Australian Stock Market Report – Afternoon 11/26/2012

Afternoon Report

The new trading week has begun the way the previous one finished. Investors are maintaining their vigil in relation to economic readings out of Europe and the US, wary of any negative impact that political inertia is having on real economy outcomes on either side of the Atlantic.

To that end, the news pulse at week's end has been positive for prices. In Europe the influential German Ifo business climate index rose from 100.0 to 101.4 in November which bettered expectations. Additionally there was a sense that the issue of Greece and the next tranche of bailout funds being granted is nearing a resolution by European leaders. In the US reports of brisk retail trade in the post Thanksgiving sales was welcome news, although the impact on the markets was marginal. The point worth noting is that investors have the sense that despite the negative political climate, economic outcomes are holding up.

Investors are looking ahead to key reports later in the week, which include Business Investment locally. The key part of the report is the 2012/13 investment intentions survey. There is a risk that these numbers contain downward revisions to the investment outlook. In such an event interest local rate markets would become more aggressive in pricing interest rate cuts from the RBA, potentially as early as December. This would be supportive for stocks. Another report on the same theme will be released by The Bureau of Resources and Energy Economics (BREE) on major mining projects. These data will provide a deal more detail about the future for Australia's resources sector.

Further afield the Manufacturing PMI from China and the US GDP report in the US will be released later in the week. In each case, results significantly better or worse than expectations could transform market sentiment in the broader picture.

The local index ended higher although participation remained low. The S&P/ASX200 rose 0.25% to 4424 points. The broader All Ordinaries gained 0.27% to 4443. $1.3 billion shares were traded worth $2.8 billion, 485 ended higher, 471 finished lower and 358 were unchanged.

One of the themes of recent times has been how expensive certain defensive stocks have become. This point was borne out once more after a broker downgrade of blood products group CSL. This factor that will continue to be front of mind for investors particularly if market conditions improve in the near term and money moves out of defensives into cyclicals. Blood products group CSL (CSL) ended at $46.78, down 58 cents or 1.2%, hearing implant maker Cochlear(COH), fell 54 cents or 0.7% to $74.16, Resmed (RMD) closed at $3.83, down 1% or 4 cents and Ramsay Healthcare (RHC) lost 2 cents to settle at $25.31.

Elsewhere on the defensive end of the risk spectrum, shares in Melbourne IT (MLB) fell after it flagged a profit downgrade. The business, which includes managing domain names, said 2012 earnings are expected to fall by 10% compared to the previous year. The guidance was the mirror reverse of guidance offered in August when the group guided for earnings growth of 10% in 2012. Continuing challenges in the For The Record business, which provides digital services to the legal industry, played a part in the earnings downgrade as governments revise spending intentions. Shares in MLB fell 19 cents or 10% to $1.55

The economic economic calendar in Europe is relatively empty tonight. German and Italian Consumer Confidence reports are the main releases of interest. Neither are likely to impact markets meaningfully.

Later in the European session, Eurozone Finance Ministers meet for the third time this month to discuss Greece (starts 11:30am GMT). The key focus remains on whether a compromise can be reached on how to close Greece's funding gap and sustainability of its debt position.

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