ASX CLOSE: Markets lose some momentum

Monday 14th September 2009

Across Asia, excluding China, it was a sea of red today as stocks fell on the back of concerns the rally has run too far and that valuations have become too stretched. The Nikkei 225 and the Kospi finished 2.3% and 1% lower, respectively. The Hang Seng and Shanghai Composite are still trading, down 1% and up 1%.

Locally, the S&P/ASX 200 was down 1.4% at 4531.1 after it traded as low as 4518.8.

The markets lost a bit of short-term momentum today after last weeks positive price action, where the bulls were in control from start to finish, eager to drive equity prices higher.

For the market to pullback from here we need to see big news stories that traders simply can't overlook. This morning's 10 point drop in S&P futures occurred following reports from China that they would restrict US imports of chicken and auto parts, sparking fears of protectionism. We saw subsequent US dollar strength, Crude Oil drop to a low of $68.02 and equity markets lose ground accordingly.

With China seemingly the epicentre of equity market movements today, how will the US react to this news? Will it be another storm in a tea cup that we have become accustomed to seeing or will it be the catalyst for something further?

After putting on 3.6% last week, contrary to the expected September script, the markets were ripe for a bit of profit taking. Will today's broad based pullback see follow through selling in the coming sessions or will this just be another opportunity for under weight funds to deploy additional capital?

The financials (-1.7%), industrials (-1.6%), materials (-1.5%) and energy (-1.4%) sectors did most of the damage today.

Australian financials detracted the most points from the index today after US leads disappointed. In New York, the S&P Financials sector and the KBW Bank Index were down 0.8% and 1.2% respectively. Among stocks, most of the major banks lost points with the likes of Citigroup (-3%), Bank of America (-1.5%), JPMorgan (-1.2%) and Goldman Sachs (-0.1%) all lower.

It was a screen of red amongst financials today with only QBE Insurance Group and Westfield Group in the black. The big four banks were all sharply weaker, down between 1.8% and 3.2%, with National Australia Bank the biggest bleeder. Elsewhere, AMP (-3.1%), Suncorp-Metway (-2.2%) and Macquarie Group (-2%) were all down.

In the industrials space, Brambles (-3.2%), Qantas (-2.6%), Asciano (-2.1%) and Leighton Holdings (-2.5%) were down the most. It's worth noting that Brambles was ex-dividend today while elsewhere, reports over the weekend suggested that Qantas was looking to cut more than 200 jobs and outsource some extra aircraft engine maintenance to a Hong Kong based company.

Qantas will look to close its Sydney based Rolls-Royce aircraft engine maintenance centre, with all remaining local engine maintenance to be done in Melbourne.

Despite a 3.1% rise for both BHP Billiton and Rio Tinto in London, the Australian materials sector was down significantly; instead choosing to follow the weaker base metals leads from London.

On the London Metals Exchange, Copper fell 1.9%, Nickel 4.5%, Aluminium 0.9% and Zinc 2.1%. Also, we're seeing follow-through selling in Asian metals trade this morning with Copper down another 2.2%. Investors are concerned about rising stockpile levels with Shanghai inventory's up 12% at two-year highs.

The likes of Bluescope Steel (-3.3%), Alumina (-3%), Rio Tinto (-2%), Fortescue Metals Group (-1.9%) and BHP Billiton (-1.2%) were the major drags. Both Lihir Gold and Newcrest Mining gave up early gains to finish flat and 0.7% lower, respectively.

The real concern for commodity prices near term revolves around the perceived absence of real end-user demand and rising inventory levels. If China has in fact ceased its year-long stock piling exercise then short term prices may be capped until demand from western economies picks up enough to absorb any excess capacity.

Crude Oil futures tumbled Friday night on concerns over weak demand and China announcing crude imports for last month had dropped from July's record high. Crude closed Friday's session at $69.29, 3.7% lower and has continued to fall in Asian trade, currently trading at $68.16.

Consequently, the energy sector was lower with Santos (-3.7%), Oil Search (-3.7%), Paladin Energy (-2.4%) and WorleyParsons (-1.4%) and all dragging.

On the upside, the property trust sector was the best performer for the session, up 0.1% after Merrill Lynch upgraded Lend Lease (2.6%) from ‘neutral' to ‘buy'.

Prices are in AUD unless otherwise stated.
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