10/03/10 - 15:30
Ben Potter, Research Analyst, IG Markets
Afternoon thoughts from the Trading Room – 3.30pm.
Across Asia, regional markets are mixed after a modest set of leads from Wall St and stronger-than-expected import data from China. The Hang Seng is the best performer, up 0.2% while the Nikkei, Shanghai Composite and Kospi are all weaker between 0.1% and 0.5%.
Locally, the ASX 200 is flat at 4817 having traded as high as 4837.6 and as low as 4804. Defensive sectors have come into play today as investors appear to be rotating out of the cyclical names that have pushed the market firmer in recent weeks.
Having been up for eight consecutive sessions, the market is beginning to trade as many suspected it might. It looks tired and a bit overstretched in the short term, so a breather and consolidation certainly looks likely. This coincides with US markets reaching the top of their trading ranges as well.
Whilst a consolidation period is expected over the next week or so, it appears the bulls are certainly in control of the market. A number of global indices have already broken out, so even the slightest sniff of a bullish catalyst could see the ASX propelled to new post-GFC highs. The question is, which sector will lead us higher?
Also, the breakout seen on the Dow Jones Transportation Index is a very bullish sign as it is typically a good indicator for Wall St.
Market Update from the Trading Room – 1.00pm
Australia 200 CFD Index: 4810.7 (-0.20%)
| Top 3 Sectors | Bottom 3 Sectors | |||
|---|---|---|---|---|
| Information Technology | 2.0% | Property Trusts | -1.6% | |
| Telecommunications | 1.8% | Consumer Staples | -0.7% | |
| Utilities | 0.8% | Materials | -0.6% |
| Advancers (Index Points) | Decliners (Index Points) | |||
|---|---|---|---|---|
| Commonwealth Bank of Australia | 3.9 | BHP Billiton | -6.0 | |
| Telstra | 2.9 | Wesfarmers | -2.5 | |
| Westpac Banking Corporation | 1.7 | Westfield Group | -1.7 |
Consumer sentiment – Australian consumer confidence rose a further 0.2% on-month in March. It was a pretty strong result given the backdrop of four recent rates rises from the RBA. In an accompanying note from Westpac, it said the rate levels have yet to reach a zone that would hamper confidence significantly. However, that could be about to change, with any further rate hikes likely to push mortgage rates beyond 7%, which has been a significant threshold for confidence in previous economic cycles.
Home loans – Australian housing finance figures were down sharply in January, surprising the market which had expected a gain. They slid 7.9% on-month versus forecasts of a 2% rise. The weaker data may be seen as a positive given policymakers have been warning about a major housing shortage. Also, it suggests the market is feeling a little pain from higher interest rates.
Rio Tinto – In a note from Royal Bank of Scotland, Rio Tinto’s target price was upped to $100.34 per share after the broker lifted its 2010 iron ore settlement price forecast, as well as coal. RBOS believes iron ore prices will settle up 60% on the year, up from their previous forecast of 20%. It expects thermal coal to settle at US$95 per ton, up from US$80 per ton.
Orica – In a report from Credit Suisse, the broker upped the explosive maker’s price target to $29.50 from $27.75. It notes leading market positions across core businesses, increasing barriers to entry, pricing power, an under leveraged balance sheet, significant internally controllable growth projects close to its core, and management performance. CS continued by saying earnings growth is set to carry on despite volatile market conditions post GFC, with Orica reiterating FY10 earnings are forecast to exceed FY09, and 1Q trading performance is robust.
Atlas Iron – Its takeover over Aurox Resources shows that infrastructure assets are at the top of Pilbara iron ore developers’ shopping lists. Atlas is less interested in Aurox’s Balla Balla magnetite project than its 10 – 12 million tons port capacity at Port Hedland. Projects without clear access to rail, road and port infrastructure have greatly diminished value. The deal is a boost to Atlas’ pipeline of projects and puts other junior iron ore developers with port capacity firmly in the spotlight.
Overnight Market Report - 9.00am
Overnight, US stocks advanced on the anniversary of the bear market bottom, although they did finish well off their intraday highs. Since the low last year, the Dow Jones Industrial Average has risen 61.2%, the S&P 500 68% and the NASDAQ 84%.
For the session, the NASDAQ was the top performer, adding 0.4% while the S&P 500 gained 0.2% and the Dow Jones Industrial Average 0.1%.
Most people had expected some profit taking given the recent strength. Markets are near the top of their trading range, so it’s only natural to expect a breather.
Locally, the ASX 200 is called to open 0.1% higher at 4825.
It’s not that clear where the support will come from today. Industrials were the best performers in the US, so we should see some strength in that sector. Financials also posted a modest gain of 0.2%, which might attract some buyers.
Crude Oil futures managed to rise 0.5% since 4.30pm yesterday, which might see some bids among local energy stocks.
On the downside, the materials sector is likely to come under pressure. It was the worst performer in the US session, despite modest gains for base metals on the London Metals Exchange. Rio Tinto and BHP Billiton were down 0.7% and 0.5% respectively in UK trade, while BHP Billiton’s ADR is calling the ASX-listed stock to open 0.6% weaker at $43.14. Gold was basically flat for the session.
There is a bit in the way of economic news due out today. At 10.30am, Westpac Consumer confidence is due and Home loan data will be released an hour later. At 4pm, the Chinese trade balance will show imports of raw materials, an important reading for resource stocks.
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