Australian Stock Market Report – Afternoon 11/1/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket pulled back for the first time this week, with the All Ordinaries Index (XAO) slipping by 1.2 per cent or 55.5 pts to 4479.9. Today was the worst day for the local market in three months and the XAO finished the session at its lowest point of the day.

Global markets lost ground overnight; European equities (shares) falling most significantly following disappointing employment numbers. The jobless rate in the 17-state Eurozone rose from 11.4 per cent to 11.6 per cent which was worse than expected. Austria currently has the lowest unemployment rate in the region at 4.4 per cent while Spain is in the weakest position with a jobless rate of 25.8 per cent (followed closely by Greece at 25.1 per cent).

A catalyst for today's falls was the official reading of manufacturing health in China, which indicated a modest improvement that was not as significant as the market had hoped. The official government manufacturing PMI rose from 49.8 to 50.2. Any reading above 50.0 indicates industry expansion. Another report on the health of the manufacturing sector compiled by HSBC showed a bigger than expected improvement.

Of the major banks, National Australia Bank (NAB) was the biggest loser amongst the big four with its shares sliding by 2.99 per cent or 77 cents to $25.02. Yesterday, NAB which is the fourth largest bank in Australia by market capitalisation (number of shares on issue multiplied by current share price) reported a 22 per cent fall in its annual profit; disappointing the market. Westpac (WBC) fell 1.45 per cent or 37 cents to $25.14, Commonwealth Bank of Australia (CBA) slipped by 0.83 per cent or 48 cents to $57.27 and ANZ Banking Group fell 0.47 per cent or 12 cents to $25.33.

The mining sector fell despite slightly stronger commodity prices. BHP Billiton (BHP) and RIO Tinto (RIO) both slipped by around 1.25 per cent while iron ore miner Fortescue Metals Group (FMG) slumped by 2.21 per cent or 9 cents to $3.99.

A number of companies held their Annual General Meetings (AGMs) today including Boral, Perpetual, Transfield Services, Whitehaven Coal and Noni B. Building and construction materials provider, Boral said that the U.S market is showing signs of a recovery while trading conditions still remain difficult overall.

Women's fashion retailer Noni B said that conditions are tough, however still managed to record a modest profit last year of $2.7 million. This has been a typical comment by most retailers nationwide.

On the economic front, home prices in capital cities fell by 1 per cent in October following a 1.4 per cent rise in value in September. Over the year, prices are down 1.1 per cent. Darwin has recorded the most significant improvement in prices, with a rise of 8.6 per cent while home prices in Hobart have fallen by 4.6 per cent over the past 12 months.

CommSec Economist, Savanth Sebastian said that "The modest fall in house prices in October can perversely be looked at as a positive development - especially given that prices recorded the largest percentage gain in 30 months in September. The last thing that the Reserve Bank wants to see is significant growth in property prices, effectively creating a housing bubble. So the latest fall in prices will give the Reserve Bank a degree of comfort. And while price gains are more subdued the recent trends suggest a modest turnaround in the housing sector."

Import prices slipped by 2.5 per cent in September; a sign that inflation is under control. This together with a fall in home prices should make the Reserve Bank more comfortable in cutting rates next Tuesday.

A report on the health of Australia's manufacturing industry has shown that the sector has contracted for the eighth straight month.

In Europe tonight, most major markets will be trading normally despite bank holidays in France and Italy. The latest manufacturing PMI is scheduled to be issued at 8.30pm (AEDT) and is likely to show another month of contraction.

In the U.S, the main highlight will be the ADP employment report for October; a report which reveals the number of new jobs created over the month. The market is anticipating the creation of an additional 139,000 positions in October at 11.30pm (AEDT) tonight. The latest car sales report for October in addition to a manufacturing reading and the number of weekly unemployment claims will also be issued.

Volume of shares traded came in at 1.99 billion today, worth $4.92 billion. 354 shares were up, 601 were weaker and 346 ended unchanged.

At 4.30pm (AEDT) on the Sydney Futures Exchange, the ASX24 futures contract is up 0.14 per cent of 6 pts to 4442.

Due to the end of daylight savings in Europe, most major European markets are now trading between 7pm (AEDT) and 3.30am (AEDT). Futures are currently pointing to a weaker start to trade tonight. The Italian and Spanish markets have been sold off recently; however are likely to start slightly stronger at 7pm.

U.S futures are pointing to a lower 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 12.30am (AEDT) and 7am (AEDT).

Turning to currencies, the Australian dollar (AUD) is unchanged against the greenback and buys US103.6 cents. Our currency is trading at £64.2 pence and €80.09 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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