IG Markets: Australia Report

Across Asia, regional markets are all lower in light Friday trade after the US Thanksgiving holiday overnight. Nonetheless, leads from Europe were modestly positive, with miners and materials names leading the way. The Korean Kospi is the worst performer, down 1.3% while the Shanghai Composite, Kospi and Nikkei 225 are all weaker between 0.1% and 0.3%.

In Australia, the ASX 200 was 0.1% firmer at 4598, well off its session highs of 4616. With US markets on hiatus for Thanksgiving, local trade was very subdued with investors seemingly “sitting today out”. It appears they’re preferring to wait and see what mood US investors return to work in next week after their fill of turkey.

Leading the local market gains were the energy and materials sectors which benefited from an overnight rise in commodity prices. The financial and industrial sectors also saw modest advances. The telecoms, utilities and consumer discretionary sectors were all lower on the day.

Today was basically a nothing session. We’re very reliant on overseas leads at the moment, especially given the macro headwinds facing global markets. Local investors seem more than happy to just sit on their hands and leave any buying until next week when volumes should return to normal.

Looking ahead to next week, traders should return from their Thanksgiving holidays for the final run into Christmas. They’ll be faced with a heavy set of data, culminating in next Friday’s nonfarm payrolls reading where expectations are running high following recent improvements in weekly jobless claims.

The AUDUSD has slipped during the Asian session to around 0.9728 versus 0.9820 earlier this morning as RBA governor Glenn Stevens said it's reasonable that markets are not pricing in a near-term rate hike; "for the period in which we are going into in the near term, (policy) is about the right level," he told lawmakers in Canberra. In a comment from TD Securities, it said "this not-hawkish tone supports near-term curve steepening and is weighing on the Australian dollar".

Separately, in a note from Barclays Capital it said the RBA continues to forecast above-trend growth and inflation near the top of its inflation band in the coming years. While the RBA "is likely to view the current level of the real cash rate as appropriate once the larger spread between official and market rates is taken into account, upside risks to both growth and inflation are likely to keep the RBA in tightening mode for some time to come, albeit at a more subdued pace", Barclays said. Assumed lags associated with monetary policy impact suggest further tightening in late 1Q/early 2Q. The broker said the market is pricing in an 8% chance of 25bp hike in December, 18% in February, 35% in March and 38% in April. "In our opinion, these probabilities are too low given the historical tendency for the RBA to do multiple rate hikes in fairly quick succession when it comes out of an extended policy pause", Barclays said.

On the market, the materials sector closed the session 0.4% higher on the back of firmer overnight commodity prices. Heavyweights BHP Billiton and Rio Tinto added 0.3% and 1.2% respectively while Riversdale Mining added 2.7%. Elsewhere in the sector, Alumina and Bluescope Steel both closed lower by more than 0.8%.

The energy sector closed 0.8% higher to be the best performer of the day with crude prices continuing to rebound from recent lows. Among the major names, Worley Parsons finished higher by 2.3% while Oil Search and Woodside Petroleum where up 0.9% and 0.7% respectively. On the downside, Santos and Caltex each retreated by more than 0.2%.

In a broker report from UBS, it said Woodside's remy-1 gas discovery was an encouraging result but is unlikely to offset the looming news of Pluto LNG cost. The broker said the scheduled update is expected early next week. UBS foresees anywhere between a 1-6 month delay from the current March first LNG target and believes a 3-4 month delay and $500 million cost increase are already factored into shares. Remy-1 is for the expansion of Pluto, with UBS saying Woodside has now found more than 75% of gross gas volume to support a second LNG production unit. The broker keeps its buy recommendation with $50.90 price target.

On the downside, the financial sector was a significant detractor, falling 0.1% despite stronger leads from the UK. Suncorp-Metway was the worst performer, down 1.2% while three of the big four banks were weaker between 0.2% and 0.9%. ANZ bucked the trend, rising 0.2% while AMP was the biggest gainer, adding 2%.

The consumer discretionary sector was the major decliner today, losing 0.6%. Most of the damage was done by Aristocrat Leisure, which plunged 18.9% after issuing a profit warning. The shares were already down 31% since December 31. In past, the company had suffered a string of profit warnings that were starting to make downgrades look too much like a habit; this resulted in the appointment of new management. Today, the company said the core of the problem is a weakening result from its US division, where the drawn-out economic slowdown is still hurting the slot machine industry.

However, expectations of a marginal decline into next year suggest even the recent signs of a pick-up in the US gaming industry aren't expected to filter through to the bottom line. Aristocrat is underperforming its peers: down 52% since September 2008 versus larger rival International Game Technology down 20%, while smaller competitors WMS Industries and Bally Technologies are up 32% and 15% respectively.

Elsewhere, JB HiFi, Billabong International, Ten Network and Tattersalls were all down between 0.6% and 1%.

ends

© Scoop Media