IG Markets Australian Market Wrap
Across Asia, regional markets have fallen to a two-week low on the back of growth concerns out of China. The Chinese Conference Board said its leading index posted its smallest rise since November, raising fresh concerns over the outlook for China's economy. Unsurprisingly, the Shanghai Composite is the biggest faller, down 3.4% while the Nikkei 225, Kospi and Hang Seng are all weaker between 1.1% and 1.4%.
In Australia, the ASX 200 finished 0.9% softer at 4345.7, only two points off its session lows. There was no rhyme or reason to this morning's, with sectors up convincingly one minute and down the next. However, during the afternoon session, markets across the region sold off on the back of concerns over Chinese growth. The energy, industrial, material and financial sectors all finished deep in negative territory.
We're seeing a real sense of uncertainty about the market at the moment, a real lack of conviction. When we have that, there's a natural tendency for the market to drift lower, which is what we're seeing.
There's concerns coming from different angles - RSPT, Chinese growth, Europe sovereign debt and the upcoming US earnings season to just name a few. Markets hate uncertainty.
With the US reporting season kicking off in a few weeks, this could be the catalyst the market has been looking for, particularly if earnings can meet or exceed expectations. The impact could be even more pronounced given the sell off we've had ahead of the upcoming earnings season. This contrasts from recent quarters where stocks have rallied ahead of these periods.
Looking at the individual sectors and it was the energy space which detracted the most points. It was down 1.2% after a 0.8% fall in the price of Crude Oil overnight. Oil Search was the biggest loser, falling 2.3% while Woodside Petroleum, Whitehaven Coal, Origin Energy and Santos were all lower between 0.6% and 1.6%. Macarthur Coal managed to buck the trend, rising 0.5%.
Consumer staples names underperformed significantly, down 1.1% after heavyweights Woolworths and Wesfarmers fell 1.6% and 1.1% respectively.
It wasn't a pretty day for industrial stocks either, with the sector losing 1.1%. Downer EDI was the worst performer, finishing 6.3% weaker. It moved to scotch media reports in the Sydney Morning Herald today, citing a leaked email, that claim Downers Works Australia division is deferring $35 million in creditor payments until post FY10. However, Downer said the $35 million is actually owed to it by debtors, most of which is expected in before June 30. On top of this, after taking a $190 million provision on its key Waratah train construction contract earlier this month, a report from Goldman Sachs JBWere flagged risks that another similar sized provision could be required in the next year or two. While Downer recently moved to appoint 2 new directors, the market continues to be concerned about its credibility and ability to profitably deliver on key contracts, with a history of write downs and cost blowouts rearing its head again.
Elsewhere, Qantas, Boral, United Group and Asciano were all down between 1.2% and 3%.
The materials sector had a poor session, falling 1.1% despite relatively positive overnight leads. Fortescue Metals Group was the worst performer, losing 2.5% while gold miners Newcrest Mining and Lihir Gold were down 1.8% and 2% respectively. Heavyweight diversified miners Rio Tinto and BHP Billiton fell 0.3% and 1% respectively.
In an interesting comment from RBS, it continues to believe that Rio Tinto shareholders will not vote for the group's planned iron ore joint venture with BHP Billiton following a briefing with Rio CEO Tom Albanese. RBS said the iron ore JV synergies were acknowledged but no comments on a potential change in structure of the equalisation payment were provided. The broker continues to believe that Rio shareholders will not vote for the JV under the current payment terms. RBS also reckons that Albanese's "tone was more cautious than recent outlook statements provided by the company", with key concerns around the property bubble in China and EU debt issues. RBS kept its 'buy' rating but trimmed its price target to $80.06 from $80.66.
Among the smaller players, Atlas Iron bucked the broader trend, adding 0.5%. According to reports from China, Hebei Iron & Steel Group, China's largest steel maker by output, is in talks with iron ore miner over a stake in its Ridley magnetite project in Western Australia. Hebei Iron, which doesn't have any overseas mining resources, is looking at the Ridley project to bolster its iron ore supplies. The project is expected to yield 15 million tons of ore annually over the next 35 years. Atlas, which is merging with Aurox Resources, another Australian ore miner, has been seeking a development partner for the Ridley project.
Elsewhere, financials gave up early gains to finish in the red by 0.8%. Macquarie Group was the biggest decliner, down 2.2% while the big four banks were all lower between 0.6% and 1.9%, with ANZ the worst.
Ben Potter Research Analyst
IG Markets - CFD trading