Australian Stock Market Report - Afternoon 10/25/2011

AFTERNOON REPORT (4.30pm AEDT)

Despite predictions of more strength on the local share market today, it appears fear and volatility remain at play. After a 2.7pct gain yesterday, the All Ordinaries Index (XAO) fell 25.9pts or 0.6pct today to 4287.7.

Rumours that private bondholders may have to take a loss between 50 to 60pct on Greece's debt weighed on investor sentiment ahead of the European Union summit on Wednesday.

Also today, US economist Nouriel Roubini said there´s now more than a 50pct chance that the world´s most advanced economies, including the UK, US and Europe will fall into recession.

Material stocks were the best performers, on the back of a surge on the London Metals Exchange overnight. Base metals rallied following a strong reading on the Chinese manufacturing sector. Copper added close to 7pct while nickel was up 6.4pct. Shares in index leader BHP Billiton (BHP) firmed by 0.9pct to $37.17 while Rio Tinto (RIO) gained 1.5pct to $66.63.

Macarthur Coal (MCC) directors accepted the $4.9 billion takeover offer from the US and Belgium joint venture PEAMCoal late this afternoon. Overnight, PEAMCoal gained the 50.01pct minimum shareholder acceptance which was needed for the deal to take place. The directors of Macarthur will stand down tomorrow and appoint nominees of PEAMCoal. PEAMCoal is made up of US firm Peabody Energy and Belgium steelmaker Arcelor Mittal. MCC shares ended the day's trade at $16.21.

Financial stocks however lost ground. Shares in the National Australia Bank (NAB), which reports full year earnings on Thursday, dropped 1.1pct to $24.67. Macquarie Group (MQG) was down 1pct to $23.10.

In the energy space, Oilsearch (OSH) shares gained 0.5pct to $6.05 after reporting a 13pct rise in 3rd quarter revenue as higher energy prices offset lower production costs. OSH also announced to the market that its US$15 billion Papua New Guinea gas export joint venture with Exxon Mobil is on track to ship its first cargo in 2014.

In the media sector, Southern Cross Austereo (SXL) announced today its first quarter revenue fell 2.7pct to $176.8 million and that it expects second quarter revenue to be flat with television markets to remain challenging, but radio to remain stable. SXL shares rose 4.1pct to $1.145.

In the healthcare sector, shares in medical equipment manufacturer Resmed (RMD) fell 13pct to $2.61 after reporting an 11pct fall in 1Q profit to $48.35 million from $54.28 million. Resmed has blamed currency fluctuations for the drop in earnings.

Shareholders of clothing and linen producer Pacific
Brands (PBG) today rejected the remuneration package for the company's board. More than 52pct of voting shareholders were against the pay increase. PBG shares fell 5.6pct to $0.595.

Also in the retail space, surf wear retailer Billabong (BBG) said it expects better earnings in FY12, sending its share price up 8.6pct to $3.91.

Reserve Bank Deputy Governor Ric Battellino today delivered a speech in Sydney entitled "Economic and Financial Developments." The Deputy Governor reiterated that the RBA sits in an enviable position of being able to provide stimulus if required; "the downward revisions to recent estimates of underlying inflation and the softer global economic outlook have made the outlook for inflation less concerning, providing scope for monetary policy to be supportive of economic activity, if needed".

However the Deputy Governor did mention that the Australian economy has held up relatively well given the fragile nature of the global economy.

The speech clearly gave the impression that even the Reserve Bank is still unsure if a rate cut is likely to take place on Melbourne Cup day. There is still a week before the Reserve Bank board meets and with it a whole host of market moving news to come. The CPI data released tomorrow will provide a further colour on the domestic inflation landscape. In addition the basis of an interest rate cut (provided the inflation result is benign) is squarely centred on the risks to the global economy.

The Australian dollar rallied today, ending the day's trade at US105.64c. It was also buying £0.6459 and €75.28c.

On the market overall, a total of 1.84 billion shares were traded, worth $4.7 billion. 396 were up, 554 were down and 406 were unchanged.

At 4.30pm AEDT on the ASX24, the futures contract was at 4216, down 33pts.

Ahead tonight, data on home prices and consumer confidence are scheduled for release in the US along with the Richmond Fed Index. 3M and Xerox report earnings before the open.

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