ASX CLOSE: Australian market follows overseas declines

Wednesday 2nd September 2009

After seeing a bit of a bloodbath in US markets overnight, the Asian region was broadly lower, excluding China, as Japan's largest retailer, Seven & I Holdings cut its full year forecasts. Japan's Nikkei 225 closed down 2.4%, while the Hang Seng is still trading, down 1.6%. The Shanghai Composite continues to beat to its own drum, currently trading up 0.2%.

Locally, the ASX 200 finished down 1.7% at 4438.2, with the cyclical sectors doing most of the damage. The financials sector detracted the most index points. Given the banks outperformance over the last two sessions, they were playing catch-up on the downside today, compounded by short-term profit taking and very weak leads.

Markets across the region have predominately fallen on the back of the US lead. Nothing has really changed, data continues to be supportive as we saw with ISM Manufacturing numbers overnight. It was the first expansionary reading since January 2008.

However, everyone seems to have talked themselves into the fact that there's going to be a pull-back in September and October, and it's beginning to happen. It's self-fulfilling, a herd mentality.

In economic news, Australian Q2 GDP of 0.6% was certainly well above the revised 0.2% consensus and may well have had a 1% handle in front of it had it not been for the unusually large run down in business inventories and the much larger-than-expected current account deficit, both of which took some heat out of the number.

It also helped reflate the ailing AUD after it slipped to 0.8241 in the US session as investors eased their bets on imminent rate hikes by the RBA.

Looking across the market, it was a sea of red among cyclical sectors today with the energy (-2.7%), financials (-2.1%), materials (-2%), industrials (-1.9%) and consumer discretionary (-1.6%) sectors all down heavily.

Among the energy names, Paladin Energy (-6.2%), Oil Search (-3.5%), WorleyParsons (-3.3%) and Woodside Petroleum (-2.7%) were the biggest detractors. Overnight, Crude Oil traded to its lowest level in 2 weeks at $68.05 per barrel, down 2.7% since Australian market close yesterday. It's currently trading at $68.59 per barrel.

Looking at the financials, Bendigo Bank and Macquarie Group were two of the worst performers, down 3.8% and 3.3%, respectively. The big four banks were all in the red following two days of outperformance, down between 1.9% and 3.7%, with ANZ slipping the most.

Overnight leads for the sector were weak with the S&P Financials sector losing 5.2% as the likes of Bank of America, JPMorgan and Wells Fargo lost 6.4%, 4.1% and 4.8%.

Unsurprisingly, the materials space detracted with Bluescope Steel, Alumina, Fortescue Metals Group, Rio Tinto, BHP Billiton and Orica all down between 1.7% and 4%, with Bluescope Steel the worst performer. They were all lower following weaker overnight leads.

On the London Metals Exchange, Copper was down 4.5%, Nickel 5.7%, Zinc 2.7% and Aluminium 2.6%. Rio Tinto and BHP Billiton in London closed 3.4% and 2.6% lower. In US trade, the S&P Basic Materials sector lost 2.6% with Dow Chemicals, Freeport McMoRan and Alcoa losing 4.7%, 3.8% and 3.8%, respectively.

Leighton Holding, CSR, United Group and Toll Holding were the biggest fallers in the industrials sector, all down between 3.2% and 4.2%.

On the upside, the typically defensive sectors came to the fore. Health care (0.5%) and consumer staples (0.2%) all outperformed on a relative basis with CSL (1.3%) adding points in the healthcare space, as did Metcash (1.2%) and Foster's Group (1.3%) in the consumer staples sector.

Prices are in AUD unless otherwise stated.
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