IG Markets Australian Market Wrap

The leads from US were bearish, although it was hard to know what to make of the economic news, which had an immediate and depressing effect on the market, but on low volumes.

The selling was exacerbated by the lack of volume due to holidays and the Independence Day celebrations. Volume was less than half of last year's average. There was a bucket load of selling on the open and then the market traded in a tight range for the rest of the session, as if everyone had gone home.

Given the leads, the Australian market really had no chance. Although, it did outperform on a relative basis.

The leads drove selling in the materials, industrials, consumer discretionary and energy sectors. Bearish head and shoulders reversal patterns are beginning to show up everywhere, most notably on the ASX 200 index and BHP Billiton.

BHP Billiton confirmed the reversal pattern today, now targeting the $28.00 level. Although bearish, the risk of these patterns failing is higher because volumes have been so light.

The lack of participation in global equity markets continues, with stocks unlikely to see much action ahead of the US reporting season, which kicks off properly next week.

The S&P/ASX 200 index was down 1.3% at 3828 after trading as low as 3804 this morning.

The main drivers were the materials (-2.7%), consumer discretionary (-1.4%), industrial (-1.4%) and financials (-0.9%) sectors.

In the materials sector, the falls were widespread with Bluescope Steel (-5.2%), Fortescue Metals Group (-4.1%), Rio Tinto (-4.2%), Newcrest Mining (-2.9%) and BHP Billiton (-2.5%) the biggest detractors. Leads from peers in London were weak with both BHP Billiton and Rio Tinto down 4.5% and 5.2% respectively. It didn't get any better on the London Metals Exchange, with Copper falling 1.1%, Zinc and Aluminium 1.3% and Nickel 0.3%.

In other sector news, BHP Billiton this morning announced it had agreed to sell the Yabulu nickel refinery in Queensland to companies owned by mining entrepreneur Clive Palmer. The sale safeguards approximately 900 jobs and keeps the refinery in production. After a review, BHP Billiton decided that Yabulu did not fit the business because it was a downstream operation. They will write down Yabulu's carrying value by US$500 million as well as take a US$175 million unrecoverable tax benefit.

Elsewhere, Morgan Stanley raised Bluescope Steel target price to $2.30 from $1.77 on the back of higher steel price forecasts. However, while the outlook is improving, they still believe it is too early to buy the stock, keeping an 'equal-weight' rating.

Aristocrat Leisure (-3.7%), News Corporation (-3.5%), Ten Holdings (-3.4%) and Fairfax Media (-3.4%) were the biggest fallers in the consumer discretionary space.

Among industrial stocks, the major detractors were Macquarie Airports (-3.3%),Qantas (-2.3%) and Macquarie Infrastructure Group (-2.2%).

In the financials sector, Macquarie Group (-2.6%), Axa (-2.4%) and QBE Insurance Group (-2.2%) lead the sector south. Commonwealth Bank of Australia and Westpac Banking Corporation were down 0.6% and 1.3% while National Australia Bank was flat and ANZ rose 0.1%. Leads from the US were bearish with the S&P Financials sector falling 3.5%, fronted by a 4.4% decline at JP Morgan Chase and Wells Fargo.