Australian Stock Market Report - Afternoon 10/24/2011

AFTERNOON REPORT (4.30pm AEDT)

The local share market started the trading week on a very positive note, although volumes were low. Investor sentiment was boosted by impressive gains in US and European share markets on Friday, while strong Chinese manufacturing data added to the overall buying mood. The All Ordinaries Index (XAO) rose 110.2pts or 2.6pct to 4313.6 while the S&P/ASX 200 Index (XJO) gained 113pts or 2.7pct to 4255.

The mining sector was the best performer, following sharp gains on the London Metals Exchange on Friday night on hopes of a resolution to the European debt crisis. An improvement in the Chinese manufacturing sector and comments from Rio Tinto (RIO) CEO Tom Albanese that long term demand for commodities remains strong also helped. RIO shares added 4.9pct to $65.63 while BHP Billiton (BHP) gained 3.2pct to $36.85. Shares in iron ore miner Fortescue Metals Group (FMG) firmed by 8.5pct to $4.61.

Financial stocks also recorded solid gains. The National Australia Bank (NAB) releases annual earnings on Thursday, NAB shares today rose 2.6pct to $24.94. Macquarie Group (MQG) was up 3.6pct to $23.34.

In the healthcare space, specialty pharmaceutical firm Pharmaxis Limited (PXS) added 50pct to $1.41. Pharmaxis, which develops and markets new treatments for undertreated respiratory diseases, is a step closer to securing approval to market its cystic fibrosis drug, bronchitol, in Europe. Europe´s 27-nation Committee for Medicinal Products for Human Use (CHMP) has recommended marketing authorisation for bronchitol to be used as an add-on therapy for adults with cystic fibrosis.

Economic data released today showed the broad measure of business inflation, or final stage prices, rose by 0.6pct in the September quarter, in line with forecasts. Inflation was narrowly based with the rise in utilities (electricity, gas and water) accounting for almost 85pct of the quarterly increase in the PPI.

CommSec Economist Savanth Sebastian said of the data, "The producer price index doesn't track the consumer price index very closely, as it tends to be influenced by volatile factors such as the global oil price and the Australian dollar. Still, it's worth keeping an eye on in order to track the cost pressures facing business and the implications for profitability. In the current environment - with consumers closely watching their pennies - it's more likely that businesses would seek to absorb higher costs rather than passing them through to final buyers. So cost pressures would have greater relevance on profitability rather than inflation."

According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 0.8 cents per litre to 145.0 cents a litre in the week to October 23. Today the wholesale price stands at 137.3 cents a litre, easing from the three year high reached last week.

The Australian dollar broke through US104c today on the back of the strong Chinese manufacturing data. At market close, the Aussie was worth US104c, £0.6515 and €74.87c.

On the market overall, a total of 1.69 billion shares were traded, worth $4.1 billion. 655 were up, 344 were down and 358 were unchanged.

At 4.15pm AEDT on the ASX24, the futures contract was at 4256, up 100pts.

The European Union summit on Wednesday will be the major focus for market watchers this week, however a raft of companies will be releasing earnings in the US, including Dow components Caterpillar, 3M, Exxon Mobil and Chevron. Household names Ford, Xerox and Visa also come out with numbers.

No major economic data is scheduled for release in the US tonight, however the Chicago National Activity Index is handed down.

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