ASX CLOSE: Market closes lower; awaiting interest rate decision

Monday 5th October 2009

Across Asia, the major markets started the week on the back foot today, finishing lower as Friday's leads from the US weighed and notorious doomsayer Nouriel Roubini said share prices and commodities had moved too far, too soon and too fast. The Nikkei 225 and Kospi were down 0.6% and 2.2% while the Hang Seng is currently down 0.2%. The Shanghai Composite is on holiday until Thursday this week.

In Australia, the ASX 200 finished 0.3% lower at 4586.70 in light trade as New South Wales, ACT and South Australia were on holiday. The market was directionless and oscillated in a tight range either side of the flat line seemingly waiting for tomorrow's interest rate decision. The heavily weighted materials sector supported the market with BHP Billiton and the goldminers trading in the black.

In economic news, Australian newspaper and internet job ads rose for the second straight month and at the fastest pace since December 2007 in September, up 4.4%. The report adds to the mounting evidence that domestic demand is recovering strongly and further supports the view that Australian interest rates are likely to rise sometime in Q4.

Today saw the AUD post solid gains amid renewed buying interest ahead of tomorrow RBA interest rate decision. Helped by stronger ANZ job ad data, speculation of a rate rise tomorrow gathered momentum with the interest rate bank futures now pricing in a 50/50 chance of a hike.

We cannot fathom why the RBA needs to raise rates before next year. Glenn Stevens did say that the RBA would look to pre-empt any imbalances or excesses in the economy, with no signs yet evident of such occurrences. With underlying inflation levels relatively dormant, where is the requirement to raise rates in the near term? Personal balance sheets are still under repair and unemployment levels are still probably short of their peak, with a further 10k jobs expected to be shed when the unemployment data is released later this week.

We see no compelling need for a rate rise before Christmas particularly when the rest of the world is saying it's too early to normalise rates. With the all important festive shopping season nearly upon us does Glenn Stevens really want to be the "Grinch that stole Christmas".

Looking across the market, it was the financials and industrials sectors that detracted the most points. The financials sector was down 1.1% with most of the sector finishing in the red despite flat leads from Wall St on Friday.

Macquarie Group was the biggest faller, down 5.2% while Axa Asia Pacific fell 3%. The big four banks also succumbed to profit taking, down between 0.6% and 2.1%, with ANZ the worst performer.

The industrial sector was also in the black today, losing 1.1% as the likes of Macquarie Airports (-6.4%), Brambles (-1.7%), Downer EDI (-1.1%) and Qantas (-1.1%) all dragging the sector south.

Gains in the materials (0.5%) sector managed to pare further falls despite poor leads from Friday's trade. Both Rio Tinto and BHP Billiton were lower in London, down 2.7% and 1% while in the US, the S&P Basic Materials sector fell 0.6% with Alcoa down 0.8%. Locally, the gold miners were the best percentage performers, with Newcrest Mining rising 1.7% and Lihir Gold 1.4% respectively while elsewhere, BHP Billiton (0.3%) and Orica (0.1%) also added points.

Elsewhere in the market, Credit Suisse upgraded Computershare (2.1%) to ‘outperform' from ‘neutral' and upped its target to $13.81 from $12.71 on higher forecasts from increased corporate activity. It said "we have analysed global corporate activity data for the period to June as well as the IPO pipeline in Hong Kong and India. The substantial increases in secondary capital raisings in Q2, coupled with a significant increase in the IPO pipeline in Asia provide a positive catalyst for CPU".

Also, JPMorgan upgraded Monadelphous (-0.5%) to ‘neutral' from ‘underweight' and upped its target to $11.50 from $10.27 on earnings upgrades from recent BHP Billiton and Rio Tinto contract wins. It said "Monadelphous is in excellent financial shape and remains in a very good position to capitalise on acquisition and consolidation opportunities in its markets, and adjacent markets, when they arise. Recent contract wins give us a greater degree of confidence around our near-term earnings forecasts and we believe there is modest upside risk to our forecasts should market activity levels recover sooner than expected".

Prices are in AUD unless otherwise stated.
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