IG Markets - Australian Market Wrap August 3, 2010

IG Markets - Australian Market Wrap

Across Asia, regions indices are mostly higher after a strong US session overnight and growing optimism about the global economic outlook. The Nikkei 225 is currently 1.3% higher, while the Hang Seng and the Kospi are seeing more muted gains of 0.6% and 0.5% respectively. The Shanghai Composite is once again bucking the trend to be lower by 0.1%.

In Australia, the ASX 200 closed 0.7% higher at 4571, well off earlier highs of 4584. Looking across the market it is certainly evident that risk appetite is improving with cyclical/growth sectors clearly outperforming the defensives. While the healthcare, utilities and consumer staple sectors were modestly negative on the session, it was the materials, financial, consumer discretionary and energy sectors that followed US leads and made solid contributions to the day’s advance.

Among the heavyweights, it was the materials sector that was the day’s best performer, firmer by 1.4%. Sector leaders BHP Billiton and Rio Tinto were higher by 1.7% and 2.6% respectively while Fortescue Metals fell 0.2%. Broadly speaking, gains were seen across the board for resource names with overnight base metal prices rallying between 2% and 4% on the back of better-than-expected manufacturing data out of Europe and the US.

Following the lead from the S&P financial index, the local financial sector was 0.5% stronger with three of the four major banks in positive territory between 0.2% and 0.7% with CBA being the best performer. NAB ended lower by 0.6%. The clear standout of the session though was Macquarie Group, which closed 5% higher as investors probably started to believe the company had been oversold in recent days after an effective profit downgrade last week.

Improved manufacturing and construction outlooks across some of the world’s biggest economies also saw some solid buying interest across the industrial names with the sector finishing higher by 1% Among the top performers of the session were Leighton Holdings, Brambles and Boral which all ended firmer between 1.2% and 2.5%.

A break-out in the price of crude oil overnight (above US$80/barrel for the first time since May) also saw the energy sector higher by 0.6%. Among the major names to do well were Caltex, Macarthur Coal, Woodside Petroleum and Oil Search, which all firmed between 0.4% and 4%.

At the smaller end of the scale, Nexus Energy shares closed 23% higher after a report in The Australian suggested that Shell may have made a $480m bid for the company. The company placed itself in a trading halt before coming out any denying it had been approached by any third parties.

The RBA’s decision to keep rates on hold at 4.5% was hardly a surprise given the recent benign inflation data, with today’s soft retail sales and building approvals data only adding to the conviction behind the decision. With rates looking increasingly likely to be on hold over the next few months, it will be interesting to see if this warrants a renewed increase in business and consumer spending.

Cameron Peacock
Market Analyst
IG Markets

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