ASX CLOSE: Volumes and interest levels low heading into Christmas

Monday 21st December 2009

Across Asia, regional indices are mixed despite news that Japan's exports fell at their slowest pace in 14 months as demand from Asia underpins the nation's recovery from its worst post-war recession. Buoyed by this news the Nikkei 225 is the region's best performer, higher by 0.6% while the Kospi is also in positive territory by 0.1%. Not fairing as well are the Shanghai Composite and the Hang Seng which are lower by 0.4% and 0.6% respectively.

The ASX 200 gave up convincing earlier gains (at one stage higher by 0.7%) to close the session down 0.1% at 4645.60, another sure sign that investors had "left the building" for 2009.

As expected, volumes and interest levels were low as we head into the Christmas/New Year period. Those around and still trading seemed happy enough earlier in the day to push the market a bit higher on the back of reasonable leads from the US session, but momentum waned in the afternoon and sellers took control.

Despite the strengthening USD theme continuing to gain traction, the materials sector closed higher today by 0.3% due to broad based strength across the base metals complex as investors continued to maintain faith in the global recovery story. BHP led the way, higher by 0.9% while its smaller rival Rio Tinto fell 0.7%. Broadly speaking, the miners, both the diversified and the pure plays, enjoyed decent sessions.

With the gold price rebounding from its recent correction to now be trading back at US$1113 (having dipped back below the US$1100 level on Friday), sector leaders Lihir Gold and Newcrest Mining closed higher by 1.9% and 1.8% respectively. Gold's recent volatility has seen these two stocks amongst the favourites of CFD traders.

The performance of the USD will again be paramount to how we trade this week. We've recently seen on the CFTC trader's report, currency future positions on the Euro as "net short" for the first time since March. Over the last two weeks we've had sessions where commodities have been hammered on USD strength and others where commodities have moved higher despite USD strength. The US session on Friday was one of the latter.

It's important to see that it's not a one-way downward trade for commodities when the dollar is rising as many market observers had feared it might be. We want to see evidence that there is more to the commodities trade (such as underlying demand fundamentals) than just an inverse relationship with the dollar. Establishing such belief will go a long way to determining how we might trade heading into next year where the USD is expected to continue its upwards trend.

It's one thing to believe global economies will continue to recover next year, but its how markets react to the rising interest rate expectations that accompany the recovery (and all that they entail) that will determine how equities trade next year.

Financials gave up earlier gains to finish the day lower by 0.4%. Performance of the Big-4 banks was mixed with CBA and ANZ lower by 1.3% and 1.8% respectively while Westpac closed weaker by 0.6%. NAB was the best performer ending higher by 0.1% having been sold down heavily over the past two sessions after announcing its plans to acquire AXA AP. The bank also revealed it lent $35bn to SME's in 2009 and had expanded its SME lending book by more than $5bn to more than $100bn in 2009, ahead of system growth.

Elsewhere, energy names gave up earlier gains to finish broadly lower, despite crude prices continuing to move back into the mid US$70's range. While Oil Search finished higher by 1.4%, Woodside, Santos and Caltex were all lower between 0.7% and 1.1%.

Retailers were generally weaker despite news of a bumper weekend of Christmas shopping. David Jones closed in positive territory by 1.5%, Myer was flat, while JB Hi-Fi and Harvey Norman were lower by 0.2% and 0.4% respectively. Woolworths and Wesfarmers both closed down by more than 1.5%.

In other news, Lend Lease was higher by 1.3% after announcing it had won a $6bn works contract to develop the Barangaroo precinct in Sydney's CBD, Qantas surged by 5.1% after saying it expects to return to profitability in 1H 2010 while Telstra lagged, down 4%, after downgrading its earning guidance on Friday.

Prices are in AUD unless otherwise stated.
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