IG Markets Afternoon Windup

IG Markets Afternoon Windup

Good afternoon,

In Asia, regional markets are all higher following the cautiously positive leads from Wall St. The Nikkei 225 is the best performer, up 1.3% as a weaker yen helped large cap exporters to rise. Elsewhere, the Hang Seng, Kospi and Shanghai Composite are all up between 0.3% and 1.1%.

Down under, the ASX 200 finished the week on a strong note, adding 0.7% for the session to close at 4638. After giving up strong early gains the market surged in afternoon trade, ending the week with some healthy momentum. The market was aggressively positioned with the heavyweight materials, energy and financial sectors accounting for a bulk of the day’s gains while defensive sectors such as healthcare, telecommunications and utilities were among the worst performers.

The Friday afternoon strength was a bit of a surprise and certainly a change from what we’ve seen in recent months. This appears to indicate an underlying change in sentiment and psychology – only a few weeks ago it seemed customary to lighten positions heading into the weekend. Opening new positions and letting profits run is a sign of improved investor confidence.

The AUD has also had a very strong session, rallying from around 0.9360 to 0.9440. This bullishness has helped support the equity market, especially given the strong correlation between AUD/JPY and Australian banks.

Tonight’s session will once again be key. Core CPI and the University of Michigan Consumer Sentiment will be in focus while quarterly triple witching is likely to see extra volatility.

The energy sector was the top performer, rising 1.6% despite weaker leads from the US. Santos added the most, up 3.6% after Energy and Resources Minister Martin Ferguson said the government was eager to see proposed LNG projects in Queensland overcome any outstanding environmental concerns. Origin Energy, Paladin Energy, Whitehaven Coal and WorleyParsons were all up between 1.6% and 2.9% while Woodside Petroleum added 0.3%.

The materials sector was strong too, closing up 0.9% and near its highs of the session as afternoon bullishness benefitted the local miners. Heavyweights BHP Billiton and Rio Tinto closed 0.4% and 2.4% higher respectively while Newcrest Mining was a beneficiary of gold’s near record prices, closing 3.3% firmer. Gains were not limited to the big end of town with junior iron ore prospect Sundance Resources surging 8.9% and zinc miner Perilya adding 5.6%.

Base metals look to be consolidating in relatively subdued trade, with mixed data, from the US overnight, failing to push the complex strongly in either direction, although the weaker USD provided some price support. In a comment from Barclays Capital, it said that despite economic noise, one trend "startlingly clear" is the sustained strong growth in base metals demand. The broker said this is evidenced by a counter-seasonal decline in reported inventories for a number of base metals, which is especially impressive given that it occurred during a period that is usually seasonally weak. Copper stocks, for instance, fell during the northern hemisphere summer for first time in six years, and destocking has left consumers with lower inventory levels as they enter a seasonally stronger demand period, Barclays said.

The financial sector also enjoyed some late afternoon strength eventually closing 0.7% firmer. All four of the major banks added between 0.1% and 0.8% while Macquarie Group firmed 1.8%. Elsewhere in the sector, Insurance Australia Group and Suncorp - Metway were higher by 2.5% and 2.7% respectively.

In a broker report from Southern Cross Equities, it reiterated its buy recommendation for National Australia Bank, with a price target range of $28.00 - $31.00. This was based on an application of similar forward PE ratios as Westpac and CBA. The broker believes NAB has been negatively priced for a number of issues including; possible AXA APH acquisition risk, the potential for a major capital raising, the risk of a value-destroying UK acquisition, and poor-relative performance of its Australian operations Southern Cross believes the majority of these perceived risks are very unlikely to transpire.

Industrials had a strong session, rising 1.2%. Brambles topped the leader board, climbing 3.7% while the likes of CSR, Leighton Holdings, Downer EDI and Macquarie Airports were all up more than 1.3%.

In a note from UBS, it said a proposed takeover of Leighton Holdings German parent Hochtief AG by Spain's Actividades de Construccion y Servicios S.A. isn't likely to trigger a full takeover of the Australian construction company, but it could mean a change of strategy. UBS said while ACS could sell Hochtief's 54% Leighton stake, the more likely scenario would be to reduce Hochtief's costs and sell some non-construction European assets. The broker reckons the fact that ACS' offer is share-based, and the company is used to holding controlling stakes in contractors means a takeover bid for Leighton is unlikely. In a comment from Deutsche Bank, it said the transaction is a slight negative to Leighton due to potential management and strategy changes. Deutsche said ACS does not have any exposure to contract mining and has minimal exposure to the resources sector. The broker continued saying, ACS could therefore seek to limit Leighton's exposure to contract mining and expanding into the Asian resources markets.

ENDS

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