09/03/10 - 15:30
Ben Potter, Research Analyst, IG Markets
Afternoon thoughts from the Trading Room – 3.30pm.
In Asia, regional markets are mixed following a very quiet night of leads. The Shanghai Composite and Hang Seng are the best performers, up 0.4% and 0.2% respectively. The Nikkei and Kospi are both weaker by 0.1%.
Locally, the Australia 200 CFD Index is 0.3% stronger, with many sectors consolidating gains of recent weeks. However, the materials sector, which has been the recent outperformer, is weighing, down 0.5%.
Financials are adding the bulk of the points with insurance stocks shrugging off concerns over hefty storm damage claims.
Following a very lacklustre overnight session, with Wall St finishing virtually unchanged on the lightest volumes of the year, it is not surprising to see the local market get off to a sluggish start. Add to the fact that the ASX has enjoyed seven straight sessions of gains, it isn’t unreasonable to see the market pause for breath.
Having traded to a morning low of 4791, the market got a shot of momentum following the release of the ANZ jobs ads and NAB business confidence data. The 19.1% jump in monthly job ads, the biggest in more than a decade certainly confirms the underlying strength in the labour market and strengthens the case for further gradual rate hikes over the year.
If that wasn’t enough, gains in business conditions and confidence suggest a pickup in future business investment maybe imminent, easing the RBA’s concerns that this sector was lagging the rest of the economy.
Market Update from the Trading Room – 1.00pm
Australia 200 CFD Index: 4809.3 (0%)
| Top 3 Sectors | Bottom 3 Sectors | |||
|---|---|---|---|---|
| Healthcare | 1.0% | Materials | -0.6% | |
| Industrials | 0.4% | Property Trusts | -0.3% | |
| Consumer Discretionary | 0.4% | Telecommunications | 0.2% |
| Advancers (Index Points) | Decliners (Index Points) | |||
|---|---|---|---|---|
| National Australia Bank | 3.4 | BHP Billiton | -3.5 | |
| CSL | 1.4 | Rio Tinto | -1.4 | |
| QBE Insurance Group | 1.4 | Macquarie Group | -1.1 |
Economic news – The Australian job market continues to surprise, with February job ads surging 19.1% on-month, according to the ANZ survey. Jobs ads are now just 2.3% below where they were a year-ago. In a comment from ANZ, it said part-time employment is now a record 30.2% of the workforce, meaning there is a lot of spare capacity to be absorbed as the economy recovers. Nevertheless, the downward trend for unemployment is clear and ANZ expects another 30,000 new jobs to have been created in February. Elsewhere, Australian business owners are as confident as they've been in months, suggesting the recent RBA rate hikes haven’t dampened spending or growth too much in 2010. NAB's business confidence index rose four points to +19 from January, while business conditions increased five points to +8. In a statement from National Australia Bank, they said the February survey results suggest that growth momentum in early 2010 is still substantial, albeit somewhat below the very strong demand conditions of late 2009.
Arrow Energy – In a broker note from Royal Bank of Scotland, the stock was downgraded to ‘hold’ from ‘buy’ after yesterday’s takeover offer from Shell and PetroChina. They offered $4.45 per share as well as a share in the international business in return for Arrow’s Australian operations. The broker said Arrow's stock has been under pressure recently due to funding concerns, and with the group struggling to raise $2.2 billion for its Fisherman's Landing LNG project, this offer presents a good exit strategy. It does not see another bid forthcoming, so in the absence of an improved, firm offer from Shell, sets its target price at $5.00 a share with a ‘hold’ recommendation. Elsewhere in a comment from JPMorgan, it said it's hard to see another company coming up with a value proposition that would trump the existing bid given Shell appears to have a "ready made" LNG agreement with PetroChina, as well as the site on Curtis Island. JPMorgan believes Shell's timing is opportune as the alternative for Arrow is to pursue the Fisherman's Landing project independently and to do that, Arrow could be facing a rights issue of up to $1 billion as well as having to tie together the sales contracts.
Iron ore - In a commodities report from Royal Bank of Scotland, forecasts and ratings for iron ore stocks were boosted after the broker upgraded its iron ore forecast to a 60% hike from 20% previously. BHP Billiton’s earnings forecast was upped by 7% for FY10 and 19% for FY11, with its target price lifted to $57.10 from $51.59 and its buy rating maintained. The broker said it continues to believe BHP is one of the best-placed miners to take advantage of the global economic recovery and the subsequent increase in commodity demand. Fortescue Metals forecast earnings were upped by 19% for FY10, 91% for FY11 and 61% for FY12. The stock was upgraded to buy from hold with its target raised to $6.41 from $5.08. RBS believes stronger cash generation boosts the likelihood of Fortescue delivering its production targets from the Chichester Ranges. It continued by saying that in its view, a buoyant iron ore market should also enable FMG to progress the development of Solomon with greater confidence and improve its ability to self finance part and borrow for the balance.
Overnight Market Report - 9.00am
In the US overnight, stocks fluctuated either side of the flat line on low volumes as the S&P 500 index struggled to maintain a seven day winning streak. Financial shares were helped higher by news that AIG had sold one of its units for $15.5 billion.
The NASDAQ was the best performer, up 0.3% while the broad-based S&P 500 finished flat and the Dow Jones Industrial Average was weaker by 0.1%.
Participants are concerned the market is a little overextended in the short term. There aren’t a lot of people willing to make big bets either way at the moment. With tonight marking the one-year anniversary of the bull market, it will be interesting to see how traders react.
Locally, we’re calling the Australia 200 CFD Index to open 0.2% softer at 4799 after a set of very uninspiring leads from the US. Volumes were actually the lowest seen in 2010.
The financial sector was the best performer overnight, rising 0.3% after AIG sold one of its units to MetLife for $15.5 billion. Given the lead, we would expect to see local financials moderately supported.
Elsewhere, the materials sector looks relatively flat on the open after the S&P Materials space closed 0.1% higher. Weaker base metal prices on the London Metals Exchange were partially offset by modest gains of 0.5% and 1.2% for Rio Tinto and BHP Billiton respectively in London. BHP Billiton’s ADR is calling the Australian miner to open 0.2% firmer this Tuesday.
A 1.2% fall in gold futures could put some pressure on the likes of Lihir Gold and Newcrest Mining.
A rise of 1% in Crude Oil futures overnight should see the energy sector reasonably well supported, while yesterday’s takeover offer for Arrow Energy should continue to excite coal seam gas players.
In economic news, the ANZ job advertisements and National Australia Bank business confidence survey are both due for release at 11.30am.
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.