IG Markets - Close Of Business Wrap
August 4, 2010
Across Asia, regional markets are all lower and taking a pause in line with US leads after a series of weak US economic
data and a disappointing earnings report from consumer bellwether, Proctor & Gamble. The Nikkei 225 is the weakest performer, down 2.1% on a strengthening Yen while the Hang Seng, Shanghai
Composite and Kospi are lower by 0.1%, 1.3% and 0.5% respectively.
In Australia, the ASX 200 closed 0.5% weaker at 4542, close to the lows of the day. Losses for the day were broad based
with all but the telecoms, healthcare and REITS sectors in negative territory.
Of the major sector indices, energy was an outperformer, flat on the day thanks largely to further overnight gains in
the price of crude which surged another 1.3% to be trading at US$82.40 barrel. Woodside Petroleum was the standout, up
0.7% on the day.
In sector news, Linc Energy has resumed from a trading halt and closed 6.2% lower despite finalising a deal with India’s
Adani Group that will see it collect an up-front cash payment and a trailing royalty stream that is worth approximately
$2.5b over the 20 year term of the royalty.
Elsewhere, Gloucester Coal has halted its shares after announcing a deal to acquire a 27.52% interest in Noble Group’s
Middlemount JV at a cost of $269.5m,while at the same time conducting an underwritten $410m equity raising at a price of
$9.25 (a 26 %discount to the last traded price of $12.47).
Following the lead from the S financial index, the local financial sector was 0.9% weaker with all four of the major banks in negative territory
between 0.6% and 1.9% with Westpac being the worst performer. Yesterday’s star performer, Macquarie Group could continue
on its strong run closing down 0.8%, near the lows of the day.
After a strong session yesterday and softer base metal prices overnight it is not surprising to see the materials sector
down 07% on the day. Sector heavyweights BHP Billiton and Rio Tinto were 0.7% and 0.2% lower respectively while Orica,
Alumina and BlueScope Steel were all down between 1.5% and 2%. A fractional rise in the gold price overnight courtesy of
some USD weakness saw Newcrest Mining and Lihir Gold firmer by 1.4% and 1.0% respectively.
In economic news, the AIG services index showed the service sector continued to contract in July, falling 2.2 points to
46.6, while trade balance numbers showed a resurgence in Australia’s exports with the reported trade surplus for June of
$3.54b eclipsing the consensus surplus estimate of $1.8b. On the month, exports rose an extremely healthy 7% while
imports were flat. The AUD saw an approximate 20 pip bounce immediately after the news.
Once again we are seeing signs of an indecisive market with investors seemingly moving from optimistic to pessimistic
about the global economic outlook on a daily basis, depending on the economic news of the day. It is this skittish
sentiment that has led many traders to suggest this is one of the most difficult markets to read in over 20 years.
While the US reporting season has been pretty solid to date with more than 76% of companies beating estimates, to see a
deeper and more sustainable rally we need to see a more consistent economic backdrop. It seems for most of this year we
haven’t yet had a situation where companies and the economy are firing in unison and for that reason we’ve constantly
encountered a split or torn market.
Having said that, there does seem to be a growing belief that equity markets are readying themselves for a significant
move higher sometime in the latter part of the year. With so much cash sitting on the sidelines it seems as though
investors are just waiting to see that there are no major skeletons in the corporate closet or any more macro-economic
tsunamis on the horizon before deploying some of that capital.
Kind regards,
Chris Weston
Institutional Dealing
IG Markets
ENDS
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