IG Markets - Australian Market Wrap 23, July 2010

IG Markets - Australian Market Wrap

Across Asia, most regional markets are following US leads to be convincingly higher in midday trade. The Nikkei 225 is the region’s best performer, up 2.3% while the Hang Seng and the Kospi are both seeing gains of more than 1.1%. Elsewhere, the Shanghai Composite is bucking the trend to be currently lower by 0.4%.

In Australia, the ASX 200 closed 1.9% stronger at 4458 and only modestly below its highs of the day. Gains for the day were broad based and saw the heavyweight materials, financials, and energy and consumer sectors all convincingly higher. Tonight’s US session and the release the EU’s bank “stress test” results will no doubt confirm (next week) whether today’s run is the start of something more sustainable.

Based on the strong US session overnight where the 3 major indices were all higher between 2%-2.7%, IG Markets was calling the market to unwind about 1.5% higher - which ended up being pretty spot on.

Behind the overnight gains were a strong set of earning numbers from a broad cross section of US corporates and a smaller-than-expected fall in existing home sales. The optimism generated from the US session and a growing calmness that tonight’s release of the European Union’s “Bank Stress Tests” will not unearth anything too sinister, was clearly the catalyst for today’s broad based rally.

Having been under pressure for the last few weeks, the financial sector was among the day’s top performers advancing 2.2% with all four of the major trading banks rising between 1.4% and 2.7% with CBA leading the way. Elsewhere, Macquarie Group was up 2.4% while QBE and Axa Asia Pacific were higher by 1.9% and 21% respectively.

The materials sectors sector also saw a healthy gain of 2.1%, with overnight risk appetite and convincingly stronger base metal prices underpinning today’s buying. Sector heavyweights BHP Billiton and Rio Tinto were both higher by more than 2% while Fortescue Metals saw larger gains of 4.2%.

At the smaller end of town, Andean Resources recommenced trading after a capital raising and closed down just 4.2% despite issuing 70 million new shares at C$3.35 each to raise C$234.5 million before costs. The number of shares on issue has increased by 15% as a result of the capital raising which would normally be highly dilutionary, but the minimal slippage suggests strong investor support for Andean and the development of its high-grade Cerro Negro gold project in Argentina.

Thanks to a 3.5% bounce in the price of crude oil overnight to north to $79/barrel, the energy sector enjoyed a gain of 2.2%. Among the heavyweight names Caltex, Santos, Oil Search and Woodside Petroleum were all higher between 1.7% and 2.3%.
Gains for Woodside came despite the company seemingly backing away from its previously stated end-of-2010 target for final investment decision on a second production train at its Pluto LNG project.

It was certainly rare to see the market holding and even building on its gains late into Friday afternoon, particularly with such a crucial piece of data (the stress test results) due out in Europe tonight. Today’s price action continues the market’s current “yo-yo” mentality where sentiment is seemingly flipping from optimistic to pessimistic on daily basis. The overnight release of the European Union’s “Bank Stress Tests” looks to be a defining moment for global markets and will go a long way to establishing a more sustainable outlook for the remainder of the year – whether that’s bullish or bearish remains to be seen

Cameron Peacock
Market Analyst
IG Markets

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