ASX CLOSE: Market closes convincingly higher

Wednesday 17th March 2010

The Australian market closed convincingly higher, taking its direction from positive offshore leads. The ASX 200 finished stronger by 1.2% at 4853 right at the highs of the day, with a huge show of strength from the bulls going into the close.

Comments from The World Bank about China's growth prospects pushed the market higher into the afternoon.

Across Asia, regional markets are all higher after the US Federal Reserve reiterated its commitment to keep borrowing rates at exceptionally low levels for an extended period - boosting commodities and risk currencies at the expense of the Yen and the US dollar. The Hang Seng and the Kospi are higher by 1.6 and 1.9% respectively; the Nikkei 225 is up 1.2%, while the Shanghai Composite is posting gains of 0.8%.

Overnight markets were boosted by news that ratings agency S&P were no longer considering an imminent downgrade of Greece's credit rating, as well as renewed confirmation that the US Fed Reserve would keep rates at "exceptionally low levels, for an extended period of time."

One point which is worth expanding on is the volume in US markets. Whilst we are making higher highs and higher lows, a key metric in determining an uptrend, the volume or conviction behind the rally has been shocking. For the month the S&P is up 5%, at 52 week highs. However, we have only seen 5 out of the last 16 sessions record volumes over 1 billion shares with the average being 994 million shares. The same corresponding period last year saw an average of 1.74 billion, 75% more. This goes to show there is still plenty of caution about and traders still do not really trust this rally.

The FOMC statement provided the backbone for a solid rally today. It looked a bit hit and miss for while when around lunchtime we headed down to 4821, but we saw buyers emerge going into the afternoon. This was positive as we have seen so many times recently, especially above 4800 the market rolling over into the afternoon. The longer the market stays above 4800 and the more the different macro issues disappear the quicker we can focus on solid EPS growth and trend higher.

These developments have seen risk/growth sectors back in focus this morning with the energy, materials and industrial sectors all higher between 0.7% and 1%.

A 2.8% jump in crude prices overnight has been the catalyst for the energy sector to move 2.3% higher. Major energy names are clearly enjoying the boost in investor sentiment with the likes of Caltex, Woodside Petroleum, and Oil Search all firmer between 1.4 and 3.9%.

Among the heavyweight miners, BHP Billiton and Rio Tinto were higher by 1.3% and 1.6% respectively while Fortescue Metals posted gains of 1.2%. Gold's 1.3% rise overnight saw Lihir Gold and Newcrest Mining both up by more than 1%.

The financial sector is seeing broad buying support today, higher by 0.9%, after solid leads from its offshore peers. Overnight the KBW Banking Index closed at its highest level since November 2008 and this buoyed sentiment across the sector. Among the major names, ANZ and Westpac were both higher by more than 1.5%, the CBA closed up 0.8% while NAB was again the laggard, higher by 0.3%. It seems the prospect of a potential equity raising (courtesy of its bid for Axa AP) may be weighing on the stock.

Elsewhere around the market, the retailers are in focus today after David Jones announced its 1H profit result. The 1H profit of $100.5m was 10.2% above the pcp and largely in line with expectations, with the company having guided the market to an expected 10% improvement in February. While profit margins and 2H guidance were well received, they were not enough to "positively surprise" the market, so we saw the stock trading marginally higher. Major rival, Myer, traded up 0.6% despite reporting an inferior result last week.

Shares in Seven Network were weaker after the company came out of a trading halt this morning. Overnight it released its scheme booklet, with Deloitte acting as the Independent Expert. While Deloitte concluded that Seven's proposed tie-up with Kerry Stokes' Westrac was fair and reasonable and in the best interests of shareholders, its combined group valuation range of $7.09-$8.57 may have disappointed some shareholders. Shares closed 0.4% in the red.

Another stock not faring so well today is AWB. The stock finished down 11.3% after management issue a FY profit downgrade, scaling back previous estimates for FY profits from $115m-$140m to $85m-$110m. JP Morgan Australian analysts held their recommendation at Overweight, suggesting today's weakness represents a buying opportunity.

Prices are in AUD unless otherwise stated.
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