ASX CLOSE: Markets rolling in neutral towards the Christmas break

Thursday 10th December 2009

Across Asia, all regional markets are lower today on continued concerns about the robustness of the global economic recovery. Headline stories out of Asia include Japanese core machinery orders falling 4.5%, Australia's unemployment rate unexpectedly falling to 5.7% and the Bank of Korea holding rates steady at 2%. The Nikkei 225 is pacing Asian declines, down 1.6% while the Kospi and Hang Seng are down 1.2% and 0.8% respectively. The Shanghai Composite is seeing more moderate losses to be lower by 0.1%.

In Australia, the ASX 200 finished lower by 0.7% at 4606.7 having traded as low as 4596.60, but after having been in positive territory shortly after the release of the surprisingly good employment data. Losses were again paced by the materials and energy sectors.

The local market did receive a bit of a spark at 11.30 AEST with the release of the monthly employment picture which showed that 31,200 jobs were created in November (consensus +5,000) and the unemployment rate fell to 5.7% from 5.8%, where consensus had been for it to rise to 5.9%. The AUD responded by jumping 50bp on the announcement to 0.9160.

Once again we've seen the markets' ineptness at reading the employment situation, having now been badly off beat for three consecutive months going into the number. Given some strong leading indicators such as the ANZ jobs ads survey, there was always a strong chance today's numbers would surprise on the upside. While on face value the unemployment rate falling to 5.7% is a good thing, it undoubtedly gives the RBA more justification to continue hiking rates from early next year.

The Australian market is playing a bit like a broken record at the moment and therefore so is our commentary - but it's true, the market just cannot hold onto gains and seems to lack both the energy and inspiration to push higher.

Once again we saw another day of lethargic trading confirming our view that the market is out of gas and "rolling in neutral" towards the Christmas break.

The materials sector, which was thought as offering the impetus for a Santa Clause rally, seems to have become road blocked by speculation (warranted or otherwise) that rates may be on the move in the US by mid year, which has headed off any advances in commodity prices. As a result, we see a situation playing out whereby our market is absent of any real sector leadership for the next month or so with traders and investors focussing on stock specific new stories.

As strange as it may seem to say, we can really blame this week's sluggish trading on the better-than-expected November non farms payroll report from last week. Had that number been in line with expectations (-125k jobs) we probably wouldn't be speculating about rate rises in the US by mid next year and commodities prices and material stocks would still be on their merry way higher.

Performance across the market today was again bearish and very uninspiring with investors seemingly having one eye on the Christmas break, now only a fortnight away.

Materials were once again under selling pressure falling 1.2% with heavyweights BHP Billiton and Rio Tinto weaker by 1.5% and 1.6% respectively despite mixed metals prices overnight. With the USD pausing for breath overnight, after several days of strength, we could have expected to see a better performance from our bellwether miners.

Elsewhere in the sector, gold miners again bore the brunt of investor selling with the gold price continuing its retreat from the US$1200 level we saw last week. With spot gold now at US$1128, Newcrest Mining and Lihir Gold closed lower by 0.9% and 2.7% respectively.

As you'd expect, energy names were again under pressure with the price of crude falling a further $2.17 or 2.97% overnight to settle under US$71/b. Amongst the major names, Woodside, Santos, Oil Search and Caltex all traded weaker between 0.2% and 4.8% with Santos the weakest after the company lowered its output guidance and said it would double its capital expenditure outlays in 2010.

The financial sector, after seeing solid earlier gains also finished lower by 0.5%. Of the Big-4 banks, Westpac and National Australia Bank were higher by 0.8% and 0.1% while ANZ and Commonwealth Bank finished lower by 0.1% and 0.7% respectively. While the sector finished down today, it should in the medium term clearly benefit from the better-than expected employment picture with the obvious implication being that higher employment levels translate into greater lending capacity.

While it was generally a quiet day for company news, we have seen a number of brokers initiate coverage on Myer having now ended a six week blackout period following the company's IPO in early November. Most brokers have initiated coverage with a "buy" recommendation with comments suggesting that if the company can meet its growth objectives it will likely see PE re-ratings in line with it peer group. Citigroup has a price target of $4.35, GSJBW $4.99 and Credit Suisse $5.10. Shares closed trading higher by 1.3% at $3.80.

Elsewhere, Metcash today announced it has agreed to take a 50.1% stake in privately held hardware chain Mitre 10 Group for $55 million, with the right to buy the remaining 49.9% of the stock in Mitre 10 Group after the finalisation of its accounts in either fiscal 2012 or 2013, based on an agreed multiple of earnings. Metcash shares ended lower by 0.9% at $4.36.

Prices are in AUD unless otherwise stated.
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