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ASX CLOSE: Equity markets head lower

IG Markets Ltd

Thursday 8th April 2010

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Across Asia, equity markets are mostly lower for the first time in six sessions following the weaker overnight leads from Wall St and unexpected softness in Japanese machinery orders. The Nikkei is the biggest decliner, down 1.1% while the Hang Seng and Shanghai Composite are lower between 0.3% and 0.8%. The Kospi is higher by 0.4%

In Australia, the ASX 200 closed down 0.5% at 4937.9, near its lows of the day. Following the disappointing leads from Wall St, today's selling was focused on the cyclical sectors, especially material and energy names.

After such a good rally from the February lows, even today's strong employment numbers weren't enough to offset some profit taking, with many participants believing the market is overbought in the short-term.

The market has run very hard since the February lows, in part driven by a significant pickup in merger and acquisition activity, especially in the energy and resource sectors. This has been rampant for a number of weeks so it wouldn't surprise us to see the market cool its heels for a while. After all, there's only so much a market can handle at any one point in time.

Second and third tier names in these sectors have also supported the market, bid higher on speculation they may be the next takeover target.

In economic news, job creation in the Australian economy continued to run hot in March, with a further 19,600 workers finding employment in the month vs February. This helped to validate the central bank's decision to aggressively raise interest rates since October 2009; and pointed to more hikes just around the corner. The rise brings total job creation since August 2009 to 215,000. The unemployment rate was unchanged at 5.3% in March from February. In a comment from Citigroup, it said Australian employment was growing in all the right places. Citigroup said the real change was from part-time to full-time employment where employers were now feeling more confident of their own prospects. Following the employment numbers, forex traders pushed the Aussie to a low of 0.9244 before the buyers stepped back in, bidding it up to a high of 0.9284.       

Turning our attention to the market and the materials sector was the biggest loser, down 1% on the back of weaker overnight commodity leads. BHP, RIO and Fortescue Metals were the largest detractors, all down between 0.8% and 1.8%. Gold miners Lihir and Newcrest bucked the trend, adding 1.8% and 0.7% respectively.

A pullback in crude oil futures overnight weighed on the energy sector, pushing it down 0.9%. Among stocks, Paladin Energy slipped the most, losing 1.8% while Oil Search, Santos and Woodside Petroleum were all weaker between 1% and 1.2%.

There was more action in the coal space today. In a broker note from Deutsche Bank, it downgraded Whitehaven (-1.8%) to ‘hold' from ‘buy'. This followed from the recent share price rally along with other coal companies in the wake of the recent M&A activity in the sector. While Deutsche views the company's growth positively, it now sees it as fairly priced. The broker sees strong fundamentals for thermal coal and expects the market to move into deficit in 2010 on the back of a recovery in OECD demand, as well as a strong recovery in Japanese volumes. The US$98/ton contract thermal coal price achieved by Xstrata boosted the brokers earnings forecast for Whitehaven by 5%.   

Elsewhere, shares in MetroCoal, a junior coal exploration company soared 29% today on heavy volume of 13.5 million shares after it announced a joint venture with China Coal Import & Export. Under the JV, China Coal bought a 51% interest in MetroCoal's Columboola project in the Surat Basin, Queensland, for agreed exploration and evaluation spending of $30 million.                        

The consumer discretionary and financial sectors also saw selling pressure today, both finishing in the red by 0.6%. National Australia Bank, ANZ and Westpac Banking Corporation led the selling in the financials space, all down between 1.1% and 1.4% while Commonwealth managed to buck the trend, rising 0.8%.

In a comment from Citigroup, it downgraded ANZ Bank to ‘hold' from ‘buy', pointing to the stock's recent run and noting that ANZ has been the best-performing Australian bank in the year-to-date. Citi said it continues to like ANZ's strategy, with the long-run growth prospects in Asia attractive. The broker also notes the group's management team is the most experienced among Australia's big four banks, and the group's balance sheet is in pretty good shape.    

Among discretionary names, Ten Network, Crown and News Corporation weighed the most, all down between 1.2% and 1.3%.

On the upside, consumer staples names had a good session with the sector adding 0.9%. Wesfarmers, Woolworths and Coca Cola Amatil were the top gainers, up between 0.8% and 1.4%.          


Prices are in AUD unless otherwise stated.
IG Markets Ltd, Australian Financial Service Licence No. 220440. ABN 84 099 019 851.
This information is provided for information purposes and should not be regarded as financial product advice. This information does not take into account your specific objectives, financial situation or needs. Therefore you should consider the information in light of your specific objectives, situation or needs before making any trading or investment decision. IG Markets recommends you take independent financial advice before any decision whether to trade with IG Markets in the products we offer.

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