ASX CLOSE: Bulls and bears engage in an arm wrestle

Tuesday 23rd February 2010

Across Asia, regional markets are mixed this Tuesday as a lacklustre set of US leads failed to inspire traders and commodities took a breather after recent gains. The Shanghai Composite is the worst performer, down 1.1% while the Nikkei and Kospi are all lower by between 0.4% and 0.1%. The Hang Seng is bucking the trend, up 1.3%

Locally, the ASX 200 closed 0.8 of a point firmer at 4718.3, with the bulls and bears engaged in an arm wrestle around the 4700 level. The market was down for most of the session before a late rally saw it regain positive ground.

There was little in the way of a sector leadership theme. Rather, stocks were driven by company specific news.

However, financials did support the market, again outperforming. There appears to be a growing acknowledgment that banks are leveraged to a rebound in earnings as bad debt charges diminish.

Whilst sentiment has improved recently, it still remains fragile with participants needing constant reassurance.

Case in point - despite Bernanke and the Fed being blatantly clear that the hike in the discount rate did not signal an imminent change in its monetary policy stance, the market appears to be waiting to hear this for a third time when Bernanke speaks later this week.

Perhaps then the penny will drop and the market will take him at his word.

Looking ahead to next week's interest rate decision, Macquarie Group in an economic note said there are signs that suggest the RBA is setting itself to hike again in March or April, probably March. It continued by saying the economy is going well and the RBA has been clearly hawkish, plus excess capacity and downside risks to growth are limited. It believes the RBA has "all the time in the world" to hike or pause as it sees fit, but by pausing in February, the bank has taught the market a lesson in assuming policy had become too predictable.

Turning our attention to today's sector movers and it was the property trust sector that was the biggest percentage gainer, up 1.1%. Macquarie Countrywide Trust and Mirvac Group were the main gainers, up 3.5% and 2.6% respectively.

The financial sector added the bulk of the points today, closing 0.4% higher. Commonwealth Bank of Australia, Westpac and ANZ were all up between 0.8% and 0.9% while Insurance Australia Group was the best performer, up 2.3%. AMP was down 4.1% after it went ex-dividend.

Energy names finished marginally lower after leads from the US energy sector were negative. The sector closed 0.1% weaker, thanks largely to a 0.4% fall in heavyweight Woodside Petroleum. On the upside, Oil Search and Santos led the way, rising 2.1% and 1.3% respectively.

Oil Search posted a FY profit of US$133.7 million, ahead of market expectations but underlying earnings missed forecasts. Underlying earnings (which strip out one-offs) was US$99.6 million, compared to a market consensus of US$111.4 million. However, most investors were focused on the group's involvement in its PNG LNG liquefied natural gas project in Papua New Guinea. Oil Search had nothing substantial to report, other than reiterating financial close and final off take deal with Taiwan's CPC Corporation was on track for completion by March 31.

Elsewhere, the materials sector finished the session in negative territory, down 0.3%. Fortescue Metals Group, Bluescope Steel and BHP Billiton were all down between 0.1% and 3%, with Fortescue the underperformer. On the upside, Rio Tinto added 0.3% and Amcor 1.2% after its first-half profit of $172.5 million before items beat the $160 million median estimate of 5 analysts.

However, it will pay 12.5 cents interim dividend vs 17 cents a year ago. CEO Ken MacKenzie said the acquisition of the Alcan packaging business gives Amcor confidence it will continue to improve its operational performance and reduce costs. Commenting on its Rigid Plastics division, the company said given improvements in Latin America but continued uncertainty in the North American market, it is unlikely earnings in the second half will be significantly different to the second half of last year.

Interestingly, in a note from Morgan Stanley, Rio Tinto's profit forecasts was boosted after lifting expectations on earnings for the group's aluminium division, Rio Tinto Alcan. It upped Rio's EPS forecast for 2010 by 4.5% and 2011 by 1.8% after a detailed review of the aluminium division. The broker said it thinks margins will improve in the current year, driven by higher prices, and the benefits of cost-reduction programs. It also believes the company has an opportunity to increase sale prices of third-party bauxite and that alumina demand appears to be tightening. Aluminium smelter performance was also much improved in 2H09 and margins should be higher in 2010.

Prices are in AUD unless otherwise stated.
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