Australian Stock Market Report - Afternoon 1/16/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket has pulled back today following a negative end to the week from global markets and ratings downgrades for a number of Eurozone economies. The All Ordinaries index (XAO) fell 1.1 pct or 46.5 pts to 4208.9 however activity remained light due to a public holiday in the U.S tonight.

The S&P/ASX 200 Materials index (a measure of performance for companies in the mining sector) fell 1.62 pct or 180.9 pts to 11011.4. The world's largest miner BHP Billiton (BHP) fell 1.69 pct or 62 cents to $35.98 while RIO Tinto (RIO) eased by 0.49 pct or 32 cents to $64.89. Iron ore miner, Fortescue Metals (FMG) lost 2.74 pct or 13 cents to $4.62 ahead of its second quarter production report out tomorrow. RIO is issuing its fourth quarter operations review on Tuesday also.

The S&P/ASX 200 Financials index (a measure of performance for companies in the financial sector) dropped 1.17 pct or 47 pts to 3953.2. The four majors fell by as much as 1.6 pct with National Australia Bank (NAB) the worst of the day after losing 1.64 pct or 39 cents to $23.41. ANZ Banking Group (ANZ) fell 1.6 pct or 34 cents to $20.86, Westpac (WBC) dropped 1.5 pct or 31 cents to $20.37 and Commonwealth Bank of Australia (CBA) ended 1.12 pct or 56 cents weaker to $49.51.

QBE Insurance (QBE) did it tough last week and fell 16 pct. This was following a profit warning it gave to the market, saying that the 2011 profit result will be significantly lower than the 2010 numbers. Today however, QBE shares managed to end the session 2.45 pct or 27 cents higher to $11.27.

Construction company, Leighton Holdings (LEI) has said that its underlying profit for the six months to December 2011 will be stronger than previously forecast. It now expects an underlying profit of $270 million for the second half of last year, around $20 million more than the company previously forecast. This is partly due to stronger earnings from both its Australian and Asian operations. LEI shares rose 4.43 pct or 91 cents to $21.44 today.

Property developer, Stockland (SGP) paid $165 million for land in Sydney's northwest, with the potential to build 2300 new homes. SGP shares fell 2.05 pct or 7 cents to $3.34.

Today was quite a busy session for economic data. The monthly inflation gauge for December rose by 0.5 pct. Prices for residential homes, travel, accommodation, tobacco and alcohol all contributed most significantly to the gains. The price of fruit and vegetables fell by 4.7 pct over the month.

Commsec Economist, Savanth Sebastian said that "The latest monthly rise in the inflation gauge is certainly not overly concerning. In fact if you look at a longer time frame inflation is well and truly contained. The three-month annualised rate of the "headline" monthly inflation gauge as well as its underlying (trimmed mean) component and core measure (excludes volatile items) are now hovering between 0.5-1.9 per cent - well below the Reserve Bank's 2-3 per cent target band."

The weekly petrol price report released by the Australian Institute of Petroleum (AIP) showed that the average price of unleaded petrol across the country rose by 3.1 cents to 143.4 cents a litre last week. The wholesale price sits close to a 3 month high of 136 cents a litre.

Mr Sebastian commented and said that "The petrol price rose sharply over the past week and unfortunately for motorists the bad news is far from over. The cheaper discount day in the ten-day petrol price cycle has just passed and it is likely that pump prices will rise in the next fortnight - especially given that wholesale prices have surged in recent weeks and are now holding near three month highs. In addition over the past month the pump prices have yet to fully reflect the rise in the terminal gate price and as such CommSec expects another 2 cent rise in petrol prices over the next fortnight."

It is also clear that Australian businesses are hesitant to take on additional staff with the number of jobs being advertised in newspapers and online falling for the fifth time in six months in December, down by close to 1 pct.

Commsec's Chief Economist, Craig James said that "Employers are justifiably reticent about hiring in these uncertain times. Job advertisements fell again in the latest month, suggesting more people are competing for the available positions. The only winners are those seeking to work longer hours as employers opt for increased overtime and fewer new hires."

Most markets across the region ended the day significantly weaker with falls of as much as 1.5 pct quite commonplace. The results of a Japanese survey out this afternoon have shown that the average Japanese household was slightly more confident about the state of the economy and their finances in December than in November last year.

In Europe tonight, the European Central Bank (ECB) President, Mario Draghi will be speaking before the European Parliament's Economic and Monetary Affairs Committee in Strasbourg, France.

U.S markets will not be trading tonight due to the Martin Luther King birthday public holiday. The U.S corporate earnings season (profit results for major American companies) will pick up some steam over the coming days. Tomorrow, two of the biggest names in finance, Wells Fargo and Citigroup will release their profit results.

The volume of shares traded came in at just 1.2 billion today, worth $2.89 billion. 351 shares were up, 605 finished weaker and 333 ended unchanged.
At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is down 1.27 pct or 53 pts to 4127.

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.

Turning to currencies, the Australian dollar (AUD) buys US102.7 cents and €81.2 cents.

Steven Daghlian, CommSec Market Analyst

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