Australian Stock Market Report - Afternoon 1/12/2012

MARKET CLOSE (4.30pm AEDT)

The Australian sharemarket failed to make it three straight sessions of gains today, with the All Ordinaries index (XAO) easing by a modest 0.1 pct or 4.5 pts to 4238.4. The market's second largest sector, the miners managed to record some modest gains while the larger financial sector lost a little ground.

One of the country's largest insurers, QBE Insurance (QBE) fell by 12.69 pct or $1.65 to $11.35 today however managed to recover from falls of more than 20 pct earlier in the session. QBE said that it is expecting profit in 2011 to be between 40 pct and 50 pct lower than in 2010. It also announced that its final dividend will be 41 cents lower than previously announce to 25 cents a share. The avalanche of natural disasters which hit Australia has been partly to blame for the drop in expected profit. Insurance Australia Group (IAG) fell 1 pct or 3 cents to $2.97 while Suncorp (SUN) lost 2.47 pct or 21 cents to $8.28. IAG is the owner of NRMA.

The world's largest miner, BHP Billiton (BHP) rose 0.53 pct or 19 cents to $36.37 today while Australia's second largest resource player, RIO Tinto (RIO) gained 0.84 pct or 54 cents to $64.73.

Last night the price of crude oil fell by more than 1 pct and was sitting at US$100 a barrel. This was partly due to a report showing that crude oil inventories in the U.S are currently five times higher than forecast. The U.S is the biggest consumer of oil, accounting for around 23 pct of total global oil consumption. Woodside Petroleum (WPL) fell by 0.15 pct or 5 cents to $32.37 while Santos (STO) gained slightly.

The major banks were mixed throughout the session however ended mostly weaker by the close of business. ANZ Banking Group (ANZ) managed to rise by 0.09 pct or 2 cents to $21.10. National Australia Bank (NAB), Commonwealth Bank of Australia (CBA) and Westpac (WBC) all ended in the red.

On the economic front, the latest credit and debit card statistics were released in addition to the latest tourism statistics. The average credit card limit grew by just 1 pct over the past 12 months with Australians clearly staying clear of credit. The average credit card balance actually rose slightly by $52.90 to $3,333.40 in November.

Commsec Economist, Savanth Sebastian said that "while the average credit card balance rose in November that was largely due to seasonal factors with the onset of Christmas. In fact if you look at the average credit card balance it is growing a slower pace than inflation, up just 1.4 per cent on a year ago in smooth terms - marking the slowest pace of growth since the height of the global financial crisis when consumers were slashing debt. And even if consumers are using their credit cards they are being much more financially savy - paying it off by the due date. In fact with the average credit card balance accruing interest grew by just 0.8 per cent over the past year."

In the region today, China released its latest inflation reading which came in at a slightly higher than expected 4.1 pct. If inflation continues to ease, it would make Chinese authorities more comfortable to cut the reserve requirements for its banks. This means that China's banks would have more funds to lend to both consumers and businesses, potentially resulting in additional growth. This would result in more demand for Australian goods. The Australian dollar (AUD) lost some ground following the higher than expected inflation reading however quickly gained back some ground.

Out of the Europe last night, a report has shown that the German economy contracted by 0.25 pct in the December quarter (October to December 2011). This is a sign that even the Eurozone's largest economy is not exempt from the European debt crisis. The German economy grew by 3 pct in 2011 nonetheless.

Tonight, the latest British manufacturing production report will be out and a flat result is expected. The U.K's central bank, the Bank of England will be meeting to decide on what to do with interest rates tonight. The market is expecting that rates will remain at 0.5 pct. The European Central Bank (ECB) is also meeting tonight and will make a decision on rates at around 11.45pm (AEDT). Market forecasts are for rates to remain unchanged at 1 pct.

In the U.S last night, markets ended largely unchanged. The Beige Book was released at 6am (AEDT), which collects anecdotal information from all American central banks on the state of the U.S economy. The U.S has 12 central banks contrary to Australia's lone Reserve Bank of Australia (RBA). The report has shown that economic activity in the U.S has improved but only at a modest to moderate pace over the previous year.

Tonight, the latest retail sales will be released in North America with expectations of a modest 0.3 pct rise at best. Weekly unemployment claims is expected to come in at around 370,000 for the previous week. The latest Federal Budget Balance will also be out in the U.S with market expectations pointing to a US$79 billion deficit.

Over the past 12 months, the American government has recorded a deficit of around US$1.2 trillion and congress has been trying to take steps to cut the shortfall.

The biggest budget outlay (expense) for the U.S treasury is the Department of Health and Human Services, followed by Social Security expenses and then the Department of Defence-Military Programs. The U.S spends more on its military than the next 20 nations combined.

The volume of shares traded came in at 1.25 billion today, worth $3.56 billion. 459 shares were up, 413 finished weaker and 393 ended unchanged.
At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is down 0.05 pct or 2 pts to 4150.

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 Futures are currently trading lower, indicating that U.S stocks are expected to kick off trade tonight in the red. 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) buys US102.9 cents and €81 cents. The AUD did lose some ground following China's higher than expected inflation reading but quickly made up for the losses after an hour or so of trade.

Steven Daghlian, CommSec Market Analyst

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