Australian Stock Market Report - Afternoon 11/23/2011

MARKET CLOSE (4.30pm AEDT)

Shares locally could not recover throughout the day and the daily chart for the market resembled the downward slope of a relatively large hill. The All Ordinaries index (XAO) was down by 0.16 pct at the start of trade only to extend its losses by market close to 1.9 pct or 78.4 pts to 4125.8.

There were a number of factors affecting investor sentiment today including China's worse than expected reading on the manufacturing sector.

The bailout package for the Belgium bank Dexia seems to be encountering some difficulties. There have been some reports that a collapse of the bailout plan could continue to put France's AAA credit rating under pressure (although bond markets are already taking into account the potential ratings downgrade).

The problem is that the European Commission (the governing body of the European Union) thinks that the 90 billion Euro bailout deal is not feasible, particularly for Belgium. According to the previous agreement, France is expected to contribute 36.5 pct of the 90 billion Euros with Belgium needing to pay 60.5 pct of the total package.

A little earlier in the day, a major U.S financial institution downgraded its forecasts for commodity prices which did nothing to improve the market's mood.

The S&P/ASX 200 Materials index (a broad measure of how the miners performed during the day) slumped by 2.83 pct or 315 pts to 10799.4, with RIO Tinto (RIO) down 3.41 pct or $2.20 to $62.30 while the larger BHP Billiton (BHP) lost 3.06 pct or $1.09 to $34.51.

The four largest banks continued on their decline for the day with National Australia Bank (NAB) falling 3.29 pct or 76 cents to $22.37, Westpac (WBC) ended 2.6 pct or 53 cents weaker to $19.83, ANZ Banking Group (ANZ) slumped by 2.25 pct or 44 cents to $19.10 and Commonwealth Bank of Australia (CBA) dropped 2.38 pct or $1.13 to $46.27.

The four major banks make up around 20 pct of the Australian sharemarket which is why the sector is so often quoted throughout the media. The direction in which the banks head has a significant impact on the performance of the market day to day.

On the economic front today, the Australian Bureau of Statistics (ABS) released its latest quarterly (July to September) report on the state of the construction sector. Work conducted in the industry surged by 12.5 pct over the three month period due in part to higher engineering activity.

Commsec's Chief Economist said that "Last week we highlighted the disparity in wages across the key mining states and the rest of the country and the reallocation of labour resources to areas that need it the most. And that was clearly in evidence in today's construction data. Engineering activity - roads, bridges railways etc - continues to grow solidly, driven by the mining boom. But residential building is going backwards."

Due to a public holiday sharemarkets in Japan were closed today. Tomorrow night the American markets will not be trading due to the Thanksgiving public holiday.

Last night in Europe, the Spanish and French governments' borrowing costs remained uncomfortably high. Just a few days ago the appointment of Mr Rajoy as Spain's new Prime Minister did little to help increase investor confidence in the nation. He has promised to tackle its 22 pct unemployment problem when he takes over next month.

Agricultural commodity prices were mixed. Last night the price of cotton ended lower in U.S trade. As a side note, cotton has been used for over 5,000 years and is thought to have been founded in modern day Pakistan. Australia is the world's fourth largest exporter of the fibre.

Tonight, the Bank of England's Monetary Policy Committee minutes will be released in the U.K, while the latest report on the state of Europe's manufacturing sector will also be issued.

Last night, the Federal Reserve (America's equivalent to Australia's Reserve Bank) highlighted its concern with the affect the situation in Europe could have on the U.S (which was no surprise). The Fed also said it would take six U.S banks through a series of tests to see how they would cope if things took a turn for the worse in the Eurozone.

In the U.S tonight, the weekly report on the number of Americans filing for unemployment benefits for the first time last week will be released a day early due to Thanksgiving.

The volume of shares traded came in at 1.98 billion today, worth $4.78 billion. 303 shares were up, 682 finished weaker and 384 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is up 0.02 pct or 1 pt to 4153.

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 currently lower, indicating that U.S stocks could start in the red tonight 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 continued to lose ground and buys US97.5 cents trading around a one and a half month low.

Steven Daghlian, Commsec Market Analyst

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