31/08/10 - 12:45
Ben Potter, Research Analyst
Market Update from the Trading Room – 12.45pm
Australia 200 CFD Index: 4431 (-0.5%)
| Top 3 Sectors | Bottom 3 Sectors | |||
|---|---|---|---|---|
| Healthcare | 0.4% | Energy | -0.9% | |
| Property Trusts | 0.0% | Materials | -0.9% | |
| Telecommunications | 0.0% | Financials | -0.5% |
AUD/USD – The AUD/USD is modestly stronger at midday, hitting a high of 0.8956 after better-than-expected Australian data was released. Retail sales rose 0.7% in July from June; economists had expected a 0.4% increase on average. The AUD/USD was also helped by an unexpected rise in building approvals from June to July of 2.3%; economists had on average expected a 1.0% fall. The current account deficit also narrowed more than expected in 2Q from 1Q, to $5.6 billion vs economists expectation of $6.5 billion. And, private sector credit continued heading north, rising 0.1% from June to July, leaving it up 2.8% on year.
Economy – In a note from Commonwealth Bank, it said Australian retail sales show few signs of waning consumer caution and building approvals hint at a strong turn for residential construction, which will fill the gap left by fiscal stimulus. The broker said it's certainly an encouraging set of numbers from that perspective, and for 2Q GDP it thinks the numbers point towards on-quarter growth of 1%, which is a pretty good result.
Strategy – In a broker report from Macquarie Group, it said in light of the recent Australian reporting season, it has added JB Hi-Fi, United Group and ANZ to its model portfolio, while cutting Westpac and James Hardie. The broker maintains its retail sector overweight as the sector was a standout, with positive results and improving prospects and notes that JB Hi-Fi continued to record outstanding operational gains. Macquarie also noted high quality results and mid-teens FY11 EPS growth prospects for contractors. Among banks, the broker said ANZ margins were resilient, while Westpac lagged, with a large exposure to the domestic housing market. Macquarie remains overweight on resources stocks, as the rate of decline in China's leading economic indicator slows. However, on the other hand the broker believes that the US housing market remains very tough and with less than two months before its seasonal slowdown, it's too late for James Hardie to see any real improvement until after March 2011. Macquarie also trimmed News Corp’s weighting as low US consumer confidence is impacting performance.
Wotif.com – In a comment from UBS, it cut Wotif.com’s rating to neutral from buy, and its price target to $4.40/share from $5.00, citing concern about the firms new marketing strategy. The broker believes that given the cyclically depressed domestic booking market, the risk is that a short-term increase in marketing expenditure won't drive a rebound in Wotif's total transaction value growth, as was the case in 2H08. As such, UBS expects this will translate into a weak 1H11 result, with a notable reduction in profitability and working capital benefits given a declining total transaction value environment.
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