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ASX CLOSE: Kneejerk reaction to US confidence figures pulls market down

IG Markets Ltd

Wednesday 24th February 2010

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Across Asia, regional markets are mostly lower after US consumer confidence fell overnight to its lowest level in 10 months, sparking a selloff in the major US indices. The Nikkei 225 is the biggest decliner, down 1.6% while the Kospi and Hang Seng are lower by 1% and 0.9%. The Shanghai Composite is bucking the trend to be up 0.5%.

Locally, the ASX 200 finished 1.5% weaker at 4648.5, slightly off session lows at 4641. Negative sentiment from the US session overnight flowed through to Australian trade, with the cyclical material and energy sectors leading the market lower. BHP Billiton and Rio Tinto detracted the bulk of the points.

The kneejerk reaction to US confidence figures was mind boggling. It's amazing how a survey of just 3000 households can impact on global markets. You only need a few people to wake up on the wrong side of bed to dramatically skew the result.

That said, the reading was the lowest in 10 months and rekindled fears of a slowdown in consumer spending that may weigh on the economic recovery. This is in stark contrast to what corporate America has been delivering in its current profit season.

Recent results provided actual evidence of what the consumer is doing, and it's certainly more reliable.

 Which source would you believe? We're on the side of corporate America.

Tonight or tomorrow night's testimony from Fed Chairman Ben Bernanke will provide further clarification to the outlook on rates, even though he has reiterated a number of times that it will remain low.

The heavyweight sectors followed US leads to really weigh on the market today.  The materials sector was the standout decliner, finishing the session 2.5% weaker following broadly weaker base metal prices overnight. Lihir Gold, Rio Tinto, BHP Billiton and Fortescue Metals Group were all down between 2.9% and 3.9%, with Lihir Gold the worst performer.

The energy sector came under pressure, closing down 1.9% after Crude Oil futures fell back below the US$80 per barrel level overnight. Paladin Energy was the worst performing energy stock today, down 5.8% while heavyweights, Santos, Woodside Petroleum and Oil Search were all down between 2.2% and 3.7%.

This was despite Woodside Petroleum's FY net profit of $1.82 billion being slightly ahead of market forecasts, with the consensus being for $1.8 billion. It reiterated its full-year production guidance of 70-75 million BOE, subsequently easing market fears of a possible downgrade. There was also a lack of solid news on the progress of its three LNG projects, although final investment decision for its Pluto expansion was reiterated.               

Elsewhere, Whitehaven Coal reported a first-half profit that came in a touch below RBS Morgans' forecast. However, the broker said there was nothing in the result to alter the market's view of the miner. RBS Morgans doesn't believe the first-half performance versus expectations will impact the investment case as it is predominantly based upon a big project in the future that is ramping up. The first stage of the project, Narrabri, is nearing completion but Whitehaven did note that it is running four months behind schedule due to difficult tunnelling conditions to access the coal. 

Financials came under pressure as well today with the sector losing 1.4%. Suncorp-Metway was the biggest decliner, down 6.4% after its 1H net profit came in at $364 million, in the middle of the group's guidance for a $355 -$375 million result. However, its move to cut its interim dividend to 15 cents from 20 cents a year ago disappointed the market. The company said by retaining higher levels of capital, it will be in the strongest possible position to deal with any unanticipated short-term issues that may present over the next six months. Should these events not occur, the board's firm position remains that capital in excess to normal operating requirements should be returned to shareholders. In a note from Macquarie Group, it kept its ‘neutral' rating and said the share price risk is to the downside, due to likely market concerns regarding its non-core bank impairments and net interest margins profile.      

Other big detractors included Insurance Australia Group (-3.2%) and Macquarie Group (-2.6%) while the big four banks were all down between 0.9% and 2.5%, with National Australia Bank the worst.

In stock specific news, Asciano was one of the best performers, rallying 4.5% after it reported a first-half net profit of $79.1 million vs a $93.4 million loss a year ago. However, revenue fell 4.4% to $1.44 billion and no interim dividend was declared for the second-straight year after it sought to renegotiate debt and grow its Queensland coal haulage business. Asciano firmed up its outlook and now expects full-year EBITDA to be around the top of previous guidance of $675 - $700 million. Judging by the share price reaction, it seems the market likes the result.

 

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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