ASX CLOSE: Market weaker at quarter end

Wednesday 30th September 2009

Across Asia, markets were mixed this Wednesday after a weaker-than-expected consumer confidence reading in the US dented enthusiasm. The Kospi and Nikkei 225 finished 1% lower and 0.3% higher respectively. Both the Hang Seng and Shanghai Composite are still trading, down 0.7% and up 1.1%.

In Australia, the ASX 200 was down 0.2% at 4743.6 as falls in the heavily weighted materials and industrial sectors were offset by buying in energy and consumer discretionary stocks. There was an expectation among traders that we might have seen some buying in the final two hours of trade as domestic funds scrambled to get cash invested before the end of Q3, however this wasn't the case.

The market reeks of indecision. Traders and investors alike were maybe becoming both too accustomed and too expectant of entirely positive news. One must realise that in the early stages of an economic recovery, it's quite normal to see volatile and choppy economic data. It's not all one way traffic, as we're beginning to discover.

Today's stronger-than-expected retail sales numbers seem to have solidified the market's call for a November and/or December rate hike. It seems to have quickly forgotten the two previous months where we saw a contraction in retail spending.

We cannot fathom why the RBA needs to raise rates before next year. Glenn Stevens did say that the RBA would look to pre-empt any imbalances or excesses in the economy, with no signs yet evident of such occurrences. With underlying inflation levels relatively dormant, where is the requirement to raise rates in the near term?

Personal balance sheets are still under repair and unemployment levels are still probably short of their peak. We see no compelling need for a rate rise before Christmas particularly when the rest of the world is saying it's too early to normalise rates. With the all important festive shopping season nearly upon us does Glenn Stevens really want to be the "Grinch that stole Christmas".

Looking across the sectors, the industrials, materials and financials detracted the most points today.

Among industrials, Brambles (-2.9%), Leighton Holding (-2%), Macquarie Infrastructure Group (-1.7%) and CSR (-0.5%) all dragged. On the upside, Macquarie Airports rose 0.4% as its shareholders voted on the plan to internalise management after the Supreme Court of New South Wales last night turned down an application from Global Airports for an injunction to delay the vote. With Global Airports now abandoning their rival offer, it's expected the internalisation proposal will be passed.

The materials sector was weak across the board today despite stronger base metal prices in London. Nickel and Aluminium rose 1.2% and 1% while Copper and Zinc were up 0.7% and 0.8%. Locally, Fortescue Metals Group, Orica, Alumina, Bluescope Steel, Rio Tinto and BHP Billiton were all down between 0.7% and 2.1%, with Fortescue Metals Group the biggest decliner.

Fortescue Metals Group this morning reported that its deadline for a US$6 billion funding package from Chinese financiers had been missed. The package had been a condition of Fortescue's agreement with the China Iron Ore & steel Association (CISA) to sell iron ore to China at a discount. Despite the miss, the miner continues to keep working with CISA and could continue to provide attractive pricing if requested.

For the first time in a while, the big four banks all finished the session lower by between 0.7% and 1.5%, with National Australia Bank the worst performer. Offsetting the falls were the likes of Axa Asia Pacific (2.8%) and Bendigo Bank (2.3%), the two top performers.

On the upside, the consumer discretionary sector topped the leaderboard, rising 1.7% as West Australia News, Billabong International, Tattersalls and Aristocrat Leisure all rose between 2.7% and 4.1%, with West Australian News fronting the pack.

Elsewhere, in broker news Merrill Lynch started coverage of Bradken at ‘buy' with a target price of $8.50. In a client note it said "Bradken is one of the higher quality exposures to the mining services space. We anticipate that mining volumes, particularly in iron ore and coal, are likely to be relatively flat in CY09 before renewed capital expenditure leads to increasing mining volumes".

Also, Citigroup downgraded Foster's Group to a ‘sell' from ‘hold' with a target of $5.35 from $5.60. It said "we liken Foster's to a slow moving ship in rough seas. We like the new captain and the crew. However, it will take some time to rework the engine and steer a new path for the ship".

Prices are in AUD unless otherwise stated.
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