Australian Stock Market Report – Afternoon 9/11/2012

MARKET CLOSE
(4.30pm AEST)

Investors seemed uninterested with markets across the region today, ahead of two busy and vital sessions offshore this week. The All Ordinaries Index (XAO) eased by 0.2 pct or 9.7 pts to 4348.3, losing ground for the first time this week and for the first time in four trading sessions.

The healthcare sector was the lone region of the market to record gains today, with the S&P/ASX 200 Healthcare index jumping by 1.57 pct or 159.5 pts to 10350.7. Biopharmaceutical company, CSL Limited (CSL) rose by 2.21 pct or 97 cents to $44.85 and is going ex-dividend on 17 September. This essentially means that you would need to purchase CSL shares at the latest the day before the ex-dividend date and hold the shares at least until the stock goes ex-dividend. Inner ear implant maker, Cochlear (COH) also improved by around 2.27 pct today and is up 10 pct since the start of this calendar year - YTD (Year-To-Date).

The miners ended largely flat today, with BHP Billiton (BHP) one of the sector's only supporters. BHP edged higher by just 0.37 pct or 12 cents to $32.58. Iron ore miner, Fortescue Metals Group (FMG) slumped by 5.07 pct or 18 cents to $3.37, while Rio Tinto (RIO) eased by 0.31 pct or 17 cents to $54.53.

Iron ore is the main raw material used to make both iron and steel (close to 98 pct of mined iron ore is used for steelmaking). Australia is the world's largest exporter of the metal, while China is by far its largest importer (around 60 pct of iron ore is bought by China).

The major banks were mostly lower today, with National Australia Bank (NAB) the only improver amongst the big four. NAB edged higher by 0.28 pct or 7 cents to $25.08. Commonwealth Bank of Australia (CBA) lost 0.55 pct or 30 cents to $54.18, ANZ Banking Group (ANZ) dropped by 0.37 pct or 9 cents to $24.10, while Westpac (WBC) eased by 0.08 pct or 2 cents to $23.58.

New Zealand based electrical appliances company, Fisher & Paykel (FPA) rose by 7.95 pct or 6 cents to 81.5 cents today after being approached for a potential takeover by its biggest shareholder yesterday. FPA shares have jumped by 194 pct so far this year; however have had a terrible run over the previous five years.

Ratings agency Moody's downgraded South Australia's debt rating today due to a deterioration in its financial performance over a number of years.

There are two major events taking place this week which have the potential to influence markets across the world. Firstly, the German constitutional court is meeting tomorrow night to decide on the future of the new Eurozone bailout fund, which was created to assist the weaker European economies. The European Stability Mechanism (ESM) is the name of the new Eurozone bailout project; however has received significant opposition within Germany. According to a recent survey, around 54 pct of Germans would like the court to reject the ESM. If the court rejects the legality of the fund, markets are likely to pullback over the short-term, until a solution is found. Having said this, expectations are for the court to give its nod of approval, potentially with some conditions attached.

In the U.S on Wednesday and Thursday night, the U.S Federal Reserve (the American equivalent to Australia's Reserve Bank) will be meeting to discuss monetary policy. There has been mounting speculation that the Fed could announce another round of stimulus despite the U.S Presidential elections which are taking place in a few months. If this turns out to be true this week, markets should receive some much needed support.

On the economic front today, the NAB business survey results were issued for August in addition to the latest lending finance report for July.

The business confidence survey has shown that sentiment was a little lower in the business community last month. The expectations of weaker commodity prices, a slowdown in China and the delay of big projects in the mining space contributed to the pessimism. Business confidence fell from +3.5 to -2.1 in August. A reading below 0.0 indicates an element of negativity. The survey was conducted between 27 August and 31 August this year. Despite a worsening in confidence, business conditions did improve however are still below long-term averages.

CommSec Economist, Savanth Sebastian said that "There were encouraging signs in the latest business survey but really they are just glimmers of hope rather than a significant revival in business sentiment. Business conditions did bounce back into positive territory for the first time in five months; however it was after an extended period of weakness. In addition business confidence levels fell back into negative territory with the global uncertainty and tough trading environment being the key concerns. The lack of a significant turnaround in activity is disappointing given the stimulus backdrop over the last few months. Multiple rate cuts, Federal government handouts and even tax cuts have hardly made a dent in supporting confidence."

The lending finance report continues to remain volatile, with total lending falling by 3.2 pct in July after rising by more than 2 pct in June. This report is the most comprehensive measure of new lending and recent data has shown that both car and lease loans are still popular.

Mr Sebastian said that "The lending finance figures suggest that while some parts of the economy are being tempted by the lower rates on offer, it is by no means a full blown turnaround. Lending finance fell in July and is down almost 5 per cent on a year ago. It is still early days but the consecutive rate cuts in May and June may stimulate borrowing activity in future months. Despite the overall weakness in the lending data there were some encouraging signs on the personal borrowing front. The low interest rates have altered perceptions on borrowing, and as a result personal finance has risen for the fifth consecutive month to now be up just over 4 per cent on a year ago."

Looking ahead tomorrow will be quite a busy session on the economic front. One of the main releases will be September's consumer sentiment report, which measures the level of optimism of the average Australian consumer. A dwelling starts report for the June quarter (April to June) will also be released. This measures the number of properties that commenced building over the quarter. Credit and debit card data will also be issued tomorrow. This measures the change in spending on both types of cards. Australians are continuing to favour using their own cash (debit cards) rather than making purchases on credit.

Across the region, no major data was issued today. Asia-Pacific markets ended mixed today, with shares in China and Japan the worst performers after losing around 0.7 pct. South Korea's KOSPI index eased by 0.24 pct while Hong Kong's Hang Seng rose by a modest 0.25 pct. New Zealand's NZX 50 Gross index was actually the best performer, after rising 0.48 pct.

No major data will be released in Europe tonight, with the U.K's trade balance one of the only reports out at 6.30pm (AEST).

In the U.S tonight, international trade statistics for July will be out. The deficit is expected to rise from US$42.9 billion to US$45.1 billion. Weekly data on chain store sales will also be out tonight in the U.S. The pace will begin to pick up tomorrow night onwards offshore. Tomorrow night, the German constitutional court meets; on Wednesday and Thursday the U.S Federal Reserve will make a decision on interest rates and potentially could announce another round of stimulus; while on Friday consumer prices (inflation), retail sales, industrial production and consumer sentiment reports will all be released.

Volume of shares traded came in at 1.97 billion today, worth $3.71 billion. 414 shares were up, 498 were weaker and 368 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.37 pct or 16 pts to 4340.1.

Due to daylight savings, most major European markets are now trading between 5pm (AEST) and 1.30am (AEST). Futures are currently pointing to a weaker start to trade.

U.S futures are pointing to a better start to trade tonight. Due to daylight savings taking place in the second week of March in North America and the end of daylight savings in Australia, U.S markets will now be trading between 11.30pm (AEST) and 6am (AEST).

Turning to currencies, the Australian dollar (AUD) buys around US103.5 cents; however is around US1 cent higher against the greenback than this time last week. The AUD buys US103.4 cents, is trading at £64.6 pence and €80.8 cents.

Australia is a commodity based economy, with commodities in general account for almost 80 pct of all our exports over the past nine months. In essence, when the going gets tough globally, there is fear of less demand for our commodities, which tends to result in a weaker AUD.

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