ASX CLOSE: Australian market gains; financials rise

Friday 4th September 2009

Across the Asian region, markets are mixed with both the Nikkei 225 and Korean Kospi both closing down 0.3%. The Shanghai Composite and Hang Seng are still trading, up 0.4% and 0.5%, respectively. Offshore leads were broadly positive.

In Australia, the ASX 200 finished 0.1% higher at 4435.5, off earlier session highs of 4477. Gains were broad based with the industrials, financials and energy sectors adding the majority of points.

Across the markets, trade drifted lower as the session progressed with traders unwilling to take decisive positions one way or the other ahead of US employment data tonight and the Labor Day holiday in the US on Monday.

With many professionals due back from summer holidays in the US next week, investors are likely to get a better read on the underlying mood of the market and whether or not the bears will have it all their own way this month.

Obviously tonight's employment data out of the US will be keenly watched, with forecasts calling for job losses of 233,000. However, more importantly will be how markets react, which will give us an understanding of underlying market sentiment. Earlier this week, equity markets fell on the back of the bullish manufacturing data, indicating a change in underlying psychology. A repeat of this tonight would see this change confirmed.

The US dollars reaction will also be key as last month we saw the USD rally on the better-than-expected reading. This was one of the few times it had occurred, with stronger data more recently seeing dollar weakness in preference for risk currencies like the euro and aud.

Looking across the Australian sectors, the industrials (1.2%), healthcare (0.8%), property trusts (0.7%), energy (0.5%) and financials (0.2%) were the major movers.

Among industrial stocks, Asciano (6%), Leighton Holding (5%), Brambles (3.5%) and Toll Holding (3%) added the majority of points. Asciano this morning announced it had appointed Malcolm Broomhead as its next chairman, with current chairman Tim Poole set to leave the group in October. In a bid to freshen up the board, they also added two new non-executive directors in Geoff Kleemann and Bob Edgar, who both bring extensive experience to the board room table.

Elsewhere, Brambles was upgraded to ‘buy' from ‘neutral' by UBS this morning after the investment bank increased its earnings forecasts from 7% to 9% based on the groups leverage to an economic recovery, particularly across the US and Europe.

The likes of Mirvac Group, Stockland, Macquarie Office and GPT Group drove the property trusts, all up between 1.7% and 3.6%. Leads from the US were strong with the Dow Jones REIT Index rising 1.9%.

In the energy sector, Oil Search, WorleyParsons, Santos and Woodside Petroleum were the major contributors, up between 1.1% and 2.8%. Overseas leads were supportive with Crude Oil basically finishing flat overnight, up 0.1% to $67.96 per barrel. The S&P oil & gas sector rose 0.4% with Exxon Mobil and Chevron up 0.1% and 0.4%.

The financials sector added the most points to the overall market today with insurer Insurance Australia Group the leader, up 2.3%. Commonwealth Bank of Australia (1.6%), Westpac Banking Corporation (0.4%) and ANZ (0.1%) all rose, however National Australia Bank lagged the sector, finishing 1.6% lower.

Interestingly, Royal Bank of Scotland this morning upgraded the Australian banking sector to ‘overweight'. They said "with the downturn appearing less pronounced than expected, investors are likely to focus on recovery and what form that will take. We expect Australia to experience a U or V shaped recovery. The single largest contributor to earnings growth in the next three years is likely to be provision utilisation".

Currently, the big banks have made large provisions for further write downs over the coming years, all stemming from the global financial crisis. Royal Bank of Scotland believes a significant portion of these provisions won't be needed and will be written back to banks' profit and loss statements.

On the downside, the materials sector lost ground throughout the day despite positive overnight leads. Bluescope Steel, Alumina and Fortescue Metals Group were the biggest fallers, down between 1.2% and 1.7%.

Gold names surrendered earlier gains despite another surge in gold overnight. Newcrest Mining & Lihir Gold finished flat.

Gold seems to have decoupled from the USD and oil in recent days. Despite both the USD index and oil being flat over recent sessions, money has continued to pour into gold.

Why? While it is partially technical, it is predominantly an ‘anxiety trade'. Investors fearful of the "September effect" have been rotating money out of equities and into gold.

In past run-ups in the gold price, the physical gold price has outperformed the equities of gold producers. This was a function of many producers having large gold hedge books that effectively capped their upside to a rising gold price. With many gold miners having now closed out their hedge books, they are now fully leveraged to rising gold price with their share prices enjoying the benefits.

Prices are in AUD unless otherwise stated.
IG Markets Ltd, Australian Financial Service Licence No. 220440. ABN 84 099 019 851.
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