IG Markets - Afternoon Thoughts: 5 July 2010

IG Markets - Afternoon Thoughts: 5 July 2010

Across Asia, regional markets are mixed following the modestly weaker US leads from Friday and general concerns that growth globally is slowing. The Nikkei 225 and the Kospi are firmer by 0.5% and 0.4% respectively. On the downside, the Shanghai Composite is the worst performer, down 1.6% while the Hang Seng is 0.2% softer.

In Australia, the ASX 200 is currently 03% lower at 4225 having oscillated around the flat line for much of the day. With modestly weak US leads and few catalysts to buy into stocks before the US returns from its Independence Day long weekend, trading is subdued with gains across the energy and materials sectors being offset by losses by the financial and industrial sectors.

It certainly looks like PM Gillard’s new MRRT has turned the ‘takeover’ tap back on, as evidenced by this morning’s takeover bid from Banpu for Centennial Coal of $6.20 per share. At a 40% premium to the last traded price, this looks to be a significant windfall for Centennial shareholders and will likely reignite M&A speculation across the sector.

The certainty brought about by the new MRRT has facilitated this latest bid and will likely see further foreign capital invested in Australian mining and energy assets. However, despite the increased certainty, there’s still a lot of scepticism about whether or not the domestic market can hold up against the global concerns.

There’s no doubt the outlook for global growth as deteriorated in recent months. The upcoming second quarter reporting season in the US will be crucial in determining whether or not these fears are overdone. We’ve seen more downgrades to expectations than upgrades recently so we’re probably looking at a market that has priced a lot of the negativity in. It’s also the first time in a while that the market has declined ahead of an earnings season, meaning the earnings ‘bar’ won’t be set as high.

Whilst the headline results will be scrutinised closely, outlook statements will be particularly important.

ENDS

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