Australian Stock Market Report – Afternoon 10/4/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket improved for the sixth consecutive day, with the All Ordinaries Index (XAO) rising by 0.3 per cent or 13.8 pts to 4472.6. While this perhaps doesn't sound overly impressive, it is the best winning streak for the local market since December 2011. The gains haven't been backed by a rise in volume though, with investors still shying away from truly diving headfirst into equities.

A number of public holidays across the region have been adding to the subdued investor appetite. The Chinese markets have been closed for business since Monday due to national holidays. Markets in Hong Kong were closed on Monday and Tuesday while trade in South Korea has also been interrupted on a number of occasions. An important U.S government report on job creation will be issued tomorrow night which might also be keeping some investors at bay.

Global markets ended mostly stronger overnight, with shares in Germany, the U.K and Italy all rising in the vicinity of 0.25 per cent. The U.S DOW index edged higher by 0.1 per cent while France's CAC40 eased by 0.24 per cent. Last night a better than expected report on jobs helped boost confidence modestly. 162,000 jobs were created in the private sector last month, which was almost 30,000 more than expected. The more important official government report is due for release tomorrow night.

The financials led the market on its march higher, taking the sector's gains for the week to around 2.5 per cent. Westpac (WBC) was the best after rising 1.63 per cent or 41 cents to $25.57. ANZ Banking Group (ANZ) and Commonwealth Bank (CBA) both rose by 1 per cent, while National Australia Bank (NAB) gained 0.77 per cent or 20 cents to $26.15.

While the banks did well, the miners held the market back. Commodity prices slid overnight partly due to concerns over a potential bailout request by Spain. The world's biggest mining company, BHP Billiton (BHP) fell by 1.32 per cent or 44 cents to $32.99. Rio Tinto (RIO) edged higher by 0.43 per cent or 23 cents to $53.95. BHP is around four times larger than RIO in terms of market capitalisation (number of shares on issue multiplied by its current share price).

On the economic front, retail spending and building approval reports were both issued before lunchtime. Retail spending rose by a modest 0.2 per cent in August after falling by 0.8 per cent in July.

CommSec Economist, Savanth Sebastian said that "At present it is clear that consumers are remaining conservative and holding back on significant retail purchases. In fact spending on non-food retailing barely budged, up by just 0.1 per cent in August. However over coming months the lower interest rates on offer and fiscal stimulus by Federal will support household budgets and should have a longer lasting impact on activity levels. Interestingly department stores which bore the brunt of the weakness in July recorded a healthy rebounded in August. While Western Australia which has been on the frontline, when it comes to the slowdown in the mining sector, recorded a rebound in activity. Despite the improvement in sales there is no doubt that lower pricing continues to play a key part in enticing a rather nonplussed consumer. Most businesses would tell you that it is hard work to make a quid. The key is an ongoing improvement in confidence, until confidence levels stage a sustained improvement it is likely that sales will be patchy."

The number of building approvals granted to developers by councils in August rose by 6.4 per cent, which was more than expected. Keep in mind that approvals slumped by 21.2 per cent in July.

Mr Sebastian said that "Dwelling approvals have also not shown a clear cut sign of a turnaround in recent months. However the incentives provided by state governments on new building construction, coupled with lower interest rates should ensure that the outlook for the housing sector looks more upbeat. In addition with home prices and equity markets rising the stage has been set for a healthy turnaround in activity."

No major data was issued in the region today due to a large number of public holidays. Shares in Japan rose by 0.89 per cent or 77 pts to 8824.59. Shares in the Philippines jumped by 1.19 per cent or 64.17 pts to 5439.69.

In Europe tonight, both the Bank of England (BoE) and the European Central Bank (ECB) will be meeting for their monthly meetings on interest rates. The market is expecting no change in rates in the U.K (rates at 0.5 per cent) with the potential of a 25 bps (0.25 per cent) cut by the ECB to 0.75 per cent.

In the U.S, the Federal Reserve's minutes from its September interest rate meeting will be issued. This will be important because it was at this meeting that the Fed announced its third round of Quantitative Easing (QE3). One of the key reasons it did so was the lack of job creation. The August factory orders report will also be issued together with weekly unemployment claim numbers at 10.30pm (AEST).

Volume of shares traded came in at 2.23 billion today, worth just $3.88 billion. 494 shares were up, 412 were weaker and 387 ended unchanged.

At 4.30pm (AEST) on the Sydney Futures Exchange, the ASX24 futures contract is up 0.02 per cent or 1 pt to 4461.

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

U.S futures are pointing to a stronger start tonight also. 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) has continued to lost ground partly due to the RBA's rate cut on Tuesday and weaker commodity prices offshore. The AUD now buys US102.2 cents and has fallen by a little over US2 cents against the greenback since last Thursday. Our currency is trading at £63.5 pence and €79.01 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.

[Kick off your trading day with our newsletter]