By Cameron Peacock, IG Markets
In Asia, regional markets are mixed following a very quiet night of leads. The Shanghai Composite and Hang Seng are the best performers, up 0.5% and 0.2% respectively. The Nikkei and Kospi are both flat.
Locally, the ASX 200 closed 0.3% higher at 4820.1, with many sectors consolidating gains of recent weeks. However, the materials sector, which has been the recent outperformer, weighed, down 0.6%.
Following a very lacklustre overnight session, with Wall St finishing virtually unchanged on the lightest volumes of the year, it was not surprising to see the local market get off to a sluggish start. Add to the fact that the ASX had enjoyed seven straight sessions of gains and it wouldn’t have been unreasonable to see the market pause for breath.
Having traded to a morning low of 4791, the market got a shot of momentum following the release of the ANZ jobs ads and NAB business confidence data. The 19.1% jump in monthly job ads, the biggest in more than a decade certainly confirms the underlying strength in the labour market and strengthening the case for further gradual rate hikes over the year.
Jobs ads are now just 2.3% below where they were a year-ago. In a comment from ANZ, it said part-time employment is now a record 30.2% of the workforce, meaning there is a lot of spare capacity to be absorbed as the economy recovers. Nevertheless, the downward trend for unemployment is clear and ANZ expects another 30,000 new jobs to have been created in February.
Elsewhere, Australian business owners are as confident as they've been in months, suggesting the recent RBA rate hikes haven’t dampened spending or growth too much in 2010. NAB's business confidence index rose four points to +19 from January, while business conditions increased five points to +8. In a statement from National Australia Bank, they said the February survey results suggest that growth momentum in early 2010 is still substantial, albeit somewhat below the very strong demand conditions of late 2009. It also suggests a pickup in future business investment maybe imminent, easing the RBA’s concerns that this sector was lagging the rest of the economy.
Turning our attention to the local market and the industrial sector was the biggest percentage gainer, rising 0.9%. Brambles added the most points, rising 4% while ConnectEast, Asciano and CSR were all higher by between 1.2% and 3.5%.
Consumer discretionary stocks had a solid session, with the sector adding 0.7%. Retailers were the best performers as the likes of Myer and Billabong International were both stronger by 2.3%. Elsewhere, Tattersalls rose 1.7% while Aristocrat Leisure climbed 1.6%.
Financials were well supported too. The sector rose 0.4% as insurance firms managed to shrug off concerns over hefty storm damage claims. QBE Insurance Group was the biggest riser, closing 2.1% firmer while Insurance Australia Group and Suncorp were higher by 1.1% and 1.3% respectively. The big four banks were all stronger, up between 0.1% and 2.1%, with National Australia Bank the best performer.
On the downside it was the materials sector that held the market back. The sector gave up 0.6% as all the big names finished in negative territory after weaker overnight base metal prices. Alumina and Lihir Gold were the worst performers, down 1.8% and 1.7% respectively while diversified miners Rio Tinto and BHP Billiton fell 1% and 0.3%, despite a positive broker report.
In a commodities report from Royal Bank of Scotland, forecasts and ratings for iron ore stocks were boosted after the broker upgraded its iron ore forecast to a 60% hike from 20% previously. BHP Billiton’s earnings forecast was upped by 7% for FY10 and 19% for FY11, with its target price lifted to $57.10 from $51.59 and its buy rating maintained. The broker said it continues to believe BHP is one of the best-placed miners to take advantage of the global economic recovery and the subsequent increase in commodity demand. Fortescue Metals forecast earnings were upped by 19% for FY10, 91% for FY11 and 61% for FY12. The stock was upgraded to buy from hold with its target raised to $6.41 from $5.08. RBS believes stronger cash generation boosts the likelihood of Fortescue delivering its production targets from the Chichester Ranges. It continued by saying that in its view, a buoyant iron ore market should also enable FMG to progress the development of Solomon with greater confidence and improve its ability to self finance part and borrow for the balance.
In stock specific news, yesterday’s darling Arrow Energy retreated 1.8% as investors looked to lock in some gains. In an interesting note from Royal Bank of Scotland, the stock was downgraded to ‘hold’ from ‘buy’ after yesterday’s takeover offer from Shell and PetroChina. They offered $4.45 per share as well as a share in the international business in return for Arrow’s Australian operations. The broker said Arrow's stock has been under pressure recently due to funding concerns, and with the group struggling to raise $2.2 billion for its Fisherman's Landing LNG project, this offer presents a good exit strategy. It does not see another bid forthcoming, so in the absence of an improved, firm offer from Shell, sets its target price at $5.00 a share with a ‘hold’ recommendation. Elsewhere in a comment from JPMorgan, it said it's hard to see another company coming up with a value proposition that would trump the existing bid given Shell appears to have a "ready made" LNG agreement with PetroChina, as well as the site on Curtis Island. JPMorgan believes Shell's timing is opportune as the alternative for Arrow is to pursue the Fisherman's Landing project independently and to do that, Arrow could be facing a rights issue of up to $1 billion as well as having to tie together the sales contracts.
