24/02/10 - 15:30
Ben Potter - Research Analyst, IG Markets
Afternoon thoughts from the Trading Room – 3.30pm
Across Asia, regional markets are mostly lower after US consumer confidence fell overnight to its lowest level in 10 months, sparking a selloff in the major US indices. The Nikkei 225 is the biggest decliner, down 1.3% while the Kospi and Hang Seng are lower by 0.8% and 0.4%. The Shanghai Composite is bucking the trend to be up 0.6%.
Locally, the Australia 200 CFD Index is weaker by 1.3% at 4655, slightly off session lows at 4646.50. Negative sentiment from the US session overnight flowed through to Australian trade, with the cyclical material and energy sectors leading the market lower. BHP Billiton and Rio Tinto are detracting the bulk of the points.
The kneejerk reaction to US confidence figures is mind boggling. It’s amazing how a survey of just 3000 households can impact on global markets. You only need a few people to wake up on the wrong side of bed to dramatically skew the result.
That said, the reading was the lowest in 10 months and rekindled fears of a slowdown in consumer spending that may weigh on the economic recovery. This is in stark contrast to what corporate America has been delivering in its current profit season. Recent results provided actual evidence of what the consumer is doing, and it’s certainly more reliable. Which source would you believe? We’re on the side of corporate America.
Tonight or tomorrow night’s testimony from Fed Chairman Ben Bernanke will provide further clarification to the outlook on rates, even though he has reiterated a number of times that it will remain low.
Market Update from the Trading Room – 1.00pm
Australia 200 CFD Index: 4661 (-1.2%)
| Top 3 Sectors | Bottom 3 Sectors | |||
|---|---|---|---|---|
| Information Technology | 0.0% | Materials | -2.1% | |
| Property Trusts | 0.1% | Energy | -1.7% | |
| Healthcare | -0.2% | Telecommunications | -1.0% |
| Advancers (Index Points) | Decliners (Index Points) | |||
|---|---|---|---|---|
| Asciano | 1.3 | BHP Billiton | -13.2 | |
| Stockland | 0.4 | Rio Tinto | -4.5 | |
| Westfield Group | 0.3 | National Australia Bank | -4.0 |
Suncorp-Metway – The stock is down nearly 5% this morning after its 1H net profit came in at $364 million, in the middle of the group's guidance for a $355 -$375 million result. However, its move to cut its interim dividend to 15 cents from 20 cents a year ago disappointed the market. The company said by retaining higher levels of capital, it will be in the strongest possible position to deal with any unanticipated short-term issues that may present over the next six months. Should these events not occur, the board's firm position remains that capital in excess to normal operating requirements should be returned to shareholders. In a note from Macquarie Group, it kept its ‘neutral’ rating and said the share price risk is to the downside, due to likely market concerns regarding its non-core bank impairments and net interest margins profile.
Asciano – Its shares are up more than 6% this morning after it reported a first-half net profit of $79.1 million vs a $93.4 million loss a year ago. However, revenue fell 4.4% to $1.44 billion and no interim dividend was declared for the second-straight year after it sought to renegotiate debt and grow its Queensland coal haulage business. Asciano firmed up its outlook and now expects full-year EBITDA to be around the top of previous guidance of $675 - $700 million. Judging by the share price reaction, it seems the market likes the result.
Macarthur Coal – Its shares are down more than 1% this morning after its first-half net profit fell 63% to $39.6 million on lower coal prices. The result looks roughly in line with market expectations. It reaffirmed FY sales guidance of 4.8 to 5 million metric tons and said the coal market is benefiting from the global steel production recovery. There was little news on the planned Gloucester Coal takeover or the Middlemount stake purchase, although it did say the deals are subject to conditions and it is working through these.
Woodside Petroleum – Its FY net profit of $1.82 billion was slightly ahead of market forecasts, with the consensus being for $1.8 billion. It reiterated its full-year production guidance of 70-75 million BOE, subsequently easing market fears of a possible downgrade. There was also a lack of solid news on the progress of its three LNG projects, although final investment decision for its Pluto expansion was reiterated.
Whitehaven Coal – Despite its first-half profit coming in a touch below RBS Morgans’ forecast, the broker said there was nothing in the result to alter the market's view of the miner. RBS Morgans doesn’t believe the first-half performance versus expectations will impact the investment case as it is predominantly based upon a big project in the future that is ramping up. The first stage of the project, Narrabri, is nearing completion but Whitehaven did note that it is running four months behind schedule due to difficult tunnelling conditions to access the coal.
Overnight Market Report - 9.00am
In US trade, a sharp drop in consumer confidence to the lowest level in 10 months sent stocks south, while the US dollar and treasuries rallied. The Nasdaq 100 was the biggest decliner, down 1.3% while the broad-based S&P 500 fell 1.2% and Dow Jones Industrial Average retreated 1%.
The market is looking for signs of economic recovery and growth. The latest set of consumer confidence figures isn’t helping this view. However, profit reports from the recent earnings season provide actual evidence of what the consumer is doing, and it’s better than what the confidence survey suggests.
Following broad-based weakness overnight, the Australia 200 CFD Index is called to open 0.8% lower at 4683.
The financial sector in the US was the biggest decliner, down 1.8%, which will likely weigh on Australian financials.
Elsewhere, the energy sector had another weak session, closing 1.7% lower after a stronger US dollar pushed Crude Oil prices back below the US$80 per barrel level. Local energy names will likely see some selling on the back of these leads. Also, remember that Woodside Petroleum is reporting its annual result sometime today.
Not surprisingly, the US materials sector came under selling pressure too. The sector fell 1.6% after base metals on the London Metals Exchange were all down between 1.4% and 3.7%. Rio Tinto and BHP Billiton lost 3.2% and 1.9% respectively in London trade. Gold was lower 1.2%. Given the leads, it will likely be a fairly tough day’s trade for our materials stocks.
In economic news today, the latest figures on the wage price index and construction work done are due for release at 11.30am.
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