australian stocks gain for the second day in volatile trading 1065652015

Market not “overly extended” at this point, say Citigroup analysts

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By :  ,  Financial Analyst

Australian stocks ended a highly volatile trading session with a net gain of 0.3 per cent to show for it. After swinging to a low of 5,884.80 the benchmark S&P/ASX 200 rallied to the day’s high of 5,930.40 within the first two hours of trading. Stocks corrected during the rest of the session, barring a fresh rally in the last hour which likely indicated that the 5,900 level was now in the rearview mirror.

Volatility and investor indecision notwithstanding, the S&P/ASX 200 has now scaled its highest point since May 2008, said The Sydney Morning Herald.

According to Citigroup analysts, the recent big rally had been fuelled by lower interest rates but there was still further headroom to their target of 6,300 by the end of the year. "Some might consider this [6,300] dangerous territory for investors, but with the market not overly extended at this point, it should still be able to produce reasonable returns in coming years, in what remains a low yield world," said Citi analysts Tony Brennan and Vivian Jiang, and quoted by The Sydney Morning Herald.

Indices and sectors

The benchmark S&P/ASX 200 gained 19 points, or 0.3 per cent, and closed at 5,927, while the broader All Ordinaries index was up 17.6 points, or 0.3 per cent, to 5,890.

The top gaining sectors were materials (+1.10 per cent), healthcare (+0.93 per cent), consumer discretionary (+0.54 per cent) and financials (+0.41 per cent). The big losing sectors for the day were real estate investment trusts (-0.65 per cent), telecommunications services (-0.64 per cent), utilities (-0.59 per cent) and energy (-0.55 per cent).


In the four major banks, only National Australia Bank Ltd (ASX:NAB) ended the day in the red by 0.24 per cent to AU$37.58. Commonwealth Bank of Australia (ASX:CBA) gained 0.70 per cent to AU$91.04, Westpac Banking Corp (ASX:WBC) was higher by 0.66 per cent to AU$37.97 and Australia and New Zealand Banking Group (ASX:ANZ) was up 0.7 per cent to AU$35.29.

Amongst the miners, which closed rather mixed, BHP Billiton Ltd (ASX:BHP) jumped 2.93 per cent to AU$33.06 after investors appreciated its better-than-expected earnings report. Rival Rio Tinto Ltd (ASX:RIO) lost 1.22 per cent AU$63.14, though Fortescue Metals Group Ltd (ASX:FMG) gained 1.65 per cent to AU$2.46. However, Atlas Iron Ltd (ASX:AGO) slumped 2.44 per cent to AU$0.200 after the iron ore junior miner reported a massive loss of over AU$1 billion. Mount Gibson Iron Ltd (ASX:MGX) lost over 4 per cent to close at AU$0.235, and BC Iron Ltd (ASX:BCI) made it into the top losers list of the S&P/ASX 200 after plunging 6.60 per cent to AU$0.495.

Energy stocks too fared mixed. Woodside Petroleum Ltd (ASX:WPL) was higher by 0.80 per cent to AU$36.45, Origin Energy Ltd (ASX:ORG) fell 1.41 per cent to AU$11.80, Oil Search Ltd (ASX:OSH) gained 0.12 per cent to AU$8.29 and Santos Ltd (ASX:STO) was down 0.6 per cent to AU$8.12.

Travel company Flight Centre Travel Group Ltd (ASX:FLT) jumped 12.06 per cent to AU$39.50 even though its earnings report showed that half yearly profit plunged to AU$100 million. The stock was the top gainer on the S&P/ASX 200 yesterday.

Clinical development company Mesoblast Ltd (ASX:MSB) shot up 11.66 per cent to AU$4.50 and was the second largest gainer on the S&P/ASX 200. Packaging company Orora Ltd (ASX:ORA) was third best, up nearly 8 per cent to AU$2.18 after it reported a 23 per cent increase in net profit to AU$69.1 million on a 3.4 per cent increase in sales to AU$1.66 billion. Insurer QBE Insurance Group Ltd (ASX:QBE) shot up 7.24 per cent to AU$12.45 after swung back into the black reporting a profit of AU$950 million. Logistics solutions provider Qube Holdings Ltd (ASX:QUB) closed higher by 7.20 per cent at AU$2.80 after touching a new all-time high of AU$2.83.

Economic news, currency and insight

In local economic news on Tuesday, the ANZ-Roy Morgan weekly consumer confidence survey for the week ended February 22 showed a slight bounce to 110.8, up from the previous reading of 109.8.

ANZ Chief Economist Warren Hogan commented: “ANZ-Roy Morgan Consumer Confidence remains lacklustre despite the interest rate reduction from the RBA earlier in the month and lower petrol prices over the summer. Rising house prices and new cyclical highs for the equity market do not appear to be having much of an impact on confidence at the moment either. Households remain concerned with the economic outlook in an environment of soft wage growth and ongoing job losses in the resources and manufacturing sectors. While the lack of upward momentum in confidence is disappointing, we expect a turnaround in the labor market is the key to a sustained improvement.”

In the US, in testimony before the Senate Banking Committee, Fed chair Janet Yellen commenced to lay the groundwork for interest rate hikes during the year, expressing more optimistic views of the country’s economic performance, as reported by The Australian.

“The employment situation in the United States has been improving on many dimensions,” she observed. The central bank “will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis,” she stated, provided the economy kept improving.

On Wall Street, stocks hit fresh all-time highs as investors digested Yellen’s testimony. The Dow Jones Industrial Average rose 92.35 points, or 0.51 percent, to 18,209.19, the S&P 500 gained 5.82 points, or 0.28 percent, to 2,115.48 and the Nasdaq Composite added 7.15 points, or 0.14 percent, to 4,968.12.

The eurozone countries approved the reform plan provided by Greece, clearing the way for a four month extension of the country’s financial bailout, according to The Sydney Morning Herald.

The local stock market is likely to open higher considering the March ASX SPI 200 Index (AP) Futures was trading up by 24 points to 5,882.0 at 07:59 this morning (AEDT).

The Australian dollar jumped higher on what the markets interpreted was dovish testimony by Yellen. At 07:00 this morning (AEDT), the local unit was trading at 78.26 US cents, up from 77.70 cents on Tuesday.


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