ASX CLOSE: Bulls lose a bit of steam; market closes lower

Thursday 12th November 2009

In Asia, regional markets turned in afternoon trade despite a solid US lead and an unexpected increase in Australian employment which boosted confidence among traders and investors.

After digesting China's impressive economic figures overnight, the market is becoming even more bullish on the world's biggest developing economy, realising the combination of surging EPS growth and near non-existent inflation is creating a perfect storm for further stock gains. The Shanghai Composite is the standout performer, currently up 0.5% while the Nikkei 225 is down the most, losing 0.8%. Both the Hang Seng and Kospi are weaker by 0.5%.

In Australia, the ASX 200 sold off late, finishing the session down 0.2% at 4747.9 after this morning trading as high as 4796.60. Following the stronger-than-expected employment data, the ASX had a tilt at the 4800 level but ran into too much selling pressure. The selling continued into the close, spurred on by some negative comments from Bluescope Steels trading update. The chairman confirmed the steel giant was heading for a small first half loss and that it is unlikely to pay an interim dividend.

After four straight days of gains, it's not surprising the bulls are losing a bit of steam. A one to three day pullback would be very healthy indeed.

Technically, the ASX 200 looks bearish in the short term with a ‘gravestone doji' forming at resistance of 4770, the 29 September high and also the downtrend line from 15 October high. This could also be the top of the right hand shoulder of a bearish head and shoulders pattern, although a break of the neckline at 4485 would be needed to confirm this. Today's price action shows a sharp rejection at key resistance.

In economic news, the Australian economy created a further 24,500 jobs in October, smashing forecasts for a fall of 10,000. This comes on top of strong jobs growth in September and follows warnings from the RBA that spare capacity in the economy is set to be used up quickly as growth accelerates in 2010. The unemployment rate was inline with expectations at 5.8%. In response, the AUD surged more than 50 points to a high of 0.9369.

That's two months in a row that the market has been horribly off base when it comes to the employment picture. The surprise creation of 24,000 plus jobs certainly helped the AUD break out of its current trading range and renewed a waning belief that the RBA would hike again in December.

While US markets have enjoyed a good last fortnight, there are several key levels which the market needs to definitively break through to see any more meaningful gains.

An initial jobless claims number (due out tonight) under 500k could be seen as a possible catalyst for the S&P 500 finally closing above the 1100 level, a threshold it has failed to hold on three previous attempts. The markets would also like to see the Euro hold 1.50 and oil sustain itself above $80, as a sure sign that the economic recovery witnessed to date has momentum behind it.

The energy sectors was one of the biggest drags, finishing the session weaker by 1.1% after oil pulled back overnight. WorleyParsons, Santos and Woodside Petroleum were the biggest detractors, all down between 1.5% and 2.4%, with Worley the worst performer.

The typically defensive consumer staples sector also detracted significant points, falling 0.6% with heavyweights Wesfarmers, Foster's Group and Woolworths falling 1.1%, 0.7% and 0.5% respectively.

Foster's Group was higher early after Deutsche Bank upgraded Foster's Group to ‘buy' from ‘hold' and boosted its target to $6.20 from $5.60. It said "we acknowledge the difficulties in the wine business but believe that these are distracting the market from the fundamental value of the group. There is significant upside potential if the group can deliver on its turnaround strategy. We believe that a significant transformation is taking place. The management team has been overhauled, the multi-beverage strategy unwound, accountability re-established and incentive structures revised. Foster's Group is also in the process of implementing new systems, reducing overhead costs and reviewing its route-to-market. All of this cannot be done without execution risk but we believe that the steps are necessary to achieve the cultural change required for a sustainable improvement".

In the financials sector, QBE Insurance Group was a biggest decliner, losing 1.3% while the big four banks all retreated, finishing between flat and 0.9% weaker, with Westpac Banking Corporation faring the worst.

Westfield Group (-0.5%) gave up early gains after hitting a two-week high this morning of $12.84 after announcing its sales numbers. Their occupancy rates were impressive vs peers, coming in at greater than 99.5% in Australia and greater than 92.1% in the US. Guidance that occupancy rates may stabilise in 2011 also helped. However, their retail sales numbers weren't brilliant with Australian growth down to 2.8% from 5.1% and US sales down 8.5%. Nonetheless, traders were encouraged to see they were still the strongest among peers. Following the numbers, Macquarie Group has retained it's ‘outperform' rating on the group, with a price target of $13.85. It said "the reconfirmation of earnings guidance, positive comments around the recommencement of developments and improving signs out of the US and UK are all positive for Westfield Group's outlook".

In the materials sector, Rio Tinto, BHP Billiton, Lihir Gold and Newcrest Mining fronted the pack, up between 0.7% and 1.8%, with Rio Tinto the top performer. Gold's move through the US$1020 level in Asian trade provided a boost to the big goldminers. Also, in an update from Fortescue Metals Group CEO Andrew Forrest, he gave a strong outlook for the iron ore market and said "the company is getting more enquiries than during the 2008 - 2009 boom times".

Prices are in AUD unless otherwise stated.
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