Article / 02 February 2015 at 6:37 GMT

Australian Market Wrap: gains continue ahead of RBA meeting

Trading Desk / Saxo Capital Markets
Australia
  • The S&P/ASX200 rose 36.98 points to close at 5625
  • The energy sector led the market higher, followed by materials and financials
  • AUDUSD continues to trade within a tight range between 0.7800 and 0.7725

By Saxo Capital Markets Australia

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All figures in Australian dollars unless otherwise specified.

Our local markets continued to build gains and started the month on a positive note: the S&P/ASX200 rose 36.98 points or 0.66% to 5625.30, taking the year-to-date gains to 3.86%.

Heavy lifting today was led by energy, materials and the financials again. The energy sector (the biggest gainer today) rallied 1.82% with Oil Search lifting 2.7% to $7.98; Santos was higher by 1.52% to $8.00 and Woodside Petroleum tacked on 1.08% to $64.65.

Newcrest Mining (our largest gold miner) rose 2.58% to $13.91, mirroring gains seen in gold on Friday. BHP Billiton added 1.16% to $29.60, Rio Tinto slipped 0.16% to $57.47 and Fortescue Metals dropped 2.12% to $2.31 as the price of iron ore fell by 1.6% on Friday.

All four banks saw gains with Westpac rising 1.13% followed by ANZ Banking Group, which lifted 1.12%. Commonwealth Bank added 0.39% to $89.68 and National Australia Bank rose 2 cents or 0.06% to $35.65.

As we would have expected, Qantas (QAN) was one of today's heavy fallers down 3.83% to $2.51 after oil rose 8% on Friday. The sudden jump in the oil price was attributed to key figures coming out showing that capital expenditure and production budgets had been cut.

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Qantas failed to lift, following the sudden jump in the oil price on Friday. Photo: iStock

JB Hi-Fi (JBH) had an explosive start to the day, rising 6% to $17.78 within the first 30 minutes of trading after releasing their half-year results. Key figures include: total sales up 1.3%, comparable sales down 0.7%, gross profit up 1.8%, gross margin up 11bps, NPAT down 1.9%, EPS down 1.2% and the interim dividend was up 7.3% to $0.59. 

While JBH was sold off on its strength, it still closed up 1.79% to $17.05. As stated in Thursday's stock pick, JBH was ready to pop and we sold half our holding at the first target of $17.47. We still maintain the second price target of $17.95 is achievable in the near future.
Beach Petroleum (BPT) rallied 5.21% to $1.01 and was the most closely correlated to crude oil's leap on Friday. 

The Aussie dollar continues to trade within a choppy and tight range between 0.7800 and 0.7725 ahead of tomorrow’s Reserve Bank of Australia rate decision. This price action is not surprising as the market is cautious about the possible interest rate cut, which may put even more selling pressure below the key support level of 0.7700; 78 cents remains the interim resistance level before the RBA announcement and trade balance, and it is expected to hold overnight. However, we believe the rate cut may not happen tomorrow, which means AUDUSD would lift up towards the first resistance level 0.7852.

The S&P/ASX 200 has been rallying sharply in the last two weeks on the anticipation of a rate cut and it is trading in the overbought area. Therefore, a divergence is forming between E-mini S&P 500 and S&P/ASX 200 where the Aussie market has been outperforming the US market recently.

The US market looks weak even in the current earnings season and with the rate cut expected in the third quarter in 2015, we have a bearish outlook on the US market and expect the Australian stock market to follow along with the continuous weakness in commodity prices.

Also the S&P/ASX 200 is trading near the major resistance level of 5568, which has been a key level in April 29 2014, 5568; November 8 2014, 5572; and January 30 2015, 5577. When it failed to break out of this resistance level on November 8, this triggered the aggressive sell-off down to the support level of 5118, which indicates the strength of resistance. The next resistance level of 5600 could not be tested today, therefore if the RBA does not cut rates tomorrow, we expect a sell-off in the S&P/ASX 200 below 5568.

– Edited by Gayle Bryant

Australian Market Wrap is compiled by the Sydney trading desk at Saxo Capital Markets.

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