Australian Stock Market Report – Afternoon 10/9/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket improved for the eighth time in nine sessions, with the All Ordinaries Index (XAO) rising by 0.5 per cent or 24.6 pts to 4526.6. Last night, European markets slumped by as much as 2 per cent, with shares in Milan amongst the biggest losers. France's CAC40 and Germany's DAX Index both slid by close to 1.5 per cent. The CAC40 and DAX are France and Germany's equivalents to Australia's All Ordinaries Index (XAO).

This afternoon, The Australian Stock Exchange (ASX) encountered a technical glitch that prevented the publication of company news. Companies listed on the ASX have a responsibility to announce to the market any important company information. The glitch was finally fixed just prior to market close and lasted between 1.50pm (AEDT) and 3.56pm (AEDT).

Last night was a public holiday in the U.S, so as expected volume was extremely light. There were around 30 per cent fewer shares that exchanged hands overnight compared to the previous Monday. An element of caution was also exercised ahead the U.S profit reporting season which kicks off tomorrow morning with aluminium company, Alcoa.

Over the past 24 hours both the International Monetary Fund (IMF) and the World Bank released updated growth forecasts for the global economy. The World Bank cut its growth forecasts for the region, with GDP now expected to be around 8.1 per cent next year in China rather than the previously forecast 8.6 per cent growth.

The IMF issued its World Economic Forecasts, which indicated that the global economy is now likely to expand by 3.3 per cent this year and 3.6 per cent in 2013. This is a downgrade from forecasts six months ago, which were pointing to a 3.5 per cent expansion this year. The Australian economy is also expected to grow by 3.3 per cent in 2012.

Almost all sectors improved today, with the energy sector the standout. The S&P/ASX 200 Energy index rose by 1.33 per cent or 167.5 pts to 12723.1. Sydney based Oil Search (OSH) was one of the biggest winners after signing five licensing agreements with French oil giant Total. OSH jumped by 3.18 per cent or 24 cents to $7.78.

The four big banks contributed to the day's rise, with ANZ Banking Group (ANZ) gaining 0.39 per cent, National Australia Bank (NAB) rose by 0.34 per cent, Commonwealth Bank (CBA) edged higher by 0.25 per cent and Westpac (WBC) improved by a modest 0.15 per cent.

So far this year CBA shares are up 15.26 per cent, NAB is 12.59 per cent higher, ANZ has improved by 24.79 per cent and WBC has jumped by 29.45 per cent.

The major miners also ended in the black, led higher by iron ore producer Fortescue Metals (FMG), which rose by 6.47 per cent or 24 cents to $3.95 after iron ore prices jumped by around 6 per cent overnight. This was partly due to the Chinese returning to work after five consecutive sessions of public holidays.

On the economic front, a report showed that the average price of unleaded petrol rose by 0.1 cent to 145.7 cents a litre last week. Wholesale prices have gained by 2.5 cents over the past week; however prices at the pump are likely to remain unchanged over the next fortnight.

CommSec's Chief Economist, Craig James said that "There may not be a lot of good news for motorists, but also not a lot of bad news. The average petrol price is likely to hold near current levels. That may be little comport because the discounting cycle still exists, meaning that prices are still likely to trade in a 15-20 cent a litre range over a 7-10 day period. In simple terms, motorists have to remain vigilant. The wholesale price is near 138 cents a litre, so if you see petrol near those levels, fill up."

According to another report, Australian businesses are slightly more confident now than they were a month ago. The good news for business is that in-bound migration is close to record highs; interest rates have been cut for the first time since June and are likely to be cut again in November. The RBA rarely only makes one rate cut in isolation without backing it up with another move the very next month.

Mr James said that "The latest business survey basically suggests that there are a lot of business owners effectively sitting on their hands at present. Smart businesses should be embracing the opportunities that are being presented, especially the historically-low interest rates, on-line business opportunities and expanding Chinese market. But most, it appears, are being blinded by the risks, rather than focusing on the opportunities. Hopefully the lift in home buying activity can create momentum through the economy."

The number of tourist arrivals to Australia rose by 3.7 per cent in September. Visitors from China rose strongly to 607,900 over the year. The number of 'permanent arrivals' over the past 12 months was around 160,000.

Mr James pointed out that "There is the mining boom, and then there is the other boom. The number of Chinese tourists visiting our shores over the past year has passed the 600,000 mark and China has passed the UK as our second largest tourism market. In fact around 1,800 Chinese tourists are coming to Australia each and every day and the total continues to grow. While some commentators debate whether the mining boom is over, in the background China is becoming more and more important to Australia in a host of ways. This is still the early days of Chinese urbanisation and industrialisation so the growth opportunities in coming years are huge. And while some businesses are bemoaning the 'high' value of our currency, remarkably the number of tourist arrivals hit record highs in the latest month. And not only did tourist arrivals lift in the latest month, but it was the strongest monthly gain in 10 months."

In Europe tonight, the French government budget balance and trade balance will be issued. More importantly however; the European Central Bank (ECB) President Mario Draghi will be delivering a talk.

No major, market moving economic news is forecast for release in the U.S tonight.

Volume of shares traded came in at 1.52 billion today, worth just $3.36 billion. 522 shares were up, 425 were weaker and 337 ended unchanged.

At 4.30pm (AEDT) on the Sydney Futures Exchange, the ASX24 futures contract is down 0.35 per cent or 16 pts to 4493.

Due to daylight savings, most major European markets are now trading between 6pm (AEDT) and 2.30am (AEDT). Futures are currently pointing to a weaker start to trade tonight.

U.S futures are pointing to a stronger start tonight. 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 12.30am (AEDT) and 7am (AEDT).

Turning to currencies, the Australian dollar (AUD) gained a bit of ground against the greenback throughout the day. The AUD now buys US102 cents. Our currency is trading at £63.7 pence and €78.9 cents.

Australia is a commodity based economy, with commodities in general accounting 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.

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