ASX CLOSE: Market holds its ground

Friday 19th March 2010

In Asia, regional markets are mixed this Friday after the positive leads from the US. The Nikkei 225 and Kospi are both up 0.7%. The Shanghai Composite is flat while the Hang Seng is lower by 0.2%.

Locally, the ASX 200 was 0.2% firmer at 4872.2 after strong economic leads from overseas. There was no real theme in terms of sector leadership, however information technology and industrials added the most percentage points.

Whilst the market didn't power ahead, it was very positive to see it holding its ground rather than succumbing to a typical bout of Friday afternoon profit taking. This would have been the case in recent weeks, so the fact that participants are willing to hold positions longer than a few days is an important change in investor sentiment.

It was also encouraging to see gains not reliant on the major sectors like financials and materials.

Economic data, both locally and globally continues to point towards an economic recovery that is slowly gathering momentum. Of course there are a few bumps on the way, but the underlying trend is up, for both markets and data.

With a light week of economic data ahead, both locally and abroad, it wouldn't surprise us to see the current lack of volatility continue and the market trade in a fairly tight range.

Interestingly, in an economic note from Bank of America-Merrill Lynch, it raised Australia's GDP outlook, saying this week's reports of a 15% surge in dwelling commencements in 4Q and strong industrial trends survey were the major catalyst. The broker went on to say that not only have business and consumer sentiment held up incredibly well, but the leading index projects above trend growth for the next few quarters. It projects 2010-11 GDP growth of 3.8% and 3.7% respectively, up from prior 3.4% forecasts for both years.

The consumer staples sector was the best performer, closing 0.9% higher thanks to a gain of 2.2% in Wesfarmers shares.

The energy sector added significant point as well, rising 0.7% despite weaker overnight leads. Paladin Energy topped the gainers, finishing 2.5% higher while heavyweight Woodside Petroleum added 1% and Oil Search rose 0.5%.

After Arrow Energy went into a trading halt this morning, Royal Bank of Scotland said in a broker note that it was very confident of an improved bid for Arrow Energy from Shell-PetroChina, given both parties have been in active discussions for days, probably thrashing out a revised offer. The broker raised Arrow's target price to $5.45 from $5.00. RBS said it senses a revised, improved bid will be announced any day now, and expects it to be supported by the Arrow board.

The financial sector also managed to add a few points, up 0.2% for the day. QBE Insurance Group was the best performer up 1% while three of the big four banks were up between 0.4% and 0.9%. Commonwealth Bank of Australia bucked the trend, finishing lower by 0.7%.

On the downside, the materials sector posted moderate losses on the session, closing down 0.2%. While BHP managed to eke out a minor gain of 0.1%, Rio Tinto ended the session lower by 1% after announcing a joint venture arrangement with Chinalco for the development of its Simandou project in Guinea. The major gold miners were mixed with Lihir Gold adding 1.6% while Newcrest Mining closed down 0.8%.

In a comment from a Sydney-based commodities trader, they believe the nickel market has a strong outlook for at least the next couple of months. Support is set to come from a lack of LME stock in the US and industry-preferred nickel pellets / cathodes. Nearly 90% of LME stock is in nickel plates, which need to be cut prior to going into steel furnaces. The trader believes the issues at Sudbury and now Kwinana show the outlook will stay firm for now. Vale's Sudbury nickel operation in Canada has been on strike for about eight months now.

BHP Billiton's Kwinana nickel refinery in Western Australia has also been offline for two weeks due to hydrogen gas supply. The trader believes producers will be tempted to hedge around current prices.

Prices are in AUD unless otherwise stated.
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