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ASX CLOSE: Market sees modest gains

IG Markets Ltd

Monday 8th February 2010

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Across Asia, regional indices are broadly lower and struggling to take any positive momentum from Wall Street's late session revival.  Disappointing earnings from Panasonic and concerns about continued falls in base metals and oil prices are clearly weighing on sentiment.  The Nikkei 225 is the worst performer, lower by 0.8% while the Kospi is weaker by 0.7%.  Not fairing quite as badly, but still in negative territory, are the Shanghai Composite and the Hang Seng which are weaker by 0.4% and 0.2% respectively.

The Australian market saw modest gains today, taking its cue from the surging finish to Wall Street's trading week on Friday.  The ASX 200 closed 7.3 points or 0.2% in the black at 4521, but well off its session highs of 4551.

As we noted in our morning comments there seems to be a growing sense that materials names might have been oversold and a short term reprieve may be likely.  That proved to be the case in today's session with the materials sector being the second largest percentage gainer, up by 0.4%. 

 Heavyweight miners BHP and Rio Tinto, who both report earnings results this week (BHP - half year/ Rio - full year) closed higher by 0.1% and 0.9% respectively, Fortescue Metals firmed by 1.1% while Lihir Gold and Newcrest Mining benefitted from some stability in the gold price to be stronger by 1.8% and 1.2%.

The energy sector also saw some reasonable gains to be firmer by 0.3%.  The strong bounce back in crude oil prices from under US$70/barrel late in the US session clearly provided our energy names some forward momentum with major names Woodside, Oil Search and Caltex all higher between 0.4% and 2.0%.

Early in the session the local market was battling headwinds cast from the heavily weighted financial sector, which turned around during midday trade to close higher by 0.5%.  Westpac was the standout performer, closing higher by 2.8% while the Commonwealth Bank, National Australia Bank and the ANZ were all firmer between 0.2% and 0.6%.

In company news, JB Hi-Fi this morning delivered a 29% rise in 1H profits to $76m, up from $59m a year earlier but it wasn't enough to prevent the stock selling off to the tune of 5.1%. 

Share price action aside, it was another outstanding result from JB Hi-Fi.  This is a company that never seems to fail its shareholders in delivering on its forecasts.  In a way the company has almost become a victim of its own success and now finds itself in the unenviable position where it has to obliterate expectations to get the market excited.  Its like-for like sales and profit growth are testament to its growth strategy and undoubtedly makes it the envy of its retail peers.

Other discretionary retailers faired a little better with Harvey Norman firmer by 1.9%, while Myer enjoyed some rare support to be higher by 1.6%.

The other major talking point of the day was news that commercial television networks would receive a $250 million-plus revenue boost after striking a lucrative deal with the federal government to have licence fees slashed by up to half.

Communications Minister Stephen Conroy yesterday announced he would cut licence fees paid by the networks -- calculated at 9 per cent of gross advertising revenues -- to the government by 33 per cent for the 2010 financial year and 50 per cent for the 2011 financial year.

Senator Conroy rushed out the announcement after inquires from The Australian that a deal had been struck.  Shares in Ten Network responded favourably rising 9.6% while Seven Network was up a more subdued 2.4%.

 

While it has been nice to see the local market posting some gains this afternoon there certainly appears to be a lack of conviction to the buying.  What we're seeing today is probably akin to dipping your toe in the water without really wanting to get wet.   Investor mindset is still fragile and hence the caution we are seeing is quite understandable. 

Until the whole European sovereign debt concern is behind us we shouldn't expect to see a meaningful return of risk appetite and all the associated trimmings that come with it- higher commodity prices, and strength filtering back into the Euro and the Aussie.  In time we may look back on this "European debt crisis" as another "Dubai".  However, we aren't there yet and won't get there until we have some more comforting rhetoric from European nations that they will stand behind some of these beleaguered countries.

 

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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