Across Asia, regional markets are mostly lower this afternoon, choosing to ignore Alcoa's better-than-expected Q2 earnings result and instead are focusing on Chinese comments reiterating their intention to curb property prices. The Shanghai Composite is the worst performer, down 1.5% while the Nikkei and Hang Seng are both down 0.1%. The Kospi is bucking the broader trend, up 0.1%.

In Australia, the ASX 200 closed the session 0.7% weaker at 4380.3, well off earlier highs of 4429 as Asian markets retreated. With the materials, energy and industrial sectors all convincingly lower, modest gains from the defensive sectors were not enough to offset the damage.

Specifically, miners came under pressure over Chinese growth concerns, as well as the overnight reaction to the weekend's Chinese import numbers.

After a very strong session last week, it seems the market is just treading water. Yes Alcoa kicked off the earnings season on a positive note but it's going to take a lot more than one result to see a sustainable change in sentiment.

As we've often said, the next few weeks are likely to see range-bound trade as markets digest offshore earnings and form a view on how the second half of the year may play out. We also must remember that volumes are light domestically, with a lot of professionals taking time off for school holidays.

It was the heavily weighted materials sector that did most of the damage today, losing 2.2% on the back of negative overnight leads as well as further concerns over Chinese growth rates. Fortescue Metals Group, Rio Tinto and BHP Billiton were worst performers, all down between 2.6% and 4.4%. Gold miners Lihir Gold and Newcrest Mining lost ground too, closing 0.4% and 0.7% weaker respectively.

In a JPMorgan report by its UK-based commodities team, it revised down its 2010 price forecasts for some base metals. The broker trimmed aluminium by 5.0% to 94.9 US cents/pound, copper 5.1% to US3.123, nickel 10% to US$9.476, zinc 13% to 92.7 cents and lead 8.8% to 91.6 cents. The broker said the rationale behind the downgrades in 2010 is a concern that investor sentiment will continue to be negative for growth-leveraged assets, including commodities in the near term, with price likely to be range-bound. Beyond 2010, JPMorgan expects the underlying level of consumption of commodities to be robust, with incremental demand to outstrip supply for some commodities, particularly copper.

Elsewhere, RBS upgraded OneSteel to buy from hold. It said OneSteel's upstream exposure to iron ore provides earnings security in what's likely to be a challenging 1Q FY11 for steelmakers. The broker views OneSteel as best placed to manage near-term earnings uncertainty due to contracting steel prices and production margins. RBS lowered OneSteel's net profit forecast by 8.9% for FY10 and 7.5% in FY11 to reflect tighter steel margins. However, RBS believes conditions should begin to improve in 2Q FY11, when Asia and US move to restock inventories.

Energy names also saw selling pressure, with the sector finishing 1.3% weaker. Macarthur Coal was the biggest decliner, down 4.4% while the likes of Whitehaven Coal, Santos, Oil Search and Origin Energy were all lower between 1.5% and 2.1%.

Among industrial names, Boral, Toll Holdings, James Hardies and Leighton Holdings were all down between 1.7% and 2.7%, with Boral the biggest loser. On the upside, recent underperformer Downer EDI saw some buying interest, rising 6.2% on solid volume.

After being up early, the financials sold off throughout the session, with the sector finishing flat on the day. Macquarie Group detracted the most, down 1.5% while the big four banks were mixed. ANZ and Westpac fell 0.8% and 0.3% respectively while Commonwealth and NAB added 0.8% and 0.6%.

Bendigo & Adelaide Bank fell 0.2% after Citigroup downgraded it to hold from buy, and said its expectations on interest margins and expense control are unlikely to be met. Citigroup believes that with conditions remaining tough, management's announced targets on cost-to-income (and return on equity) may not be achievable. It indicated investors should expect muted near-term performance relative to regional peers.

On the upside, the market was very defensively positioned with the healthcare sector leading the way. It rose 1.2% thanks to gains of 4.4% and 2.4% in Sigma and Cochlear shares.

Ben Potter Research Analyst

IG Markets - CFD trading