesting a continued softening in the Australian housing market.

Today’s trading has certainly shown investors have plenty of resolve at the moment. After Friday’s disappointing non-farm payrolls report the market could easily have used this as an excuse to trade off , and may well have a few months ago, but there seems to be more of a forward looking focus at the moment. While economic data, particularly from the US, is likely to remain choppy and contradictory, corporate earning and forward outlooks are providing enough optimism for investors to position themselves for a sustainable move higher in equities over the remainder of the year.

We also see improving optimism and hopefully sustainable commodity prices leading to continued corporate activity in the second half which should also ignite investor interest in equities and help push major indices higher.

Cameron Peacock
Market Analyst
IG Markets

ENDS

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