ASX CLOSE: Weak lead from US drags market lower

Thursday 24th September 2009

Across Asia, markets were mostly lower this Thursday as weaker US leads weighed. In Japan, its first day back after a three-day holiday, the Nikkei 225 bucked the trend, finishing up 1.7% as analyst upgrades in the technology and retailing sectors boosted stocks. Also, the Asian Development Bank's upgrade to economic growth forecasts for developing Asia helped Japan as it conducts a lot of business with its Asian neighbours, with any upgrade to their growth prospects supportive.

Elsewhere, the Kospi finished 1% lower while the Hang Seng and Shanghai Composite are still trading, down 2.8% and up 0.2% respectively.

In Australia, the ASX 200 closed at 4701.2, down 0.7% for the session as the weak US leads dragged the materials, energy and industrial sectors south.

Given our strong gains yesterday, a close above the 4700 level is seen as quite bullish. Last night's late sell off in US markets smacks of uncertainty and perhaps a bit of ‘buy the rumour, sell the fact'.

The sell off looks overdone as the statement from the Federal Reserve Open Market Committee (FOMC) was exactly what America had been calling for, with very little in the way of surprises. It offered the most upbeat and favourable economic outlook since the depths of the crisis saw Lehman Brother's collapse a year ago.

And most importantly, it offered the American people reassurances that the Federal Reserve is going to be very cautious in removing economic stimuli so as to guarantee the recovery continues.

In its latest six-monthly review of the financial system, the Reserve Bank of Australia has reiterated the strength of Australia's banks, particularly when compared against global peers. Financial conditions globally remain challenging with many loan losses yet to fully filter through the system, although conditions have certainly improved. The exit of financial stimulus needs to be carefully managed on a global scale.

In the materials space, base metal leads from the London Metals Exchange hung over the market with Aluminium losing 1%, Zinc 0.3% and Copper 0.8%. Fortescue Metals Group (-2.9%), Lihir Gold (-2.3%), Newcrest Mining (-2.2%), BHP Billiton (-1.6%) and Rio Tinto (-1.3%) were the major detractors.

On the upside, Amcor was the standout performer, up 3.1% after Merrill Lynch upgraded them to ‘buy' from ‘neutral' and raised its price target to $6.20 from $5.30. Analysts pointed to a number of factors, including the ‘company changing' purchase of the Alcan assets, its improved balance sheet and valuation support.

The energy sector was dragged lower today after Crude Oil futures fell the most in five weeks overnight, down nearly 4% to $69 per barrel as gasoline demand tumbled to the lowest level in nearly 8 months and Crude Oil inventories rose by nearly 2.8 million barrels versus an expected fall of 1.4 million barrels.

Consequently, the likes of Woodside Petroleum (-2.6%), WorleyParsons (-1.4%) and Paladin Energy (-1.3%) all suffered.

The consumer discretionary sector was also a major decliner, giving up 1%. David Jones was the biggest faller, down 3.9% while News Corporation (-2.4%), Billabong International (-1.2%) and Tabcorp Holdings (-1.1%) all declined.

David Jones this morning reported a full year profit of $156.5 million, slightly ahead of analyst's forecasts with Credit Suisse and Citigroup forecasting $151 million and $153 million. The group reaffirmed its guidance and says it is poised for growth in the coming upturn. CEO Mark McInnes said "its sales in the first 8 weeks of FY10 are better-than-expected and that the company is well positioned for growth and cautiously optimistic".

Also, Tabcorp Holdings was upgraded by Merrill Lynch to ‘buy' from ‘neutral', with their price target upped to $7.80 from $6.70. It believes risks surrounding the potential loss of Victorian wagering licence are overstated and that Tabcorp Holdings looks cheap even after excluding Victorian gaming, with price to earnings multiple of around 12.2 times, a 40% discount to peer Tattersalls.

Elsewhere in the sector, Ten Network (halted) confirmed that CanWest sold its 50.1% stake in the group for $680 million or $1.30 per share.

Prices are in AUD unless otherwise stated.
IG Markets Ltd, Australian Financial Service Licence No. 220440. ABN 84 099 019 851.
This information is provided for information purposes and should not be regarded as financial product advice. This information does not take into account your specific objectives, financial situation or needs. Therefore you should consider the information in light of your specific objectives, situation or needs before making any trading or investment decision. IG Markets recommends you take independent financial advice before any decision whether to trade with IG Markets in the products we offer.

Comments from our readers

No comments yet