ASX CLOSE: Materials drag market lower

Monday 28th September 2009

It was a sea of crimson across Asia today as stocks declined following the weak US leads triggered by worse-than-expected durable goods orders and new home sales data, as well as concerns over the yen's appreciation versus the greenback.

The Nikkei 225 and Kospi closed 2.5% and 1% lower. The Hang Seng and Shanghai Composite are still trading, currently down 1.7% and 1.1%, respectively.

Following the disappointment from Blackberry maker Research in Motion, there's a growing feeling among analysts that the next set of results out of corporate America won't be as rosy as the previous.

Globally, the momentum generated from Q2 earnings is fast abating with investors concerns growing by the day as to whether or not this market has got ahead of itself. Gone are the days of rising on ‘less bad' economic releases. The market is desperately searching for the next catalyst to take us higher and at the moment, no one seems to know where it might come from.

The market wants cold hard facts that prove that corporates, both locally and globally are growing top line earnings. Another round of earnings propped up by cost cutting initiatives just won't cut it.

While Glenn Stevens acknowledged Australia's sound performance relative to other developed nations over the course of the financial crisis, and noted that any fiscal imbalances would need to be pre-emptively dealt with, his comments that there were no current undue imbalances, nor was the economy in danger of overheating, suggested to the market there was no necessary urgency for the RBA to begin hiking rates.

The reaction of the AUD said it all, slipping more than 60bps after the testimony to under 86c (before recovering slightly), a sure sign traders are pairing back expectations of a pre-Christmas rate hike.

In Australia, the ASX 200 finished down 0.8% at 4677.4 on broad based weakness, with the cyclical sectors doing the most damage.

The materials (-1.9%), energy (-1.4%), industrial (-1.3%) and consumer discretionary (-1.1%) sectors were the major decliners today.

In the materials space, the leads were far from encouraging with the S&P Basic Materials sector down 1.2% with Freeport McMoRan losing 0.2% and Alcoa -3.2%. The CRB Commodity index was 0.3% lower. Consequently, Newcrest Mining (-5.4%), Lihir Gold (-4.1%), Alumina (-2.7%), Fortescue Metals Group (-2.5%), Rio Tinto (-2.2%) and BHP Billiton (-1.2%) were the main detractors.

Despite a modest rise in Crude Oil on Friday night, it has drifted in Asian trade, currently at $65.50 per barrel. Hence, we've seen weakness across most of the energy plays with the likes of Oil Search (-4.3%), Santos (-1.5%), Woodside Petroleum (-1.2%) and Paladin Energy (-0.7%) the biggest decliners.

Elsewhere in the sector, Karoon Gas (-7.8%) was downgraded to ‘underperform' from ‘outperform' by Credit Suisse this morning and had its target price lowered to $8.15 from $17 following the disappointing results from its Kontiki-1 well with JV partner ConocoPhillips. Karoon also informed the market this morning that the well would be plugged and abandoned.

In the consumer discretionary sector, Aristocrat Leisure, News Corporation, JB HiFi, Harvey Norman and Fairfax Media were the major detractors, all down between 1.5% and 3.2%.

On the upside, the financials sector closed in the black after spending most of the morning in the red as investors continued to buy on the dips. ANZ and Bendigo Bank were the standout performers, rising 2.3% and 1.5%. Elsewhere, Westfield Group (0.7%), National Australia Bank (0.6%) and Macquarie Group (0.1%) added points.

Several brokers including Deutsche Bank, UBS and JPMorgan raised its targets for ANZ after Friday's deal to buy out wealth management joint venture partner ING in EUR 1.1 billion deal. JPMorgan said "following the announced acquisition of selected RBS assets last month for around $700 million, the ING transaction represents another example of ANZ using their strong surplus capital position to acquire preferred assets at reasonable prices".

Prices are in AUD unless otherwise stated.
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