IG Markets Australian Market Wrap

IG Markets Australian Market Wrap
Good afternoon,

Across Asia, regional markets are mixed despite the very strong set of leads from US markets. The Nikkei 225 and Kospi are the best performers, up 0.1% and 0.4% respectively while on the downside, the Hang Seng and Shanghai Composite are 1.5% and 1.3% weaker respectively.

In Australia, the ASX 200 closed 02% weaker at 4629, well off its earlier highs of 4673. Disappointingly, the market shrugged off the positive lead from Wall Street and solid earlier gains to finish near its lows of the session with investors seemingly gun-shy about letting profits run or opening fresh positions heading into the weekend. Early advancers such as the materials and energy sectors surrendered nearly all of their gains while the financial sector also proved a major drag with the major trading banks coming under heavy selling pressure.

Today’s drastic underperformance was a little bewildering. One would have thought we would have been able to post a solid session of gains given the sharp snapback in risk appetite overnight. Apparently there’s some speculation doing the rounds that the Hong Kong government may be looking to restrict property price speculation. Whether or not this is the reason markets are selling off one will never know. However, given the skittish mood of markets, nothing would surprise us.

Nonetheless, we still remain bullish for the remainder of the year but day-to-day gyrations are becoming increasingly difficult to predict and explain, today being a case in point. It could well be one of those days where the market is down because it is down.

While illogical short-term market moves can drive investors ‘batty’, its times like these that you need to stick to your convictions and remain true to your strategy.

In currency markets, the AUDUSD was relatively flat during the morning session before seeing some selling pressure as the afternoon developed on renewed concerns over Chinese tightening. A comment from ANZ said the AUDUSD tracked the euro higher overnight as risk appetite ticked up. ANZ said the US dollar index came under a bit more pressure, helping the cause, with the main positive driver being the growing belief a rescue plan for Ireland was imminent. With little data on the immediate horizon, offshore events are likely to remain the focus, with markets waiting for more detail on Ireland.

The financial sector was the biggest detractor in a pretty disappointing day’s trade for the local market. It fell 0.6% thanks to a 1.4% decline in CBA, with the remainder of the big four banks all declining between 0.4% and 1.2%.

The materials sector closed down 02% after giving up strong early gains as investors once again feared a Chinese rate hike over the weekend. Heavyweights BHP Billiton and Rio Tinto surrendered initial advances to close lower between 0.4% and 0.1% while Fortescue Metals and Newcrest Mining saw losses of more than 0.5%.

In a report from Goldman Sachs, it maintained its buy recommendation on Fortescue and raised its price target to $9.15 from $8.05. The broker said the risks for Fortescue will escalate with the increased debt for Solomon project, but cash flows that can be generated by higher iron ore prices can reduce financial risk. Goldman note that spot iron ore prices remain well above forecasts.

In a note from a major market participant, they said the easing of some uncertainties about the immediate prospects for base metals cleared an upward path. The participant said concerns over Ireland's debt issue eased overnight, lending some support to the EURUSD and prompting buying of base metals yesterday. The turnaround from the downdraft earlier in the week prompted speculative buying as well. They continued to say, better-than-expected US economic data also bolstered demand prospects and “bought the bulls back into play". They added the market was also keeping an eye on the labour strike at Chile's Collahuasi copper mine, now in its 14th day. Barclays Capital chart analysis shows copper remains in a medium-term uptrend, so "it retains a bullish outlook in expectation of a serious test of $9,000 before year-end."

The energy sector finished the session largely unchanged, up a modest 0.1%. Macarthur Coal, WorleyParsons and Whitehaven Coal were all up more than 1.8% while the highly volatile Karoon Gas rose 1.3% for the session after being down more than 9% early.

The gas explorer this morning cancelled its listing of South American assets in Brazil. This certainly caught the market by surprise, with Chairman Bob Hosking telling at the annual shareholder meeting, only yesterday, that the completion of the IPO will allow the company to concentrate existing cash resources on phase two of its Australian drilling campaign. Hosking and other executives have been travelling the world selling the float but may have found it difficult to attract capital in the wake of a series of recent Brazil oil sector listings.

ENDS

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