05/03/10 - 15:30
Ben Potter, Research Analyst, IG Markets
Afternoon thoughts from the Trading Room – 3.30pm
In Asia, equity markets are all higher this afternoon after US jobless claims dropped, Greek sovereign debt concerns eased, and speculation grew that the Bank of Japan will take further action to ease credit. The Nikkei is the top performer, up 1.9% while the Hang Seng, Kospi and Shanghai Composite are stronger between 0.1% and 0.8%.
Locally, the ASX 200 is 0.3% firmer at 4765, slightly off session highs of 4780.4. It’s very positive to see broad-based gains, especially ahead of such a crucial economic release tonight.
Whilst the defensive natured healthcare sector is the best percentage gainer, the bulk of the points are coming from the industrials, materials and energy spaces.
Given it’s a Friday and ahead of non-farm payrolls in the US, it’s not surprising to see a little bit of investor caution heading into the afternoon. While tonight’s release is normally a highly anticipated event, it is expected to be significantly distorted by recent snow storms on the US East coast.
A weak number is likely to be shrugged off by the market, while anything close to jobs creation could signal a wave of fresh optimism.
On a technical basis, a number of analysts are talking about the inverted head and shoulders reversal pattern on the S&P 500 index. This looks positive indeed and points towards further upside momentum in coming weeks.
Market Update from the Trading Room – 1.00pm
Australia 200 CFD Index: 4772.9 (0.5%)
| Top 3 Sectors | Bottom 3 Sectors | |||
|---|---|---|---|---|
| Healthcare | 1.5% | Consumer Staples | -0.3% | |
| Consumer Discretionary | 1.2% | Property Trusts | 0.1% | |
| Information Technology | 1.0% | Utilities | 0.2% |
| Advancers (Index Points) | Decliners (Index Points) | |||
|---|---|---|---|---|
| BHP Billiton | 4.4 | Wesfarmers | -1.9 | |
| ANZ | 2.9 | Westpac Banking Corporation | -1.4 | |
| QBE Insurance Group | 2.2 | National Australia Bank | -0.8 |
ANZ – In a note from JPMorgan, it sees ANZ’s approval for a foreign bank license in India as a "meaningful step". The broker said while the license still requires a further step in the approval process for branch location, it is a positive for ANZ. It went on to note that India represents one of the five key countries ANZ is pursuing as part of its target to source 20% of earnings from Asia by 2012. JPMorgan also said following the acquisition of the RBS Asia assets, it did not see a presence in India as a crucial piece to achieve ANZ's overall earnings targets for the region.
Lihir Gold – Australia’s second largest gold miner has announced this morning the sale of its failed Ballarat operation to Castlemaine Goldfields, ending a disappointing chapter for the company. Castlemaine will pay Lihir Gold $4.5 million in cash, plus a 2.5% royalty on future production, capped at $50 million. It’s a long way shy of the $350 million Lihir paid in 2007. Any royalty payments are likely to be some time away as Castlemaine will quit mining operations at Ballarat and treat it as an exploration project.
QBE Insurance Group – Australia’s biggest insurer was upgraded to ‘buy’ from ‘hold’ in a comment from Royal Bank of Scotland. RBOS believes the 13% fall in the company’s share price versus a market fall of 3% since its FY09 result is overdone. The broker said the valuation appeal is just too strong, even though QBE are facing various headwinds in FY10, including a strong AUD, a weak US property and casualty insurance market, and low international bond yields (for now).
National Australia Bank – In a report from Royal Bank of Scotland, it believes conditions are ripe for NAB to expand its UK operations. The broker notes that NAB has been linked to the sale of RBS’ UK retail assets and believes it should be EPS accretive for the bank. It estimates the total value of RBS' UK retail branches to be around GBP2 billion, with a likely medium-term rebound in GBP/AUD rate only making a deal even more tempting.
EUR/USD – Near-term direction in the Euro is likely to be driven by how forex traders react to tonight’s US nonfarm payrolls data. In a report from Bank of NZ, it said expectations are for a decline of 63,000 jobs. So a larger fall, which seems to be the risk given the recent bad weather, is likely to see the US dollar come under pressure. The broker also suggested that recent signs of a fragile European recovery are expected to limit upside gains in the short term.
Overnight Market Report - 9.00am
In equity market action overnight, both European and US stocks rose after American jobless claims fell from a three-month high, and worker productivity levels came in above market expectations. Also, a number of broker upgrades to the likes of Walt Disney, Coca Cola and Boeing helped US indices rally into the close.
The technology heavy NASDAQ and Dow Jones Industrial Average were the best performers, both up 0.5%, while the S&P 500 rose 0.4%.
The US productivity numbers, combined with the inline reading on jobless claims, gave sentiment a much needed boost. On top of that, concerns over Greece are continuing to ease after they announced further austerity measures and their latest bond auction was very well bid.
Locally, the Australia 200 CFD Index is called to open 0.4% higher at 4768 after a solid set of overnight leads.
The financial sector was the best performer in US trade, rising 1% so we should see our local financials well bid.
Elsewhere, the S&P Consumer Discretionary sector added 0.9%, which should see local stocks well supported.
The S&P Basic Materials sector also added points, rising 0.7%, despite base metals being broadly weaker on the London Metals Exchange. In London trade, both Rio Tinto and BHP Billiton were down 1.1%. However, BHP Billiton’s ADR is pointing towards a gain of 0.4% at the open.
In summary, we should see a relatively positive start to today’s trade. However, there’s a strong chance of profit taking, especially ahead of tonight’s non-farm payrolls and the long weekend in Melbourne.
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