ASX CLOSE: Market finishes in positive territory; gold miners rise

Wednesday 4th November 2009

Across Asia, equity markets are trading in positive territory for the first time in three days on the back of strength in mining and banking stocks after gold rallied to a new record overnight and Korea Exchange Bank reported a better-than-expected profit. The Hang Seng and Kospi are the strongest markets, up 1.6% and 1.5% while the Shanghai Composite and Nikkei 225 are higher by 0.9% and 0.1%.

In Australia, the ASX 200 finished 0.2% higher at 4540.1 after trading as high as 4559.5 this morning. The consumer discretionary and materials sectors were the best performers with the gold miners doing very well and retailers shrugging off the weak retail sales numbers.

In economic news, Australian retail sales fell 0.4% in Q3 vs Q2 as the impact of the government's fiscal stimulus packages faded rapidly. Economists had expected a drop of 0.3% for the quarter. September retail sales fell 0.2% vs August, with analysts forecasting a rise of 0.4%. The data certainly suggests that the consumer is continuing to struggle ahead of the crucial Christmas shopping period. In response to this data, the AUDUSD is trading lower, with the market now looking at the prospect of the RBA being on hold in December and January.

Leads from the US were very mixed overnight and resulted in flat leads for the ASX 200. Trade was very subdued with indecision ripe and traders preferring to sit on the fence ahead of the FOMC rate decision tonight and non-farm payrolls due Friday night.

Tonight's decision and accompanying statement has massive ramifications for global markets, particularly currency markets and the continuation of the US dollar funded carry trade and the appetite for riskier assets.

The slightest deviation from the Fed's previous dovish tone could spur a further rally in the US dollar, heaping more short-term pressure on riskier asset classes including equities and commodities. However, longer term, there's nothing to say that the historical correlation of a ‘stronger US dollar / stronger equity markets' can't be re-established.

Let's also remember that currency responses to fiscal policy are all relative. Should the Fed begin tightening earlier than expected, it's also likely we'll see similar policy responses from other OECD countries, possibly at a more aggressive pace than in the US.

Turning our attention to the Australian market and it was fairly mixed across the sectors today. On the upside, the materials and consumer discretionary sectors were the best performers, rising 0.8% and 0.7%.

In the materials space, the gold miners were the standout performers with Lihir Gold and Newcrest Mining rising 4.4% and 3.2% after gold traded to a new record high of US$1087.80 overnight after the Indian Central Bank said it had bought $6.7 billion worth of gold bullion recently. Elsewhere, Bluescope Steel (2.1%), Rio Tinto (1%) and BHP Billiton (0.5%) were all well supported.

In the consumer discretionary space, West Australia News was the standout performer, finishing 6.5% higher after Credit Suisse, Deutsche Bank and Morgan Stanley all raised their price targets for the stock after yesterday's better-than-expected result and positive outlook. Elsewhere, Fairfax Media had a strong day, up 3.2% while the retailers performed well in the face of weaker retail sales. Harvey Norman and David Jones were 2.6% and 2.4% higher.

Credit Suisse upgraded Harvey Norman to ‘outperform' from ‘underperform' and kept its target price of $4.68 following the recent share price weakness. It said "while Harvey Norman is a mature business in Australia and therefore does not possess strong trend growth, it is a good cyclical play on increasing consumer discretionary spending".

Elsewhere, the financial sector also chimed in with gains, rising 0.2%. Macquarie Group and Westpac Banking Corporation fronted the sector, rising 2.2% and 1.4%. ANZ and Commonwealth Bank of Australia were both higher too, up 0.7% and 0.2% respectively while National Australia Bank finished in the red, down 0.9%. Most of the attention was on Westpac Banking Corporation today after it reported its full year earnings this morning.

Its shares were well supported today after the bank reported a FY proforma cash profit of $4.627 billion and announced a slightly higher-than-expected dividend. Credit Suisse said "we see this result as being reasonably well received, given a result slightly ahead of expectations, dividend per share well ahead of expectations, and trends in asset quality/bad debt charges reasonable". Elsewhere, Citigroup said "overall, this was another solid result from Westpac Banking Corporation. It notes that the group's Tier 1 position at 8.1% is lower than peers but the bank has no need to raise capital given the underlying level of profitability".

In other interesting banking news, PriceWaterhouseCoopers banking leader Mike Codling believes Australian banks are well positioned to improve earnings if bad debt charges return to more normal levels. He said "my sense is that the banks have turned a corner towards positive earnings growth after two years in a row of reduced earnings. In my view, net interest margins will continue to increase and I believe we may have passed the peak in credit losses. The banks have navigated the most challenging market conditions in over 60 years with considerable success".

On the downside, the information technology and consumer staples sectors were the biggest decliners, falling 2.3% and 1.4%.

Prices are in AUD unless otherwise stated.
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