Sharechat Logo

ASX CLOSE: Market drifts lower in light volumes

IG Markets Ltd

Thursday 7th January 2010

Text too small?

In the Asian region, stock markets are all lower this Thursday afternoon despite improving global economic fundamentals continuing to support rising commodity prices. The Kospi is the biggest loser, down 1%, the Nikkei 225 -0.7% while the Shanghai Composite Index is lower by 0.4% and the Hang Seng -0.2%.

Further south, the ASX 200 Index drifted lower in late afternoon trade, eventually closing the session down 0.5% at 4899.4 in very light volumes. As we witnessed yesterday, there's was a real tug-of-war going on. Underlying strength in commodity prices drove significant gains among energy and materials sectors while weakness among financials and telecommunications stocks ensured the market finished in the red. 

The only reason we were not up to today is because of the financials sector's weighting to the index. It accounts for 39%. When financials are down significantly, it's an uphill battle for the market to close in the black.  

There's a real rotation of funds occurring with investors, who seem very happy to sell financials and defensive names and purchase highly cyclical stocks, mainly materials that are strongly leveraged to the global recovery. This theme has been evident for sometime now and doesn't look like slowing.

  After a rough start to 2010, the retailers came to the party today, spurred on by a sharply better-than-expected November retail sales figures. It rose 1.4% versus forecasts of 0.4%.

  Its clear consumers took advantage of the pre-Christmas period sales. The real question will be whether or not this dampened Christmas sales and to what extent?

The greater than 7% falls in the likes of David Jones, Harvey Norman and JB Hi-Fi in the first three trading days of 2010 shows the market is concerned that retail sales may have missed expectations.

The retail sales data also saw the Australian dollar rally sharply and bonds weaken.

Turning our attention to the market and it was the weakness among the financials (-1.1%) and consumer staples (-1%) that really detracted the bulk of the points.

In the financials sector, ANZ was the biggest percentage faller, declining 2.4% for the session. AMP was in close pursuit, down 2.3% while the remainder of the big four banks were down between 0.8% and 1.3%. QBE Insurance Group and Macquarie Group were down 1.8% and 1.5% respectively. AXA was one of the only gainers, managing a rise of 0.2%.

In a report from Goldman Sachs JBWere this morning, the broker upped AXA Asia Pacific's 12-month price target by 12% to $7.75 from $6.95 and AMP's target to $7.40 from $6.90 after the groups' slightly upgraded EPS forecasts to account for market movements in December. Goldman Sachs JBWere estimates AMP could justifiably raise its cash and scrip offer for AXA by about 7%, but notes rival National Australia Bank has "much deeper pockets". Speculation that AMP could provide a cash-only alternative via a $4 billion capital raising "would seem a very big stretch". They also add that any potential takeover of AMP by one of the 4 major banks could be nullified by competition and political considerations as Australian Government may see it important to retain a '5th pillar' in the life and wealth sector.

Among consumer staples stocks, Goodman Fielder, Wesfarmers, Coca-Cola Amatil and Foster's Group were the biggest detractors, all down between 1.3% and 1.9%.

Limiting further falls for the overall index was solid gains among the energy (0.6%) and materials (0.3%) stocks, although they did lose ground late in the session.

WorleyParsons (3.8%), Origin Energy (2.3%) and Woodside Petroleum (1%) were the major movers within the energy space as Crude Oil gained for a 10th straight session overnight. It's traded above US$83 per barrel but is currently trading at US$82.70 despite a bearish inventories report.

In the materials space, Alumina, Newcrest Mining, BlueScope Steel and Rio Tinto were the major leaders, up between 0.5% and 1.8% with Alumina the best performer. Kagara Zinc was the best performing materials and top 200 stock, rising 9.9% after zinc prices rose more than 3.5% overnight.

Elsewhere, Atlas Iron Ore this morning said it is in talks with potential "capable organisations" on partnering with it over the development of its Ridley iron ore deposit (in the Pilbara region of Western Australia). They are also holding discussions with steel mills on off-take of direct shipping ore from its Wodinga project (also in the Pilbara). Talks from both the Ridley iron ore deposit and the Wodinga project were advancing well but were not complete.

Interestingly, in a commodities report from Goldman Sachs JBWere, the broker raised its spot price forecast for 1Q iron ore by 47% to US$115/ton for fines. It also upped its thermal coal spot price assumptions by 15-20% with the 1Q spot price raised to US$88/ton. The rationale for the upgrades is strong Chinese demand, boosted by pre-Lunar New Year buying of iron ore and the need to rebuild utility stocks of thermal coal. The broker also notes improving demand from core contract buyers outside of China. Supply constraints, notably a lack of spot cargoes on offer due to contractual commitments are also pushing up prices, particularly for Australian iron ore. They made no changes to their forecasts for 2010-2011 Australia/Japan benchmark price expectations, but the risk remains "firmly to the upside". This is especially for iron ore where our 20% contract price forecast for Australian fines looks increasingly likely from a buyer's perspective. Beneficiaries of spot upgrades include diversified miners BHP Billiton, Rio Tinto, Fortescue Metals Group, Mount Gibson Iron, MacArthur Coal and Centennial Coal.


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.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

MARKET CLOSE: Mainfreight shares rise in weak market
MARKET CLOSE: Telecom powers ahead
MARKET CLOSE: NZX stars on the market
MARKET CLOSE: NZX lifts nearly 10pts, despite post-Budget slip
MARKET CLOSE: NZX lifts again in quiet day
MARKET CLOSE: NZX closes up but off best levels
MARKET CLOSE: Sharemarket bounces unconvincingly
MARKET CLOSE: NZX finishes down again
MARKET CLOSE: Tower shares slip as quake impact hits home
Market Close: Shares ease ahead of OCR call