ASX CLOSE: Market surges through 4800

Monday 8th March 2010

Across the region, Asian stocks are broadly higher on the better-than-expected US jobs reports, buoyant metals prices and French President Sarkozy's soothing words of confidence in support of Greece's financial plight. The Hang Seng and the Nikkei 225 are the standout performers, higher by 1.9% respectively, while the Kospi and Shanghai Composite are seeing more moderate gains of 1.6% and 0.7%.

The Australian share market got off to a flyer today with the ASX 200 index surging through the 4800 point barrier for the first time since 21 January. The market closed firmer by 0.85% at 4807.9, off its session highs of 4828.

We are seeing some strong signs of confidence filtering through the market; this can be seen not just in the fact that nearly every news story out there seems positive today, but also with some large M&A activity, small caps outperforming, credit spreads globally contracting and simply through the fact the ASX 200 is up 7 days in a row.

On Friday we suggested a strong non-farms payroll number out of the US would provide the platform for us to break out of the 4500-4800 trading range we have been in for the last 6 weeks.

Locally, our market is being led by the materials, energy and consumer discretionary sectors, with the financial and industrial sectors also contributing some good points - a sure sign the market is starting off the week on the front and in an aggressive frame of mind.

The materials sector was among the best percentage gainers, higher by 2.1%, after strong leads from its offshore counterparts and broadly higher commodity prices. Among the heavyweight names, BHP Billiton and Rio Tinto closed higher by 2.4% and 2.6% respectively with the former being boosted by news over the weekend that Japan's Nippon Steel had agreed to quarterly repricing of coking coal shipments. The April-June price has been set at US$200/t, a 55% increase over the price achieved in the current fiscal year ending 31 March 2009.

A weakening of the USD in the US on Friday and consolidation of the gold price above US$1130oz is also benefiting our major gold miners, with Newcrest mining higher by 1.0% and Lihir Gold firmer by 1.03%.

The energy sector was the other top performer of the morning, currently up by 3.7%. The sector closed 1.8% higher in the US on Friday, courtesy of a 1.6% surge in crude oil prices to US$81.50/barrel. Sector sentiment has been further boosted this morning by news that Royal Dutch Shell and Petro China have made a takeover offer for Arrow Energy at $4.45 per share, plus and an additional share in a yet-to- be-listed company that would comprise Arrow's international operations. The offer of $4.45 represents a minimum 28% premium to Arrow's Friday closing price of $3.48. Shares in Arrow closed the day at $5.11, up 47%!

The potential takeover of Arrow was certainly the focal point of the day's trade and after political rhetoric M&A is the key catalyst for equities this year. The potential takeover by Shell and PetroChina on the face of it is very positive for Arrow's shareholders, with the average price target amongst analysts at $4.65 on a 12 month basis the fact it is trading on a 9% premium to that is extremely attractive. We have seen some analysts valuing Arrow's International business around 55c making the full deal worth $5.00, so in theory we should not see too much volatility at these current levels. However, this business is hard to value and with the ACCC ready to protect domestic resource companies from Chinese interests it is still a very open story.

Among the other major energy names, Woodside Petroleum, Santos, Oil Search and Caltex were higher between 1.6% and 6.3%.

Consumer discretionary names, like their US peers, are benefitting from the surprising growth in US consumer credit with the sector firmer by 0.7%. Department Store heavyweights David Jones and Myer closed up 1.0% and 1.2% respectively, while discount retailers Harvey Norman and JB Hi-Fi saw some selling pressure to be lower by 1.5% and 1.4%.

If we can get some positive reads on local consumer confidence/sentiment numbers and unemployment data due out this week, and a solid set of monthly economic data out of China on Thursday, an assault on the 5000 point level could be upon us earlier than we might have anticipated just a fortnight ago.

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.

Comments from our readers

No comments yet