ASX CLOSE: Market lower as traders take profits

Friday 16th October 2009

Across Asia, regional markets were predominantly in the red this Friday, suffering the typical dose of end-of-week profit taking after a second straight week of gains, with selling across financials dragging the most. The Nikkei 225, Shanghai composite and Kospi are all down between 0.1% - 0.8% while the Hang Seng is 0.1% higher.

In Australia, the industrial and financial sectors weighed the most with the ASX 200 0.5% lower at 4836.4 in quiet, Friday trade. Traders were once again taking profits off the table ahead of another heavy data and Q3 reporting calendar tonight. The market will be closely watching both industrial production and consumer sentiment numbers, as well as Q3 reports from Bank of America and the biggest US bellwether in General Electric.

The now repetitive pattern of Friday afternoon profit taking following another strong week of gains is in play once again. Trader's aren't interested in holding or taking on more risk heading into weekends at the moment, especially considering how reliant and susceptible we are to overseas leads.

The financials are weighing on the market the most after US financials underperformed overnight. Despite better-than-expected Q3 reports from Citigroup and Goldman Sachs, their respective share price falls would suggest that JPMorgan's result may have set the ‘expectations bar' too high.

It certainly looks like expectations got a bit too far ahead of themselves. When two major companies beat forecasts but still fall, it shows that a lot of momentum was already built into the stock price.

However, helping to offset this weakness both locally and globally was a strong performance from energy stocks. Crude Oil has made a strong break to the upside and now looks set to follow in gold's path higher. The breakout through previous highs of $75 was very strong indeed. The momentum created by a number of oil demand upgrades over the last week looks set to drive further gains with ‘black gold' now targeting psychological resistance at $80 per barrel and then the 50% Fibonacci retracement (July 08 high to December 08 low) at $89 per barrel.

It certainly was a stellar week for the Aussie dollar, surging through both the 91c and 92c thresholds like a hot knife through butter. Fuelling the local currency's gains were a seemingly endless slide in the USD, abundant risk appetite courtesy of surging equity markets, stronger-than-expected September crude oil and iron ore imports from China (defying predictions of a slowdown) and hawkish commentary from Glenn Steven in relation to monetary policy, which put a 50bp November rate hike firmly on the table.

Turning our attention to the market and the industrials sector was the biggest percentage decliner, down 1% with the likes of Asciano (-3.6%), Toll Holdings (-2.4%), Macquarie Infrastructure Group (-2.2%) and Downer EDI (-1.9%) the major losers.

While the financial sector (-0.7%) was broadly lower on weak offshore leads, a notable performer for the day was Suncorp-Metway which managed to finish the session unchanged. The company was buoyed by JP Morgan upping its price target on the stock to $11.00 from $8.95 suggesting that it may be unlikely to sell off it banking arm and that with credit markets likely to further open up the bank would be able to operate as a viable concern in its own right without the need for a government guarantee. The broker also believes that new CEO Patrick Snowball has a clear vision on how to restructure the group's general insurance business.

Elsewhere in the sector, AMP Ltd (-2.9%), Macquarie Group (-2.1%), QBE Insurance Group (-1.6%) all detracted. All the big four banks finished in the red, down between 0.4% and 1.4% with ANZ the worst performer.

Having been the best performer early in the session, energy stocks were sold off inline with the broader market despite a stable oil price during Asian trade. Woodside Petroleum and Oil Search were two of the major detractors, finishing down 0.9% and 0.7% respectively.

Finally, the materials sector finished the session relatively flat, down a modest 0.1%. Heavyweight miners Rio Tinto and BHP Billiton both managed to post gains, rising 0.2% and 0.8% while Fortescue Metals Group enjoyed another strong day's trade, up 2%.

BHP Billiton this morning ended weeks of speculation by announcing a conditional offer for United Minerals at $1.30 per share, which would value the junior miner at $204 million. That price represents a 43% premium over its last traded price of 91c. United Minerals is a junior iron ore player in the Pilbara, with its main ‘Railway' deposit strategically located in the heart of BHP Billiton's and Rio Tinto's iron ore operations. The Railway deposit has 158 million tonnes of iron ore with low levels of impurities and is expected to be a strong addition to BHP Billiton's portfolio.

Prices are in AUD unless otherwise stated.
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