Article / 29 April 2015 at 8:55 GMT

Australian Market Wrap: Off the cliff

Trading Desk / Saxo Capital Markets
Australia
  • ASX200 tumbles by 1.85%
  • Healthcare sector plunges
  • AUDUSD trading around 0.80

By Saxo Capital Markets Australia

Today has been a rough one. With an indicative opening of 0.2% based on the futures index, the market ignored its lead and went straight into a selloff. The ASX200 closed down a heavy 1.85% to 5,838.6 as the market got cold feet ahead of three key overnight announcements. 

The first is at 10:30 p.m. AEST with Q1 US GDP figures. The second is at 4 a.m. AEST with the Federal Open Market Committee statement being announced. Finally, there is the Reserve Bank of New Zealand rate decision at 7 a.m. AEST.

It is no surprise that every sector within the Australian economy was down today. Healthcare is a notable mention, down 2.62% with CSL falling 2.91% to $91.00. CSL has a market capitalisation of $44 billion and maintains a strong international revenue stream that will be impacted by the weaker USD and sentiment on US healthcare stocks. 

Some other well-known household names that also took some punishment today were Resmed and Cochlear, down 1.35% and 1.89% to $8.02 and $83.39 respectively.

Melbourne

Australian markets saw a perfect storm of poor sentiment in today's session. Photo: iStock

Macquarie Bank (MQG) gave up a hefty 4.83% to close at $79.15. After reporting its second-best profits last year, MQG has surged by an impressive 40% since January. 

Like the other Big Four banks, however, Macquarie was mentioned in the Banking and Wealth Summit where it was outlined that there is a significant systematic risk building within the big banks' property loans exposure. Essentially, holding more capital will be paramount to balance their economic exposure. This subsequently will weaken the banks' return on capital.

A special mention goes to Recall Holdings (REC) which climbed an unimpressive 0.26% to close at $7.64 after opening at $7.90. REC were approached for a takeover in December 2014 with a target price of $7/share, but declined on the basis of undervaluation. 

Today it announced that the same prospective suitor – Iron Mountain – has made a second and more impressive offer of $8.50/share. The board has recognised advantages to the takeover which include the creation of truly global firm; increased economies of scale; a stronger balance sheet; and (potentially) substantial synergies estimated in its December announcement of $250m/year. 

As of today's close, REC is trading at an 11% discount.

Myer (MYR) was also one of the very few companies on the ASX100 to trade in the green today, up 2.21% to $1.385. As mentioned previously, MYR has been poorly led and needs to make some changes (this was signalled, in part, by the resignation of Bernie Brookes). 

This, however, means the market does not know how to price MYR as no results have or will be seen for another year. This means it is trading on "feeling" and that feeling at the moment that it may become a takeover target.

The ASXSP200 was heavily sold off (100 points), breaking through the interim support level at 5,867. Since the open, ASXSP200 didn’t look back and it was a one-way rush to the downside as Australian Prudential Regulation Authority chairman Wayne Byres warned investors against loading up on risky assets. 

(Adding to the sentiment, of course, was speculation that Australia’s AAA credit rating could be downgraded.)

The support area is between 5,800 and 5,822, where the market found resistance in early February. Today was the second trading session in a row that saw the ASXSP200 close towards the low and a quadruple-top pattern has formed as the index has failed to stay above 6,000 four times. 

We expect the ASXSP200 to remain under selling pressure, unless new and dovish notes emerge from the FOMC meeting.

After a huge overnight rally, AUDUSD had a quiet session within a narrow range around 0.8000. The interim resistance remains at 0.8032, but we expect AUDUSD to regather its strong momentum to push up towards the next resistance level (0.8100) in the European session

Tonight’s US Advance GDP print and tomorrow morning’s FOMC statement would be the key catalysts to determine whether USD will extend its weakness.

— Edited by Michael McKenna

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

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