Chris Weston, IG Markets

Australian stocks made a gallant attempt to put a torrid week behind them today with the ASX 200 index opening 0.8% higher, however Asian markets retreated with weak job figures from US and the Lloyds takeover weighing on traders minds and this caused the Australian market to head south later into the session to close up 21 points at 3166.

The US futures are trading stronger after opening and providing some much needed investor support. Energy and material stocks chipped in with solid advances as crude oil rose to five-week highs while US dollar weakness boosted the appeal for commodities.

Banks and financials, however, restricted further gains despite the Australian Minister for Small Business saying that banks have agreed to pass on any cut in international wholesale borrowing costs to small businesses.
BHP Billiton climbed 5.75% in early trading and maintained this strength throughout the day after prices for oil and copper rose to close up 5.32%. The world’s largest mining company traded through A$29 for the first time since Feb 5th. Rio Tinto wasn’t too far behind, as the world’s third largest miner advanced 3.94%%.

Copper is widely in focus at the moment, being a key bellwether of economic health, and with positive rhetoric from key Chinese officials about future growth, we have seen copper react to this and provide some good buying opportunities for investors.

Elsewhere in the sector, Equinox Minerals, currently stgeloping the Lumwana copper mine in Zambia, surged 5.9% to a$1.85.

Financials served up a mixed bag with all the majors’ players loosing ground except for ANZ and Westpac which are currently trading up 1.38% and 1.27% respectively

Insurance giant QBE couldn’t pull back last week’s declines as it lost a further 4.2% in early trade again today. Negative sentiment is still flowing throughout the industry amid concerns over the financial health of Aviva.
The broader financial sector closed down. Investors were braced for further weakness in financial stocks with poor leads from Wall Street banks, while the KBW Banking index in the US was down 1.9%. Certainly it seems financial stocks in the US will continue to stay in focus and dictate the US market.

In our domestic market, traders are looking closely at National Australia Bank’s (down 4.5%) conference this Thursday and CEO Cameron Clyne’s plans on the future direction of the bank. It is widely anticipated they will rule out the sale of its UK business even though there are poor conditions in that market; investors also expect to hear news of large job losses which would be damaging to the share price. Certainly pessimism is rife and investor responded dumping stock to trade to a 12 year low of a$16.03 with market starting to factor in a possible dividend cut similar to the rhetoric ANZ announced recently. From a technical trading view a close below a$16.68 could see it test the next support level of a$15.20 a very bleak outcome for anyone holding this stock.

Energy stocks took advantage of a 2.4% rally in the price of crude oil today. From a technical trading perspective the Euro is looking quite bullish in short to medium term. This is oil positive and given production cuts seem to be gaining traction from what we have seen in the last two inventory report we could easily see oil break the range that has formed and trade above $50 by end of month.

Woodside Petroleum closed up1%%, while Santos picked up where it left off on Friday to adding 3.42%
Elsewhere, WorleyParsons advanced 5.25%. The broader energy sector finished the session 1.82% higher.
Meanwhile we have seen six new additions to the S&P/ASX 200 due to market value erosion in recent weeks. Fund managers have to re-balance their portfolios to incorporate this change so will buy the new additions and sell the departing companies. As a consequence we have seen good support for AJ Lucas, Eastern Star Gas, Hastie Group, Dominion Mining, Fleetwood Corp and IBA Health, whereas stocks such Babcock and Brown, Centro Retail and HFA have felt negative sentiment. HFA was especially badly hit by this down 34% being the index’s biggest faller.

In currencies markets, the AUD has responded well to positive leads from the US, up 0.7% to a high of 6451 before retreating to 6411, with forex traders buying riskier assets as equity markets pare back last week’s losses.

Looking forward in the trading week there is not too much in the way of economic and earnings data, so the focus will be fixed on the financial sector in the US for direction on where the markets are going. With banks being so heavily sold off we are at a point where even the most pessimistic of traders will want to get in even if for a short term technical rally. With most fund managers seeing the market as the most oversold in about 40 years we are in a position if we get some good news this week it could be the catalyst for a huge short term relief rally. Traders need just need an excuse to get in and if a few start coming in to buy momentum could easily build and could see 250+ point rally in US which would translate into good gains domestically.