ASX CLOSE: Market closes up, following positive lead from Wall St

Tuesday 30th March 2010

Across Asia, regional markets are mostly firmer on the back of the fifth straight gain in US consumer confidence and an increased appetite for riskier assets. Both the Nikkei 225 and Hang Seng are 0.6% stronger while the Kospi is up 0.3%. The Shanghai Composite is bucking the trend, down 0.2%.

Following a positive session on Wall St, the Australian market closed up 0.4% at 4916.80 having traded to a high of 4924. The return of risk appetite overnight saw the materials, industrials and energy sectors adding the bulk of the points today.

BHP Billiton's announcement this morning that it had agreed with a number of its customers to move to more frequent re-pricing of iron ore is also supporting the resources space.

The gains in US markets overnight were positive indeed. The underlying backdrop continues to improve with stock gains becoming more reliant on improving corporate earnings and economic data continuing to show signs of improvement.

And, so far it's been a jobless recovery. Once we begin to see some traction in the labour market, the recovery will really gather steam. This could start Friday, with the nonfarm payrolls number expected to show the highest number of jobs created in more than 2.5 years.

Momentum for both the economy and the stock market is clearly towards the upside. There's a good chance this will continue as we head into April, which has historically (dating all the way back to the 1950's) been one of the best months for equities, both locally and in the US.

Those currently short-the-market anticipating a pullback may want to re-think their positioning.

Turning our attention to the market and the materials sector was the standout performer, rising 1.6% for the session thanks to an increase in investors risk appetite. Fortescue Metals Group and BHP Billiton were the biggest gainers, up 2.9% and 2.4% respectively after BHP announced it had agreed to sell the majority of its production on shorter term contracts, scoring a big win in its campaign to move away from the annual benchmark pricing system.

Brazilian mining giant Vale was also rumoured to have reached a provisional agreement with Nippon Steel Corp and Sumitomo Metals for a 90% price increase in iron ore.

In other supportive news, London Metals Exchange prices rallied sharply overnight, with copper surging 3.3% to fresh 2010 highs on the back of a pickup in fund buying. This renewed technical buying forced shorts to cover. Copper was also boosted by a surprise drawdown in Shanghai copper inventories on Friday, which has been interpreted as a sign of increased Chinese buying interest. In a comment from National Australia Bank, it said base metals are reacting to changing views on Chinese demand, with the recent cautious view following moderation in Chinese imports over the past two months giving way to interpretation that Chinese monetary tightening measures aren't having much of an impact on demand and construction activities. The fading risk aversion after the euro zone backstop plan to help Greece has also helped funnel appetite for riskier assets to commodity markets.

Industrial names were well bid too with the likes of Transurban, Asciano and Downer EDI all up between 1.5% and 2.2%.

The energy sector was also a major contributor, rising 0.3% after Crude Oil prices rose more than 2% overnight. Paladin, WorleyParsons, Oil Search and Woodside were all higher between 0.5% and 1%.

However, on the downside the financial sector lagged, finishing 0.1% lower. Macquarie Group and QBE Insurance were the biggest decliners, down 1.7% and 1.4% while the big four banks finished the day mixed. Westpac and ANZ rose 0.2% and 0.1% while CBA drifted 0.5%.

NAB and Axa were halted for most of the day as National Australia Bank looked to be on the brink of securing backing of AXA SA for its proposed $13.3 billion takeover of AXA Asia Pacific. NAB has been locked in talks overnight with AXA SA, which owns 53.9% of the target, after a deadline for finalising a deal passed yesterday. Agreement from AXA SA to sell its shares to National Australia Bank and buy back Asian assets would be a major step toward getting the takeover done. However, the ACCC's decision on April 12 could remain a potential stumbling block.

Elsewhere, in a broker report from Goldman Sachs JBWere on Macquarie Group, it maintained its ‘hold' rating and 12-month target of $57 but said it sees the potential for FY10 result on April 30 to disappoint the market. The broker expects FY10 cash net profit of $1.001 billion, which is at the bottom end of consensus as it sees a number of short-term headwinds for earnings. Goldman's believes Macquarie Group at $50 presents investors with a short-term trading opportunity and would look for a re-entry in the low $40's. However, longer term, the broker is comfortable and sees excess capital deployment as an opportunity for Macquarie to improve its return on equity.

Prices are in AUD unless otherwise stated.
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