It was another interesting session on the Australian share market, as investors reacted to fresh sovereign debt worries out of Europe and a surprise rise in the local unemployment rate. The All Ordinaries Index (XAO) fell 1.5pct on open, outperforming near 5pct losses witnessed on Wall Street overnight.

Offshore investors were rattled by speculation France could have its AAA credit rating downgraded, despite ratings agency Standard and Poor's indicating such a cut is not on the cards. Local stocks then rallied on expectations of a rate cut locally due to weaker than expected jobs numbers. By close of trade the XAO had fallen 3.9pts to 4203.5 while the S&P/ASX 200 Index (XJO) was weaker by 0.5pts to 4140.8.

Australia

Some 100 jobs were lost in the Australian economy last month, well below expectations of a gain of 10,000. 22,200 full time jobs were lost, while working hours increased. The unemployment rate ticked up from 4.9pct to 5.1pct. Shortly after the data was released, money markets started pricing in a rate cut. Goldman Sachs has now forecast rate cuts of up to 50 basis points by year end.

Financial stocks turned around on this speculation, after having been heavily sold off in early trade following losses in European and US banking shares. Westpac (WBC) added 1.5pct to $20.45 while the National Australia Bank (NAB) was higher by 0.4pct to $22.90. Shares in the Commonwealth Bank (CBA) added 0.7pct to $48.58 and the ANZ (ANZ) was higher by 1.5pct to $20.09.

Telstra (TLS) was among the best performers, after the telecommunications provider reported a better than expected full year profit. Earnings were down 17pct for the year to $3.2 billion, above expectations of a result worth $3.09 billion. Telstra indicated it expects improvements in the year ahead, while 2010/11 was one of its best in terms of attracting customers. Shareholders will receive a final dividend of 14 cents per share, taking total payouts for the year to 28 cents, in line with guidance. Telstra shares were among the best performing today, adding 5.7pct to $2.99.

Meanwhile, rival Optus reported a 5pct drop in first quarter profit. Optus is owned by Singapore Telecommunications (SGT), which fell 2.1pct to $2.33 on the market today.

[Kick off your trading day with our newsletter]

Retailer David Jones (DJS) fell sharply, after issuing a profit downgrade. The upmarket retailer posted a 10.3pct fall in fourth quarter sales to $462.1 million and indicated it's not seeing any signs of improvement in the first quarter of 2011/12. DJS shares fell 6.4pct to $2.62.

Other retailers also slumped. Myer Limited (MYR) fell 5.8pct to $2.12 while Kathmandu (KMD) was off 2.5pct to $1.57. However JB Hi-FI (JBH) shares gained 1.5pct to $15.68.

Gold stocks continued to rally, after the price of the precious metal rose above US$1800 an ounce during New York trade. Shares in Australia's largest gold producer Newcrest Mining (NCM) added 3.8pct to $40.74 while Eldorado Group (EAU) added 6.3pct to $19.13.

Elsewhere in the materials sector, Alumina (AWC) fell 5.8pct to $1.79 after its 1H profit fell below market expectations. AWC reported a 53pct increase in net profit to US$67.7 million, as demand for aluminium continues to grow. Analysts were expecting stronger prices for aluminium would have pushed Alumina's profit even higher.

Back to today's jobs figures and the participation rate held steady at 65.6pct in July. NSW led the job gains in July (up 19,700) followed by Tasmania (up 1,800) and Queensland (up 800). Victoria led the job losses (down by 20,700), followed by South Australia (down 1,700), Western Australia (down 1,500), Northern Territory (down 800 in trend terms), and ACT (down 400 in trend terms).

"The latest result is also consistent with the anecdotal evidence we are hearing from businesses outside the mining sector. Conditions are tough, and the lack of consumer spending and inherent weakness in the housing sector is filtering through to other parts of the economy......over the next few months it is likely that businesses will remain cautious and as such hiring intentions will be curtailed," CommSec Economist Savanth Sebastian said of the data.

The Australian dollar had another session of highs and lows, finishing trade at USD102.7c. It was also buying £0.6345 and €72.15c.

On the market overall, a total of 2.512 billion shares were traded, worth $7.18 billion. 459 were up, 688 were down and 293 were unchanged.

At 4.15pm AEST on the ASX24, the futures contract was at 4096, up 2pts. The Dow Futures was at 10892, up 167pts or 1.6pct.

Ahead tonight, weekly jobless claims are released in the US. Trade data is also due while retailer Kohl's is among the companies reporting, along with chip maker Nvidia.

(From Juliette Saly, CommSec Market Analyst)


More from IBT Markets:
Follow us on Facebook.
Follow us on Twitter.
Subscribe to get this delivered to your inbox daily