IG Markets - Australian Market Wrap Sept. 2, 2010

IG Markets - Australian Market Wrap

Regional markets across Asia are all firmer in afternoon trade, benefiting from the strongest gains on Wall St; the most in 8 weeks. Sentiment improved dramatically overnight on the back of the better-than-expected manufacturing data from China and the US. The Nikkei 225 and Hang Seng are the best performers, up 1.5% and 13% respectively. The Kospi is adding 0.6%.

In Australia, the ASX 200 closed 0.8% firmer at 4532.7, well off earlier highs of 4552. Today’s significant underperformance of offshore leads was not that surprising given yesterday’s impressive outperformance, with investors seeming cautious about chasing the market ahead of key jobs data out of the US tomorrow night. Gains for the session were broad based, with the consumer discretionary, financials and materials sectors adding the most points while the industrials sector was the day’s laggard.

With September traditionally a poor month, the current rally may be short lived, with traders likely to be tempted to book early profits, especially considering the ASX 200 is up 3.4% for the week. Any gains maybe an excuse to sit on the sidelines and see how the rest of the month plays out.

Whilst global market trade over the last few days has been positive thanks to better-than-expected economic data, there’s still a lot of caution and tell tale signs that sentiment is not quite what it needs to be for a sustainable move higher.

Signs of a definitive change in sentiment from our perspective would include a large scale move out of the yen, a convincing rise in treasury yields and a significant pullback in the price of gold.

In economic news, the Australian July trade surplus fell short of expectations, coming in at $1.89 billion vs an expected surplus of $3.1 billion; exports were down 4%, while imports rose 2% in the month. Imports swelled due to the purchase of 6 Super Hornet jet fighters by the government that carried a price tag of $477 million. Nonetheless, the softer data is unlikely to reshape the picture of blossoming trade for Australia, with Chinese demand for key exports of iron ore and coal expected to remain buoyant, keeping prices and volumes high.

The consumer discretionary sector led the local market higher today, adding 1.2% following the very positive leads from its US counterpart. Retailers David Jones and Billabong International were the standouts, rising 3.4% and 2.2% while Ten Network, Fairfax Media and JB HiFi were all up more than 1.7%.

The financial sector had a strong session too, rising 1.1% thanks to gains of 2.7% and 1.8% from Bendigo & Adelaide Bank and Axa. The big four banks also chipped in, all up between 1.1% and 1.3%.

The materials sector drifted for most of the day to finally post gains of 0.7%. Diversified giants Rio Tinto and BHP Billiton led the pack, gaining 1.2% and 1.1% respectively while gold miner Newcrest added 0.5%. On the downside, Amcor and Orica were both down more than 0.7%.

In a note from commodities broker Triland Metals, it said LME base metals turned in a strong performance overnight, which saw some analysts more optimistic. The broker said the end of the Northern Hemisphere summer holidays brought increased trading activity to markets, and with prices having held during the summer months they could be heading for a strong quarterly close. In a separate comment from Commonwealth Bank of Australia, it said the solid price gains overnight provided further evidence in support of a successful economic "soft landing" in China

Despite finishing 0.4% higher, the energy sector was one of the weaker relative performers. Caltex, WorleyParsons and Macarthur Coal were all up more than 1.5% while on the downside, Santos fell 1.6%.

Riversdale Mining added 22% as it was reported that India's Tata Steel continues to creep up Riversdale's register. Filings on the ASX show Tata’s stake is now at 24.2%, up 2.5% from 21.7%. Entities wanting to buy shares in Australian listed companies must make a takeover bid if their holding reaches 20%. They are, however, allowed to take a maximum additional 3% every six months without having to make a bid. Riversdale is developing some big mines in Mozambique, an emerging source of coking. In a report from UBS, it noted Riversdale’s takeover appeal. UBS believes that Riversdale's coking coal exposure, large resource base and large tenement position in an emerging coking coal region make it attractive to potential corporate acquirers. Tata Steel isn't the only big player on Riversdale's register, with Brazilian steel maker CSN owning a 16% stake. This could potentially make a takeover attempt more challenging.

Ben Potter
Market Strategist
IG Markets

ENDS

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