IG Markets Australian Market Wrap
Across Asia, regional markets are mixed ahead of tonight's non-farm payrolls report and concerns about what a sharp slump in Chinese property prices might mean for the nation's banks.?? Among the region's major indices, the Shanghai Composite has turned around earlier losses to be higher by 1%, while the Nikkei 225 is weaker by 0.1%.? The Kospi and the Hang Seng are seeing gains of 0.1% and 0.5% respectively. ?
In Australia, the ASX 200 closed flat at 4565, having traded as low as 4545 earlier in the session.? The market had been relatively defensively positioned with the consumer staples and healthcare sectors as two standout performers, but a turnaround in fortunes for the heavyweight materials sector helped the market claw back earlier losses to finish.? The financial sector was the biggest loser on the day.
Looking across the drivers of our market, the financial sector ended weaker by 0.6% with all four of the major banks lower between 0.6% and 1%. With China conducting a stress test of its banks to see if they could handle a substantial fall in property prices, there appears to be an increased focus on whether local banks could negotiate a similar scenario here in Australia.? With the 4 majors increasing the size of their mortgage loan books post the GFC there is an obvious concern (particularly among the bears) about the susceptibility of bank earnings to a property slump.
Despite a small pullback in commodity prices, the materials sector enjoyed a relative outperformance today closing 0.5% to the upside.? Rio Tinto's record interim profit result yesterday has already seen a number of target price upgrades today and has numerous analysts also expecting a "big number" from BHP when it reports in a few weeks.? Courtesy of the positive outlook for the big miners both BHP and Rio ended 0.7% and 0.3% firmer respectively, while Fortescue Metals was higher by 2% on growing iron ore earning expectations.? Elsewhere in the sector, Bluescope Steel and Amcor were down 0.8% and 1.5% respectively.
After a strong recent run in energy prices, crude oil took a breather overnight falling 0.2% and that was enough of an excuse for some profit taking across the energy sector which ended softer by 0.4%.? Of the major names Woodside Petroleum, Oil Search, Caltex and Santos were all lower between 0.3% and 0.7% while rumoured takeover target Whitehaven Coal was 1 % higher, building on its 5% plus gains of yesterday.
Tonight's private sector component of the non-farm payrolls report looms as a tipping point for investor psyche and the near term prospects of global equity markets.? While equities had a reasonable rally over the course of July on the expectation of a pretty robust US earnings season (which we've had), there's always been something holding back investors from unleashing the throttle - namely sketchy economic data.? A decidedly bullish private sector jobs print could be just the catalyst "sidelined money" has been waiting for to enter the market and push indexes above their current trading ranges.?
It will also be interesting to see if a strong jobs number is USD positive or USD negative.?? Before the European debt crisis kicked into high gear, positive US data saw the USD sold off with money moving into the risk currencies such as the Euro and AUD.? At the peak of the European debt crisis money flowed out of the Euro and into the Yen, the USD and Gold.? Now it's not quite so clear.? A poor US number could invoke fears of further quantitative easing and be USD negative or it could see the USD bought as a safe haven trade.? Probably the purest gauge of the markets' reaction to tonight's data will be the USD/Yen cross.? A weak number will no doubt see the Yen rise against the USD while a strong number will see the opposite occur.
www.igmarkets.com.au