ASX CLOSE: Markets rise; materials and energy sectors standout performers

Monday 16th November 2009

Across Asia, regional markets have all started the week in the positive on the back of strong Friday night leads and higher gold and copper prices. Also, sharply better-than-expected Japanese GDP has buoyed the region. The Shanghai Composite is the standout performer, rising 2.3% while the Hang Seng is up 1.5%. Elsewhere, the Kospi is higher by 0.8% and the Nikkei 225 is up 0.1%.

In Australia, the ASX 200 finished 1% higher at 4755.20 after trading as high as 4760 earlier this morning. The materials and energy sectors were the standout performers, adding most of the points. We also saw good contributions from the consumer discretionary space after a number of the big US consumer discretionary stocks had very strong Friday sessions.

Volume for the session was very light ahead of important US retail sales this evening. The market is anticipating a strong set of numbers this evening, the expectations of which are underpinning some solid gains among Australian retailers.

US retail sales due out tonight and earnings updates this week from the likes of Lowe's, Home Depot, Target, Sears and GAP will provide a current insight into the health and psychology of US consumers heading into the important Christmas trading season.

Materials outshone the rest of the market today as investors seemed to be positioning themselves for a materials led Santa Claus rally. Broker upgrades to commodity prices and the resulting EPS revision are likely to underpin a strong end of year outperformance for the sector.

Many professionals have been forecasting that the financials, and banks in particular could be used as funding stocks to facilitate the switch into outperforming sectors. This may have been evident this morning as the financials and materials sectors were both higher early, but diverged considerably in performance over the course of the trading day.

Trading over the next several days is likely to be heavily influenced from the slew of economic data out of the US this week which will provide the latest reads on retail spending, manufacturing, housing, industrial production and leading indicators. Will this data be enough to spur further buying interest in equities as we head into the festive season or will the lacklustre, unenthusiastic trade which has characterised the last few weeks, persist?

Turning our attention to the market and it was all about the commodity based sectors today. The materials sector was the standout, rising 3.1% after mixed base metal leads from London but stronger price action in the US. Fortescue Metals Group, Lihir Gold, Rio Tinto, Newcrest Mining and BHP Billiton were the biggest gainers, rising between 2.4% and 5.2%.

In a note to clients this morning, Citigroup said it remains positive on base metals in the short and medium term, reflecting a recovery in global demand, some supply side constraints and higher investor flows into the complex.

Elsewhere, explosives and fertiliser maker Incitec Pivot (6.5%) indicated that 2010 will be another challenging year but it's better placed to deal with the challenges encountered. This morning it reported a fiscal 2009 net loss of $179.9 million after writing down goodwill from its Dyno Nobel explosives business. This compared to a profit of $604.6 million for the prior corresponding year. CEO James Fazzino said "in the medium to long term, he was confident that Incitec Pivot had the right strategy in place and the right businesses to capitalise upon an ‘inevitable' upturn in the economy in North America and pickup in fertiliser markets".

In Asian trade today, gold has added more than US$9 to US$1129.05, in turn driving the likes of Newcrest Mining and Lihir Gold higher on the back of a bullish forecast from US investment fund BlackRock. The investment fund said gold would rise further this year and central banks would be net buyers of gold this year.

Despite weaker Crude Oil leads from Friday trade, the energy sector added significant points today, rising 2.1%. Paladin Energy was the biggest riser, jumping 4.4% while the heavily weighted Origin Energy (2.7%), Woodside Petroleum (2.3%) and Santos (1.4%) all rose strongly.

Among brokers, Citigroup revised up its short and medium term forecasts for Crude Oil prices to USD80/bl and USD85/bl, respectively. It expects the main drivers of prices to be recovering demand, OPEC production restraint and increasing investment flows.

Elsewhere across the market, the consumer discretionary sector posted strong gains ahead of important US retail sales figures this evening. The sector was up 2% with Billabong International (3.8%), Fairfax Media (3.3%), Harvey Norman (2.8%), Aristocrat Leisure (2.9%) and JB HiFi (2.9%) all adding significant points.

On the downside, the financials sector detracted the most points from the market, declining 0.5% as investors looked to rotate from financials into commodity based sectors. The big four banks led the pack lower, falling between 0.7% and 2.1%, with Westpac Banking Corporation the worst performer.

Prices are in AUD unless otherwise stated.
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