Australian Stock Market Report - Afternoon 1/10/2012

MARKET CLOSE (4.30pm AEDT)

Following on from an uneventful session yesterday, the Australian sharemarket rose by 1.1 pct or 45.1 pts to 4206.6 today. The defensive healthcare sector was the lone sector to lose ground for part of the session only for it to improve in the second half of the session with all other sectors.

One of the standouts today was footwear and clothing retailer Pacific Brands (PBG) which rose 14.29 pct or 8 cents 64 cents. The gains came after the company said it is considering a takeover approach from a U.S based firm. PBG supplies brands such as King Gee, Superdry and Slazenger.

The airlines also outperformed the broader sharemarket. Qantas (QAN) rose 5.44 pct or 8 cents to $1.55 while Virgin Australia (VAH) gained 1.69 pct or 0.5 cent to 30 cents. Last week QAN shares fell sharply on Thursday and Friday.

Keep in mind that industrial action and bad weather was partly to blame for a drop in company profit last year which resulted in a 40 pct drop in QAN's share price in 2011.

The mining sector contributed most significantly to the gains today with the S&P/ASX 200 Materials index rising 1.7 pct or 182.5 pts to 10911.1. Australia's second largest miner, RIO Tinto (RIO) improved by 1.69 pct or $1.05 to $63.20 while the larger BHP Billiton (BHP) ended the session 1.31 pct or 46 cents higher to $35.66.

The major banks ended mostly lower yesterday but made up for it with gains today. Westpac (WBC) was the best of the big four and rose 1.05 pct or 21 cents to $20.20, ANZ Banking Group (ANZ) was close behind after rising 1.02 pct or 21 cents to $20.75, Commonwealth Bank of Australia (CBA) jumped by 0.77 pct or 38 cents to $49.78 and National Australia Bank (NAB) edged higher by 0.56 pct or 13 cents to $23.50.

On the economic front in Australia today, the latest report on building approvals was released. This measures the number of building approvals granted by councils across the country to property developers. This is a forward looking indicator and gives us an idea how many properties could be built in the future. The number of approvals rose by a better than expected 8.4 pct in November following a 10 pct slide in October.

Commsec Economist, Savanth Sebastian said that "The release of the latest figures on building approvals adds further weight to our view that the housing sector is seeing signs of life after a period of prolonged weakness - thanks in part to the rate cuts that have taken place. Yes, the latest pickup in approvals is encouraging but the unfortunate fact is that the monthly data has shown a high degree of volatility and the recent gains come after substantial falls in the prior two months."

Out of Asia today, China posted a better than expected trade surplus in December (when exports exceed imports). Imports rose less significantly than expected while exports rose more than forecast. Exports over the month rose by 13.4 pct (compared to a year earlier) which was almost a whole 1 pct better than market expectations and helped China post a US$16.52 billion surplus over the month.

In Europe overnight, Germany and France both posted better than expected trade balances. Germany recorded a trade surplus of €15.1 billion (AU$18.7 billion) while France recorded a trade deficit (imported more than they exported) of €4.4 billion (AU$5.4 billion). Switzerland continues to enjoy one of the lowest jobless rates in Europe however unemployment edged higher from 3 pct to 3.1 pct.

No major economic data is scheduled for release tonight in Europe.

In the U.S last night, the corporate earnings season kicked off unofficially with aluminium producer, Alcoa after the close of the U.S market. It posted a loss of US$193 million for the three months to December 2011. On a positive note however, the company said that demand for aluminium is looking up in 2012. Alcoa expects a 7 pct rise in global demand this year and a fall in supply. Its Australian joint venture partner, Alumina (AWC) rose 6.85 pct or 7.5 cents to $1.17 in Australian trade today.

No major economic data is scheduled for release in the U.S tonight however a number of Federal Reserve members will be delivering speeches at different events.

The volume of shares traded came in at 1.52 billion today, worth $3.33 billion. 527 shares were up, 357 finished weaker and 375 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is up 0.12 pct or 5 pts to 4127.

Due to daylight savings, most major European markets are now trading between 7pm (AEDT) and 3.30am (AEDT). Futures in Europe are pointing to a stronger start to trade tonight.

Dow Futures are currently higher indicating that U.S stocks are expected to kick off trade tonight in the black. American markets open at 1.30am (AEDT). Due to the Americans going back an hour on November 5 last year, U.S markets will be trading between 1.30am (AEDT) and 8am (AEDT).

Turning to currencies, the Australian dollar (AUD) gained significant ground over the past 24 hours and buys US103.1 cents and €80.6 cents. The AUD is around 1.35 cents higher against the USD than at this time yesterday.

Steven Daghlian, CommSec Market Analyst

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