30/07/10 - 12:30
Ben Potter, Research Analyst
Market Update from the Trading Room - 12.30pm
The Australian market is currently lower, following weak leads from Wall Street and Asian markets. At midday the ASX 200 is down 0.6% at 4499, with traders positioning themselves in defensive stocks.
The positive employment and sentiment numbers from Germany have been offset by Fed official, Jamie Bullard, raising the question of deflation in the US economy.
Domestic traders are selling out of risk positions after the S&P provided us with a weak lead and the Nikkei has opened up 1.5% lower on the back of poor unemployment and industrial numbers.
The Australian dollar is reacting to the negative sentiment and has pulled back below 90c after spending most of the US session above this level.
The bulk of the points are being detracted by the financials sector, down 0.8%, with all four big banks are lower between 0.5% and 1.0%. Macquarie is seeing the heaviest selling, weaker by 3.8%.
The Group said earnings from Macquarie Securities, Macquarie Capital, the fixed income, currencies and commodities divisions fell in the first quarter from a year ago and unless markets improve could continue to underperform. There were bright spots, such as its Funds and Banking divisions, but on the whole traders felt disappointed and sold out. Some analysts do feel it offers value on 8.5 x 2011 price earnings and is a compelling price to book, with Credit Suisse retaining its outperform rating.
In the materials space, losses are broad based with heavyweights BHP and RIO Tinto down marginally on the day. Whilst we saw copper prices overnight hitting a 12 month high due to a weaker US$, the sector is again living up to its name as a proxy of risk. Explosive maker Orica seems to be bucking the trend, up 1.0% on the day.
The big news today in this space is the surprise proposal from AWB to merge with Graincorp. Certainly AWB reacted positively trading up 1.5%, whilst Graincorp lost ground. The transaction, which still has to get ACCC approval, will be EPS accretive for both companies and offers synergies of $40m a year.
The energy sector is also seeing selling despite a stronger crude price overnight. All names seem to be lower, however Woodside Petroleum is the star performer gaining of 0.1%. Caltex is currently down 2% after being downgraded to Neutral from outperform by Credit Suisse on grounds it had a 12% rally in the past month and does not see any short-term catalysts
Energy resources of Australia provided the market with poor first-half earnings, down 82%, and even though analysts were expecting a weak result, it still disappointed.
With investors taking positions in Telco’s and Healthcare stocks it seems there is an air of caution sweeping through the market ahead of tonight’s US GDP print and Sundays’ Chinese PMI numbers.
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