08/02/10 - 15:30
Ben Potter - Research Analyst, IG Markets
Afternoon thoughts from the Trading Room – 3.30pm
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 0.5%, while the Hang Seng is losing 0.4%. Not faring quite as badly, but still in negative territory, are the Kospi and the Shanghai Composite which are weaker by 0.3% and 0.2% respectively.
In Australia, the ASX 200 is giving up some of its earlier gains to be trading firmer by 0.2% at 4524 having traded as high as 4551. The materials and energy sectors that were the “whipping boys” of last week’s sell-off are clawing back some lost ground to be advancing by 1% and 0.7% respectively. The financial sector has shrugged off some earlier weakness to be making a positive contribution to the day’s gains.
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. Investors’ mindsets are 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.
Locally, the Australian market will also find comfort if the likes of BHP, Rio Tinto, CBA, Boral, Cochlear, Leighton Holdings and Telstra, either meet or beat expectations, when they report their earnings over the course of this week.
Market Update from the Trading Room – 12.45pm
ASX 200 Index: 4541 (+0.6%)
| Top 3 Sectors | Bottom 3 Sectors | |||
|---|---|---|---|---|
| Materials | 1.50% | Utilities | -0.40% | |
| Telecommunications | 1.10% | Industrials | -0.10% | |
| Energy | 1.00% | Consumer Discretionary | -0.10% |
| Advancers (Index Points) | Decliners (Index Points) | |||
|---|---|---|---|---|
| BHP Biliton | 7.2 | Origin Energy | -0.86 | |
| Commonwealth Bank | 4.4 | News Corporation | -0.52 | |
| Westpac Banking Corporation | 3.8 | JB Hi-Fi | -0.4 |
The Australian market is seeing modest gains so far this morning, taking its cue from the surging finish to Wall Street’s trading week on Friday. The ASX 200 is currently firmer by 26 points or 0.6% at 4541, right on its highs of the session.
As we noted in our morning comments there seems to be a growing sense that materials names might have been oversold and short-term reprieve may be likely. In the session as far that has proven to be the case with the materials sector being the biggest percentage gainer, up by 1.5%.
Heavyweight miners BHP and Rio Tinto, who both report earnings results this week (BHP - half year and Rio – full year), are higher by 1.3% and 1.1% respectively. Fortescue Metals is firmer by 1.8%, while Lihir Gold and Newcrest Mining are benefitting from some stability in the gold price to be stronger by 2.5% and 1.5%.
The energy sector is also seeing some reasonable gains to be up by 1%. The strong bounce back in crude oil prices from under US$70/barrel, late in the US session, has clearly provided our energy names some forward momentum with majors Woodside, Santos, Oil Search and Caltex all higher between 0.7% and 2.3%.
Early in the session the local market was battling headwinds cast from the heavily weighted financial sector, which has now turned around to be trading in positive territory by 0.6%. Commonwealth Bank and Westpac are both up in excess of 1%, while the National Australia Bank and the ANZ are higher by a more subdued 0.5%.
In company news, JB Hi-Fi this morning delivered a 29% rise in 1H profits to $76m, up from $59m a year earlier. It wasn’t enough though to prevent the stock selling off to the tune of 4.7%.
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. JB Hi-Fi’s like-for-like sale and profit growth are testament to its growth strategy and undoubtedly makes it the envy of its retail peers.
The other discretionary retailers are faring better with David Jones up 0.2%, Harvey Norman firmer by 1.1%, and Myer enjoying some rare support to be higher by 1.9%.
The other major talking point of the day has been news that commercial television networks have received 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. Ten Network’s shares have responded favourably rising 10.5% while Seven Network is up a more subdued 2.3%.
While the market has traded positively over the course of the morning, investors do appear reluctant to chase prices higher. They seemingly prefer the more cautious wait-and-see approach ahead of further global trading and earnings reports due out this week from the likes of BHP, Rio Tinto, CBA, Boral, Cochlear, Leighton Holdings and Telstra.
Overnight Market Report - 9.00am
US markets closed the Friday session marginally higher after staging a dramatic and surprising late session rally. It ended a tumultuous week, dominated by sovereign debt concerns emanating out of Europe.
The Dow closed up 10.1 points or 0.1% at 10012 and the S&P 500 finished higher by 3.1 points or 0.3% at 1066. The Nasdaq was the clear outperformer closing firmer by 15.7 points or 0.7% at 2141.
Once again, the US non-farms payroll report fell short of expectations, reporting 20k jobs were lost in January. Most market watchers had been hopeful of a positive jobs number, that is, evidence of jobs creation.
What really set the market on the back foot were the large downward revisions to previous months' reports which painted a much bleaker picture of the US employment scene than had previously been believed. Even more surprising was the drop in the unemployment rate from 10% to 9.7% (it had been expected to rise to 10.1%). That said, the downward move was clearly a statistical anomaly caused by a shrinking participation rate as many Americans clearly “gave up the search” for work.
While the US non-farms payroll report is clearly the most watched and anticipated piece of data on the economic calendar, it is also the most inaccurate, meaningless and farcical piece of data – monthly revisions of up to 150k payrolls and changes to previous revisions are testimony to this.
Further USD strength and a weaker crude price (at one stage crude oil was trading below US$70 per barrel) kept the commodity complex under pressure and is likely to do so for the short term. That said, many analysts believe that materials stocks are now in “oversold territory” and hence could see a temporary reprieve on this basis. Notably, a number of the major US materials names posted strong percentage gains late in the US session and we have BHP’s ADR pointing to a 0.7% higher open this morning.
IG Markets is calling the market to unwind approximately 22 points lower at 4492, but there is definitely a sense that we could see a positive close, particularly given last week’s brutal showing and the strong finish on Wall Street.
Regular Feeds
Chris Weston, Market Analyst, is the face of our video market updates and presents live from our trading floor daily. His expert commentary can also be seen regularly on Sky Business channel, plus Bloomberg, ABC2, the Australia Network’s Business Today program and Yahoo Finance.
Plan your day
More in-depth market news is available within our PureDeal platform, as well as a range of free charting and research tools.
Disclaimer: The above material does not contain (and should not be construed as containing) personal financial or investment advice or other recommendations. The information provided does not take into account your particular investment objectives, financial situation or investment needs. You should assess whether the information provided is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision based on the material above. You can either make this assessment yourself or seek the assistance of an independent financial advisor. IG Markets Limited accepts no responsibility for any use that may be made of these comments and for any consequences that result.