ASX CLOSE: Market closes down; Gold marches higher

Thursday 26th November 2009

In Asia, regional markets are all lower this afternoon as Japanese exporters moved lower on concerns over a rising yen and markets generally traded on light volumes ahead of tomorrow's Thanksgiving Day holiday. The Shanghai Composite is the biggest decliner, down 1.8% while Hang Seng is lower by 1.1%. In Japan, the Nikkei 225 is off 0.5% while the Kospi is down 0.2%.

In Australia, the ASX 200 was down 0.3% at 4708.60 after trading as high as 4751.3 earlier this morning. As we've seen numerous times in recent weeks, the Australian market was unable to hold onto early gains, with any forward momentum quickly met selling pressure. That said, with the ASX 200 so heavily weighted towards financial stocks, it's very hard for it to make headway while anchored down by a sector which investors are transitioning out of in large numbers.

Following the strong overnight leads from commodity prices and their counterparts in the US, material names were the outperformers for the session, though most of the major names were well of their session highs.

With gold touching fresh highs of US$1195 during Asian trading, gold miners were an obvious outperformer, as was Amcor and BHP Billiton.

With US markets on Thanksgiving break tomorrow and back for a shortened trading day on Friday, its likely that global equity markets will plod along for the rest of the week with little impetus to move higher.

In economic news, Australia's Q3 capital expenditure came in weaker-than-expected with business investment down 3.9% on quarter versus market forecasts for a fall of 0.2%. The result could potentially dampen expectations for Q3 GDP with the data a little surprising as business confidence has been strong and economic indicators have been broadly improving. Nomura Economist Stephen Roberts said "in the immediate term, I would have thought this adds to the case for the Reserve Bank to take a bit of time out with the rate hikes".

On the market, it was the financials sector which really dragged the overall index lower. It finished down 1.2% with insurance firms QBE Insurance Group and Suncorp - Metway leading the way, losing 3.3% and 2.6% respectively. AMP and Axa Asia Pacific didn't fare too well either, losing 2.6% and 1.7% while the big four banks all closed in the red by between 0.4% and 1.3%, with Westpac Banking Corporation the worst performer.

The property trusts sector was dragged south by Westfield Group, finishing 1.6% lower for the day.

The consumer staples sector detracted points as well, down 0.3% with Foster's Group and Wesfarmers losing 1.3% and 0.3%, respectively. Elsewhere, Woolworths was flat for the session following its AGM. Despite recent positive comments on the Australian retail environment from the likes of Gerry Harvey, Harvey Norman's founder and UBS, Woolworths's chose to stick with its original guidance provided in August. Chief Executive Michael Luscombe reiterates at annual meeting net profit forecast for 8% to 11% growth for fiscal 2010 and for sales growth in upper single digits, excluding petrol sales. Woolworths expects EBIT will continue to grow faster than sales in 2010. Luscombe warned rising interest rates could hurt retailer, but said 2010 fiscal year, which began July 1, has started "optimistically."

The materials sector paired further falls, adding 0.8% as the likes of Amcor rose 3.9% and the gold stocks continued their march higher. Newcrest Mining and Lihir Gold were up 2.8% and 0.6% as gold hit a high of US$1195 in Asian trade. BHP Billiton added 1.5%.

In broker news, Royal Bank of Scotland raised OneSteel's target to $3.25 from $3.15 to reflect potential benefit from extension of iron ore reserves. In a report from Royal Bank of Scotland, they cut FY10 net profit forecasts by 7% to $186.0 million and FY11 by 2.9% to $364.0 million on lower steel prices. In its report the broker stated OneSteel, with its leverage to iron ore demand and low fixed-cost base, looks well placed to manage near-term earnings uncertainty, yet a V-shaped domestic demand recovery seems unlikely. It believes ongoing strength in raw materials demand will support near-term earnings and sentiment, but domestic steel markets remain difficult. Nonresidential and commercial steel demand continues to slump and the rise in the currency is set to place pressure on domestic prices in 2H, as OneSteel fights to maintain market share versus imports. They retained their ‘hold' recommendation.

Elsewhere, in a report released by UBS, they said recent AGM commentary suggests the ad market's improving for Aussie media companies although there is some caution heading into the holiday season. Fairfax Media, APN News & Media and Seek offer the greatest potential for positive earnings surprises. It sees greatest value in Fairfax Media and APN News & Media as well as Austar, rating all three a ‘buy'. It retains its ‘sell' on West Australian News and a ‘neutral' on Ten Network Holdings, noting those stocks look expensive. In the report the broker noted that while Fairfax Media and APN News & Media remain structurally challenged, consensus upgrades should help unlock value. It notes earnings remain cyclically leveraged to an improving economy.

In stock specific news, Virgin Blue upgraded its outlook for FY10 on signs of further stabilisation in domestic demand for air travel, and now expects to be profitable, albeit with unquantified earnings in the year to June 30, up from earlier guidance to break-even.

Prices are in AUD unless otherwise stated.
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