ASX CLOSE: Market finishes the week 1.5% lower

Friday 4th December 2009

Across Asia, regional markets are mostly lower this afternoon, succumbing to the weaker leads from the US as well as fresh negative news on the Dubai situation. The Kospi is the best performer, up 0.2% while the Hang Seng and Shanghai Composite are down 1.4% and 1%. The Nikkei 225 is in the red to the tune of 0.2%.

In Australia, the ASX 200 finished 1.5% lower at 4702.20, off lows of 4687.60. It was dragged down by selling across the materials and consumer discretionary sectors as a combination of factors dragged on the market.

The weak leads from the US saw the market on the wrong foot early. Couple this with typical end-of-week selling and renewed concerns over the Dubai situation and you can easily see how we were down. Having rallied 4.4% coming into today's session, it was hardly surprising to see investors locking in profits ahead of the weekend.

Fresh reports out of London that Dubai World's creditors are set to reject the debt standstill could potentially trigger a ‘default' by Dubai World, which would really test market sentiment. This situation is eerily similar to last Thursday when the whole story broke, however we sense there is not the same level of uncertainty or fear of systemic collapse as there was this time last week.

The all important US Non-Farm payrolls out tonight will play a critical role in determining investor sentiment heading into next week. If we see a better-than-expected reading, it could really set the market up for a strong Santa Claus rally.

Turning our attention to the market, a stronger USD overnight and broadly weaker base metal prices saw the materials sector finish down 2.2%. Heavyweights BHP Billiton and Rio Tinto were both sold down heavily, finishing lower by 2.5% and 2.3% respectively, while numerous pure play miners across the nickel, zinc and iron ore sectors closed firmly in the red having been leaders in the markets march higher over the preceding four days. Gold miners Lihir Gold and Newcrest Mining were down 4% and 2.2% with gold retreating from near record highs, but still managing to hold US$1200.

Interestingly, in reports from BHP Billiton and the RBA, they warn that the Australian resources sector faces renewed skills shortages, potentially pushing up construction costs and causing delays as our biggest ever resources development, the Gorgon LNG project starts construction and others are approved. Workers at Woodside Petroleum this week go on strike at Pluto LNG project, unhappy about accommodation arrangements. Rapid resources development could face the same problems of just two years ago when labor, equipment shortages forced companies to revise up project costs and extend timelines. Just two short years ago there was a massive talent gap in the resources industry, BHP CEO Marius Kloppers said recently. I believe this gap will return along with demand.

Also, in a broker note from Credit Suisse it boosted BlueScope Steel's FY10 and FY12 net profit forecasts by 2% to $121 million and by 1% to $763 million, respectively, on the recovery in Asian steel market, which gave BlueScope confidence to restart its twice-deferred, partly-constructed Indonesian metallic coating and painting plant. The broker's FY11 earnings estimate cut less than 1% to $530 million from $532 million. It believes BlueScope offers leveraged exposure to a recovery in the global economy, with margins and volumes to increase as global steel demand and pricing recovers. FX, raw material cost pressure and the currently declining commodity steel prices present a challenging short-term outlook. It kept its ‘outperform' recommendation and $3.73 price target.

Despite yesterday's strong retail sales numbers, consumer discretionary stocks took their lead from weak retail sales numbers from bellwether US retail names and traded lower, with the sector finishing down 2.5%. Having outperformed the broader market over the last 3 months, names such as Harvey Norman, JB Hi-Fi and David Jones were all lower between 1.7% and 3.8%. Tabcorp Holdings and Aristocrat Leisure were the biggest fallers, declining 5.6% and 4.5%.

The financial sector also saw some end-of-week selling pressure, falling 1.3%. It was this sector that led the last hour sell-off in the US session and that weakness translated across the local market with all of the Big-4 banks weaker between 0.3% and 2.1%, with National Australia Bank the worst performer. Losses were not only restricted to the four majors with Suncorp, Axa Asia Pacific, Bendigo Bank and IAG all lower between 2.4% and 4.3%.

Prices are in AUD unless otherwise stated.
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