Australian Stock Market Report - Afternoon 11/29/2011

MARKET CLOSE (4.30pm AEDT)

It certainly was another volatile session for the Australian sharemarket today. In the first hour of trade stocks rose by around 0.5 pct however at around 1pm the market crept into negative territory. In the last 10 minutes of trade, stocks gained impressively to lift the All Ordinaries index (XAO) by 1 pct or 41.5 pts to 4167.3.

The S&P/ASX 200 Financials index (a way to measure the performance of financial sector related companies on the sharemarket) rose by 1.5 pct or 57.4 pts to 3879.1. This sector includes the big four banks, insurance companies such as QBE Insurance and Insurance Australia Group (which is the owner of NRMA).

ANZ Banking Group (ANZ) was today's best major after rising by 1.61 pct or 31 cents to $19.51, National Australia Bank (NAB) gained 1.58 pct or 36 cents to $23.10, Commonwealth Bank (CBA) rose 1.02 pct or 48 cents to $47.37 and Westpac (WBC) edged higher by 0.94 pct or 19 cents to $20.45.

Shares in subscription television provider, Austar (AUN) fell 1.28 pct or 1.5 cents to $1.15 after the competition watchdog further delayed the approval process for Foxtel's $1.9 billion takeover for the company.

One of the big three ratings agencies, Fitch upgraded the long term forecast for the Australian dollar (AUD) to AAA (the highest possible rating) from AA+ (which was the second best possible rating). Fitch said that the country's low level of debt compared to its peers was one of the major factors leading to the upgrade.

At 11am (AEDT), the federal government said that it remains on track to deliver a budget surplus (albeit a small one of $1.5 billion) next financial year. The good news here is that the government is keeping spending under control however this seems to have been more of a political move rather than an economic one. With Europe remaining fragile, spending cuts will do nothing to stimulate the economy.

Politically speaking in the past, Treasurer Wayne Swan assured Australians that a surplus next financial year is almost a certainty so you would expect the federal government to do all in its power to make this goal a reality. Amongst other spending reductions, the baby bonus will be cut from $5437 to $5000, while Visa charges in addition to a crackdown on tax savings for foreign workers in Australia is expected to take place.

Commsec Economist Savanth Sebastian said that "The release of the Federal Government's "mini budget" confirms our long standing view that the previous budget forecasts needed to be altered substantially. The budget deficit over 2011/12 is now expected to blow out from $22.6 billion to $37.1 billion before getting back into surplus in 2012/13. It is important to realise that the latest forecasts are just that - forecasts. In fact over the past 18 months the forecast budget deficit has blown out from the initial estimates of $13 billion to the latest forecast of $37.1 billion."

Last night, ratings agency Fitch reaffirmed America's AAA credit rating however has lowered its outlook to negative due to the failure of the "super committee" (made up of six Democrats and six Republicans) to come to agreement on $1.2 trillion of spending cuts over the next decade. Remember that back in August this year, Standard & Poor's (another of the big three ratings agencies) downgraded the U.S debt rating to the second highest level. This made it the first time the U.S had its credit rating cut since 1917.

The S&P/ASX 200 Materials index edged higher by 0.53 pct or 57.8 pts to 10954.5 today with BHP Billiton (BHP) and RIO Tinto (RIO) both rising by around 0.3 pct by close of business.

Most markets in the Asia Pacific region gained today with the exception of shares in the Philippines, which ended a touch lower today. Japan's unemployment rate rose significantly more than expected from 4.1 pct to 4.5 pct. The market was expected a slight rise to 4.2 pct.

Tonight, the eurozone finance ministers will be meeting in Brussels to continue with the never ending discussions on the debt crisis. Both the Italian and Belgian governments will be conducting bond auctions (essentially raising funds to keep their economies running). The bond yields (or the cost of borrowing) will be looked at closely.

Later on tonight, a U.S report will be issued giving us an update of the confidence levels of the American public. Surprisingly a slight improvement is expected here by the market.

The volume of shares traded came in at 2.05 billion today, worth $4.32 billion. 550 shares were up, 438 finished weaker and 374 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is up 0.12 pct or 5 pts to 4139.

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 stronger start to trade after managing to improve on Friday.

Dow Jones futures are currently higher, indicating that U.S stocks could start in the black 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 managed to rise strongly over the last hour or two and buys US99.8 cents.

Steven Daghlian, Commsec Market Analyst

[Kick off your trading day with our newsletter]