Australian Stock Market Report - Afternoon 11/07/2011

MARKET CLOSE (4.30pm AEDT)

It seemed that investors stayed well away from the Australian sharemarket today ahead of further clarification on a number of topics from the Eurozone and particularly Greece over the next few days. The All Ordinaries index (XAO) fell by 0.2 pct or 7.2 pts to 4335.3.

It certainly has been a wild ride so far in 2011, with the XAO rising by around 1.5 pct between January and March, only to lose around 19 pct between April and September, then gain by around 7 pct in October and is remaining volatile in the early part of November.

The miners and financials both lost a little ground and held the broader market back. The financial sector makes up around 38 pct of the ASX 200 index while the mining sector accounts for more than 25 pct.

The world's third largest diversified miner, RIO Tinto (RIO) fell 1.67 pct or $1.17 to $68.80 while the larger BHP Billiton (BHP) lost 0.66 pct or 25 cents to $37.70.

The big banks ended mixed, with ANZ Banking Group (ANZ) rising by 0.81 pct or 17 cents to $21.19 ahead of its ex-dividend date on Thursday, Commonwealth Bank of Australia (CBA) improved by around 0.5 pct ahead of its Annual General Meeting scheduled to be held tomorrow, Westpac (WBC) fell by 4.4 pct after going ex-dividend today while National Australia Bank (NAB) ended largely flat.

It was not all bad news today however with some impressive gains being recorded by both Computershare (CPU) and Orica (ORI). CPU is the world's largest share registry and rose by over 15 pct after receiving the nod of approval from U.S regulators to takeover BNY Mellon's share registry business.

Chemicals and explosives manufacturer ORI rose by around 4.5 pct after posting a $642 million profit and declaring a 53 cent a share dividend. This was broadly in line with what the market was expecting.

On the economic front today, the latest report on job advertisements was released and showed that the number of jobs fell for the sixth time in seven months. This measures the change in the number of advertisements in both newspapers and on websites.

This is further proof that businesses are remaining hesitant to take on additional staff in the current financial environment. This is a forward looking indicator because if businesses are not posting ads to hire additional staff, over the coming months you would expect to not see a significant amount of jobs being added.

Commsec Economist Craig James said that "...with hiring down, unemployment is set to edge even higher in coming months. The jobless rate has lifted from around 4.9 per cent to the 5.2-5.3 per cent region. However a jobless rate closer to 5.5 per cent is possible later in 2011 or early in 2012. A softer job market will keep downward pressure on wages and prices and should pave the way for another rate cut by February next year."

Mr James continued by saying that "The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates."

In Japan, the Osaka Securities Exchange is currently in late stage takeover talks with the larger Tokyo Stock Exchange. This increases the likelihood that Japan will have just one major consolidated sharemarket in the not too distant future.

There is a substantial amount of information and data to digest over the next five sessions. On the economic front in Australia, the latest report on business confidence will be out tomorrow as will a report on international trade. On Wednesday, we will find out if lending has started to pickup or if it remains subdued with Australian consumers remaining conservative to take on additional debt. On Thursday, the all important monthly report on the job market will be released. In this report we will find out how many jobs were created last month and if the unemployment rate will remain steady at 5.3 pct.

Wednesday and Thursday will be the biggest days of the week throughout the Asia Pacific region with China releasing the bulk of its monthly data over both days. The Chinese tend to release most of their key economic data over a few days each month.

There are over 100 companies meeting to hold their Annual General Meetings (AGMs) over the next five days. This gives shareholders a chance to ask questions of management. A number of big names will be meeting for their AGMs mid week. On Wednesday, Seven Group, Lend Lease, Wesfarmers (the owner of Coles supermarkets) and Fortescue Metals are all meeting. On Thursday Fairfax Media, Brambles and QR National are holding their AGMs.

Europe will very much continue to be the centre of attention this week with a number of questions remaining unanswered. It has been an eventful fortnight for the Greeks and the Europeans. Last week the Greek Prime Minister, George Papandreou said that a referendum will need to be held to vote on the European bailout package. He then backtracked on this in the latter part of the week, saying that no referendum will be held (this was following a tough meeting with German leader, Chancellor Merkel and French leader Nicolas Sarkozy). On Friday Mr Papandreou narrowly survived a confidence vote prior to announcing that he will be stepping down.

Developments out of Greece will continue to remain key over the coming days. A National Unity Government is expected to be created, which basically brings together the current ruling party and the major opposition party. Perhaps one of the intentions of the leaders in doing this is to show the global community that the Greeks are working together and could help secure further assistance from the European Union. Elections in Greece are expected to take place on February 19.

Tonight, the 17 Eurozone finance ministers are scheduled to meet in Brussels while all 27 European Union ministers will meet tomorrow night.

There has been an increase in focus on Italy by global media. Italian bonds are yielding (returning) around 6.3 pct. This basically means that investors are demanding higher returns for their investments in Italy due to concerns about its uncomfortably high debt levels.

The volume of shares traded came in at 1.54 billion today, worth $3.72 billion. 449 shares were up, 504 finished weaker and 382 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is down 0.07 pct or 3 pts to 4282.

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 weaker start to trade tonight.

Dow Jones futures are down 0.05 pct or 6 pts to 11935, indicating that U.S shares will likely kick off the session largely flat when American markets open at 1.30am (AEDT). Due to the Americans going back an hour on November 5, U.S markets will be trading between 1.30am (AEDT) and 8am (AEDT).

Turning to currencies, the Australian dollar (AUD) has lost some ground against the greenback and buys US103.5 cents.

Steven Daghlian, CommSec Market Analyst

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