04/03/10 - 15:00
Ben Potter, Research Analyst, IG Markets
Afternoon thoughts from the Trading Room – 3.00pm
Across Asia, regional indices are mixed after inconclusive direction from Wall Street. We’re seeing higher metal prices and positive reads on the US service sector being offset by Washington’s rhetoric about reforms to the healthcare and financial sectors. The Kospi is currently higher by 0.1%, and the Nikkei 225 and Hang Seng are both flat. The Shanghai Composite is lower by 0.2%.
Locally, the ASX 200 is oscillating in and out of positive territory. The benchmark index is currently firmer by 0.1% at 4738, having earlier traded to an intra-day high of 4750.
Not surprisingly, sector leadership is coming from the materials space, which is once again benefiting from further gains in base metal prices and the broader commodity complex. The consumer staples sector is also performing well, while points are being taken out of the index by the energy and industrial names
Commodity prices have enjoyed another leg up since the Chilean earthquake and have seen materials stocks post some heavy gains, particularly among the pure play names. The question now is, at what point will these names take a breather and how orderly will any exit be?
The financial sector seems a bit lost at present, trading with little direction. Positive trading updates by the major banks during reporting season (perhaps with the exception of National Australia Bank), and vast improvements in impairment charges, now seem to be priced into bank stocks. There are few obvious catalysts for the sector to move higher in the short term.
With reporting season now behind us, and the RBA clearly taking a month-by-month approach to interest rates, the Australian market is likely to continue to be heavily influenced by macroeconomic issues in offshore markets.
How soon and safely global markets navigate through issues, including the European debt concerns, US and Asian growth prospects, and potential US financial reforms, will likely dictate how quickly we move away from our current trading range between 4500-4800.
Market Update from the Trading Room – 12.00pm
Australia 200 CFD Index: 4738.9 (0.1%)
| Top 3 Sectors | Bottom 3 Sectors | |||
|---|---|---|---|---|
| Materials | 0.8% | Utilities | -1.2% | |
| Property Trusts | 0.7% | Consumer Discretionary | -0.5% | |
| Telecommunications | 0.6% | Industrials | -0.4% |
| Advancers (Index Points) | Decliners (Index Points) | |||
|---|---|---|---|---|
| BHP Billiton | 6.7 | Commonwealth Bank of Australia | -1.9 | |
| National Australia Bank | 2.9 | ANZ | -1.4 | |
| Newcrest Mining | 1.5 | Brambles | -0.8 |
Healthcare – In a note from Deutsche Bank, it believes the Australian Government plans to reform the public hospital system are unlikely to have any material impact on listed private providers in the near term. Though, it may open up opportunities and risks from FY12 when the Government is proposing to phase the changes in. They are proposing to move to activity-based funding, thereby increasing the ease with which they could follow UK "choose and book" model (which would allow private hospitals to treat public patients). The Government also plans to mandate national standards, which are likely to help private groups "demonstrate the superiority of their services for many elective procedures". Companies in focus include Healthscope, Primary Health Care, Sonic Healthcare and Ramsay Health Care.
Media – In a comment from Merrill Lynch, it’s still positive on Australian media stocks. Recent comments stemming from the earnings season confirmed that positive momentum has been maintained in the New Year, with trading conditions up on-year across most business units since January. The broker said the reporting season supports the 2H will see earnings grow, adding consensus forecasts are underestimating the ad market recovery. Merrill’s kept its ‘buy’ ratings on News Corporation, Fairfax, Ten Network, SEEK, WA News, Austereo, APN News, Consolidated Media and Austar.
Incitec Pivot – In a report from Deutsche Bank, it held Incitec’s rating at ‘sell’ with a target price of $2.30. This follows the assessment of CF Industries $4.72 billion bid for Terra Industries. The broker doesn’t believe the bid is supportive of Incitec’s current price, which is trading at a sizable premium to consensus EBITDA multiples.
AUDUSD – Forex traders moved to support the Aussie dollar overnight as global risk aversion weakened after Greece announced new austerity measures. Forex traders pushed the AUD through key resistance at 0.9070 before drifting lower in early Asian trade. A sustained break above this level could open the way for a move toward the 0.9150 level.
Overnight Market Report - 9.00am
Overnight, US stocks retreated from earlier gains after the Fed Reserve reported commercial real estate and loan demand remained weak, and the Fed’s Beige Book showed evidence of muted economic growth.
Elsewhere, the ADP reported that the private sector shed 20,000 jobs, which was in line with market expectations. while President Obama also delivered a persuasive speech to Congress urging them to vote in favour of the latest healthcare reforms, as well as mentioning his proposed reforms changes for large financials.
Both the NASDAQ and S&P 500 finished the session flat, while the Dow Jones Industrial Average fell 0.1%.
The Australia 200 CFD Index is called to open 0.4% higher at 4753 after a flat night’s trade in the US.
Once again, the materials sector was the standout performer in the US, adding 0.9% after base metals on the London Metals Exchange was all up between 1.9% and 3.6%. and Rio Tinto and BHP Billiton also added gained 2.5% and 1.5% respectively in London trade. Gold continued to push higher, up 0.4% since 4.30pm yesterday, at US$1139.9 per ounce. All in all, these leads should spur further buying among local resource names.
The S&P energy Energy sector was well bid too, finishing stronger by 0.4% after Crude Oil futures rose 1.5% since our 4.30pm close yesterday. These leads should see Australian energy names well supported.
Financials are likely to be relatively flat after the S&P financial Financial sector posted modest declines.
In economic news, the trade balance is due at 11.30am.
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