Australian Stock Market Report - Afternoon 10/26/2011

AFTERNOON REPORT (4.30pm AEDT)

Market watchers around the globe are anxiously awaiting a key meeting of European leaders in Brussels tonight, with hopes the European Union summit will be able to come up with a clear and definitive solution to the region's debt crisis. US and European markets tumbled overnight with investors nervous about the outcome, but locally we were spared the sell-off, despite an initial dip at open. Sentiment was instead boosted by benign inflation numbers, which have boosted the chance of a rate cut on Melbourne Cup Day.

The All Ordinaries Index (XAO) finished higher by 13.1pts or 0.3pct to 4300.8 despite a drop of almost 1pct on open.

The main measure of inflation in Australia, the Consumer Price Index (CPI) rose by just 0.4pct in seasonally adjusted terms in the September quarter. Economists had focused on an increase of 0.6pct. The annual rate of inflation fell from 3.6pct to 3.5pct.

Financial stocks turned around on the data, with the financial sector up 0.5pct by close. Shares in Westpac (WBC) added 1.4pct to $22.30, while the National Australia Bank (NAB), which is releasing full year results tomorrow, added 1.1pct to $24.95.

Gold miner Newcrest Mining (NCM) was among the best performers, rising 3.5pct to $34.40 after the price of the precious metal topped US$1710 an ounce in Asian trade.

Australia's richest person, Gina Rinehart, today warned that the resources sector could lose market share to other countries if new exploration incentives are not introduced and costs continue to rise. The mining sector as a whole today added 0.13pct.

Around 30 companies held their AGMs today. Insurer IAG (IAG) reaffirmed its profit guidance, sending its share price up 1.3pct to $3.16. However logistics provider Toll Holdings (TOL) warned of a challenging year ahead, its share price dropped 0.4pct to $4.79.

Shares in Macarthur Coal (MCC) dropped slightly to$16.20, with the coking coal miner set to be lost to foreign hands. Belgium steel maker Arcelor Mittal has pulled out of its joint venture bid for the company at the 11th hour, meaning US energy giant Peabody is set to take over the company in a deal worth $4.9 billion.

Retail stocks performed well today, on expectations a rate cut next week would put more money into the hip pockets of many Australians. Shares in Myer Limited (MYR) rose 3.6pct to $2.57 while David Jones (DJS) was up 3.7pct to $3.36.

Looking at the CPI data in detail and higher prices for utilities (electricity, gas & water), clothing & footwear and rents were partially offset by lower prices for fruit & vegetables and health care.

The Reserve Bank focuses on three "underlying" price measures - trimmed mean, weighted median and CPIX (CPI less fruit, vegetables, petrol and deposit and loan facilities). The trimmed mean rose by 0.3pct (2.3pct annual); the weighted median rose by 0.3pct (2.6pct) and we estimate that CPIX rose 0.8pct (2.3pct).

The 0.3pct quarterly increase in the trimmed and weighted median measures were the lowest quarterly readings since records began nine years ago.

The average of the Reserve Bank's preferred "underlying" measures of inflation - weighted median, trimmed mean and CPIX - fell from 2.7pct to 2.4pct in annual terms - the lowest result in seven years.

The Australian dollar fell on the inflation data and at 5pm AEDT was worth US103.7c, £0.647 and €74.58c.

On the market overall, a total of 1.67 billion shares were traded, worth $4.38 billion. 455 were up, 521 were down and 379 were unchanged.

At 5pm AEDT on the ASX24, the futures contract was at 4221, down 1pt.

Ahead tonight, data on durable goods orders and new home sales are released in the US. Boeing, ConocoPhilips and Ford Motor report earnings before the bell, while Visa comes out with numbers after the bell.

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