IG Markets: Australian Markets Wrap Up

IG Markets: Australian Markets Wrap Up

Good afternoon,

Across Asia, regional markets are mostly lower following the softer US leads and ahead of key retail sales figures tonight. The Nikkei 225 is the worst performer down 0.9%, while the Hang Seng is lower by 0.4%. Elsewhere, the Kospi is flat while in China the Shanghai Composite is outperforming sharply, up 1.7%.

In Australia, the ASX 200 finished the session 0.2% weaker at 4689, well off earlier lows of 4660. Consumer discretionary and industrial names bore most of the selling while the heavily-weighted financial and materials sectors pared earlier losses, helping the market bounce off its lows.

Following a lower open, the ASX 200 managed to grind its way back towards neutral territory. Once again, losses were pared by solid interest among materials names – investors are looking to buy into any weakness given the supportive macro economic backdrop.

Continuation of the weak USD / strong commodities thematic will largely be dependent on the interpretation of tonight’s speech from Ben Bernanke. The market is hoping that he will not only confirm recent speculation of further QE, but that he will also provide some parameters for potential scale.

Foreign exchange traders will be focusing on tonight’s developments too, including the latest reading on US retail sales. Bernanke has a bit of a habit of “under delivering” to the market. If he fails to validate the recent QE speculation, there’s likely to be significant volatility, especially in the AUDUSD given its recent outperformance. Some have suggested significant downside risks in the AUDUSD should this be the case.

Turning to the equity market and the consumer discretionary sector weighed all session, eventually finishing 0.6% lower. Despite the stronger AUD generally working in favour of margins, JB Hi-Fi fell by 1.9% while Myer, David Jones, Tabcorp and Aristocrat Leisure were all weaker between 0.6% and 1.3%.

Industrial names also saw selling pressure, declining 0.5%. Brambles, CSR, Asciano and James Hardies were all weaker by more than 0.9%.

The financial sector was another detractor, losing 0.2% for the session on the back of very poor leads. The big four banks did the bulk of the damage, all down between 0.2% and 0.8%. On the upside, AMP and Macquarie Group managed to buck the broader trend, adding more than 1.1%.

Elsewhere, the materials sector ended the session 0.2% to the downside having pared heavier losses earlier in the day. While BHP Billiton was flat, Rio Tinto managed a gain of 1.4% with the market clearly warming to yesterday’s strong quarterly production report.

With speculation rife that Rio Tinto wasn't so keen on its proposed iron ore JV with BHP Billiton, the German anti-trust regulator may have just given Rio Tinto what it was looking for by saying that it intends to block the US$116 billion marriage Separately, a person familiar with the EU's antitrust review said the European Commission plans to send a letter of objections to both mining companies in the next week or two. Another person familiar said the position of German antitrust authorities means the end to the JV. Germany's decision will be incorporated into the European Commission's final ruling, as the two regulators have been working together closely. The two companies may now pursue other co-operation options in Western Australia to save money generated by agreement with state government in June, possibly including Rio hauling iron ore on BHP's rail lines, or the two combining six blends of iron ore into three.

Elsewhere in the sector, Fortescue Metals added to its recent run, rising 0.5% while Orica, Newcrest Mining, and Bluescope Steel were weaker between 1% and 1.9%.

According to two people familiar with the matter, Fortescue appears to be moving quickly after refinancing US$2.04 billion of debt at the weekend, with plans to raise US$2 billion in the US and European bond markets. One said the company is set to begin marketing the deal to investors in the US and Europe next week, with JP Morgan and RBS involved on the underwriting side. There has been speculation that the iron ore miner could look to raise up to US$6 billion to fund the proposed expansions of its Chichester and Solomon projects. The group said earlier this week that it held discussions with a range of parties on finance options and its corporate bank facility has given it freedom to pursue its advanced expansion plans.

ENDS

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