By Chris Weston, IG Markets
The Australian market opened strongly today at 3200, up 1.1% but fell away to close at 3188 not far off the day’s low of 3178. This was after we saw building approvals down 3.7%, well below analyst estimates of an increase of 1%. We also saw the trade balance figures come in worse than expected, the result here was a weakening of the Australian dollar and further pressure on the government to lower rates at the next meeting.
Certainly offshore leads were hugely positive with the Chinese Shanghai index gaining 6%, the biggest one day rise since November. The FTSE was up 3.8% and Germany’s Dax rose 5.4%.With a focus on US trading, we saw the session open higher and with a solid day’s trade, rallying 4% before retreating to close 2.2% higher, as classic material stocks helped push the index up. Best performers included Caterpillar, advancing 13% and Alcoa jumping over 10%. These leads have given investors a positive reason to buy Australian stock.
In the materials space, BHP Billiton and Rio Tinto are following on from huge lifts in London trade and closed 4.4% and 5.2% higher respectively. Material stocks did open higher but traders sold off as they questioned whether China will achieve the proposed 8% growth proposed by the Chinese authorities. With the additional stimulus the Chinese are expected to announce soon, reports indicate spending will be focused on stgeloping infrastructure and manufacturing. This positive news helped lift ‘undervalued’ commodity prices such as Copper and other base metals and given recent Chinese interest in our top tier miners should, if reports are correct give our exports a much needed boost.
Expect materials to come into play tomorrow with the weekly jobless claims and factory order which are expected to decline 3.5%, weakness here could see commodities give up the gains we saw overnight and negatively impact our miners.
Staying within this sector, gold stocks remain under pressure. With the equity market rallying last night the appetite for risk crept back into investor’s portfolios as gold fell again. Newcrest Mining closed down 0.8%. Lihir Gold fell 9.3%; however with the company raising US$325m at $3.00 a share, (representing a 9.4% discount to the previous close) this extended fall was expected. Given their market cap the $325m is a relatively small amount to raise and has thrown into question whether the company is planning to acquire another asset in West Africa.
Also giving the market a lift today is the energy sector, advancing 1.85%. With China being the second biggest user of oil in the world, traders see a possible pick up in future demand. The weekly inventory report also helped lift the price with an unexpected decline in stockpiles. Woodside Petroleum closed up 1.45%, Santos 1.38% and WorleyParsons 2.37%.
Financials showed mixed results on the back of the decision from the Australian market regulator to extend its ban on short-selling. Macquarie Group (-1.12%) rallied early but that was short lived as investors failed to see many bargains in the sector, NAB was the worst performer as it shed 2.5% actually trading below the January low of a$16.68 and making a 12 year low before finding buying support and rallying to close at. CBA (up 0.2)and Westpac managed to buck the downward trend however to add 7 cents to $15.78. The broader finance sector gave up 0.14% at the close. Certainly you can take it that the government believe the sector is still fragile and prone to more downside weakness not taking off the ban.
Weighing on the market today are Property trust (-2.7%) and Telecommunications (-0.5%) sectors
In the media space, stocks remain subdued after Credit Suisse pushed out its forecast for an improvement in Australian advertising until 2012, after finding little evidence that the advertising downturn will be short and sharp. As a result we have seen downgrades to WA News (-6.8%), APN News and Media (-5.3%) and Ten Network (-9.03%).
Looking forward, forex traders will be keeping an eye out for what unfolds with the Bank of England and European Central Bank meeting; they are to meet to discuss potential rate cuts. Analysts are tipping 0.5% cut, but as we have seen in Australia government can throw up a surprise.