Australian Stock Market Report - Afternoon 1/18/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket gained a little ground for the second time this week, with the All Ordinaries index (XAO) managing to edge higher by a very modest 0.1 pct or 2.9 pts to 4280.6. The mining sector was the day's star performer while the financials held the market back most significantly.

The S&P/ASX 200 Materials index rose 1.1 pct or 123.9 pts to 11359.9 with BHP Billiton (BHP) ending 0.82 pct or 30 cents higher to $37.00 while its smaller competitor, RIO Tinto (RIO) jumped by 1.37 pct or 90 cents to $66.60. Australia's third largest iron ore producer Fortescue Metals (FMG) gained 5.21 pct or 25 cents to $5.05. BHP released its latest quarterly production report this morning which came in a little better than expected while FMG said that it shipped a record amount of iron ore offshore in the December quarter after market close yesterday. FMG also said it remains confident that there will be sufficient demand for exports over the coming year.

The S&P/ASX 200 Financials index fell 0.71 pct or 28.5 pts to 3976.1.Three of the four major banks lost ground today with the exception of Commonwealth Bank (CBA) which ended the day unchanged. ANZ Banking Group (ANZ) was the worst of the session after losing 1.24 pct or 26 cents to $20.79, National Australia Bank (NAB) fell 0.59 pct or 14 cents to $23.66 and Westpac (WBC) eased by 0.44 pct or 9 cents to $20.57.

The retailers were mostly weaker today, however department store owner David Jones (DJS) managed to improve by 1.72 pct or 4 cents to $2.36. DJS said that it plans on opening a new store in Indooroopilly, Queensland this year and expects $40 million in sales from the store.

The World Bank (an organisation that provides loans to developing nations) cut its growth forecasts for the global economy today to just 2.5 pct. This is its biggest cut in growth estimates in almost three years and is partly due to the European debt crisis. The World Bank also said that the 17 Eurozone nations have already entered into recessions.

On the economic front today, the latest report on the number of cars sold in December in addition to the latest consumer sentiment numbers were both issued.

Australian consumers are a little more confident this month than they were back in December last year. The latest Westpac/Melbourne Institute index of consumer confidence rose by 2.4 pct in January to 97.1 pct (a reading under 100 indicates pessimism).

Commsec's Chief Economist, Craig James said that "While consumer confidence rose over the month, the latest result can only be categorised as disappointing. There is not much more that could have gone right over the past couple of weeks to cheer up consumers. Notwithstanding a stronger Aussie dollar, rising share markets, two rate cuts and a modest improvement in the outlook for the global economy, the consumer sentiment index remains below 100, indicating that consumers are still pessimistic. It seems as though the ongoing global economic troubles have altered consumer perceptions and entrenched the current level of cautiousness. Overall most consumers still harbour doubts that the global financial crisis is truly over. In fact the 12-month rolling average on consumer confidence - a more smoothed longer term reading - is holding at a 27 month low."

The number of cars sold last month fell by 2.9 pct in December adding to the 0.6 pct drop in November. Car sales can be a useful indicator because consumer spending makes up a big chunk of the Australian economy. Having an idea of what consumers are spending their money on can give us an idea of their spending habits and their confidence levels.

Mr James said that "The latest car sales result highlights the unwillingness by consumers to spend on big ticket items. Car sales are now down 3 per cent on a year ago. Overall the sector is now back on an even keel, however it will take an improvement in economic conditions to prompt consumers to commit to larger purchases. Certainly the underlying conditions for the car market remain positive. Unemployment is low, wages are rising and car affordability is the best since the mid-1970s. In addition a further rate cut should help to boost consumer confidence and support activity levels."

Contrary to yesterday, there was no major economic data released today in the region. Yesterday, China issued better than expected GDP, industrial production and retail sales reports which partly contributed to the gains from global markets overnight.

European markets hit their best levels in over five months, thanks to some better than forecast economic data in Germany in addition to the Chinese data. Confidence levels for the German consumer rebounded strongly, gaining for the second straight month and has hit a six month high. Spain, Malta and Belgium all raised funds via the bond market with borrowing costs easing.

In Europe tonight, Germany and Portugal are both raising funds through the bond market with bond yields expected to continue to ease in Germany. The U.K will announce its latest unemployment rate which is expected to be at around 8.3 pct. Greek officials will also reconvene with creditors to try and come to a debt agreement.

The U.S markets traded for the first time this week last night following the Martin Luther King public holiday on Monday. No major economic data was released however both Citigroup and Wells Fargo released their fourth quarter profit results overnight. Citigroup disappointed the market while Wells Fargo recorded a 20 pct rise in its quarterly (October to December) profit.

In the U.S tonight, the latest producer prices and industrial production reports will be out while the Bank of New York and Goldman Sachs will be announcing their latest earnings results. The market is expecting one of the weakest profit numbers from Goldman in more than a decade, partly as a result of the European debt crisis.

The volume of shares traded came in at just 1.74 billion today, worth $4.52 billion. 425 shares were up, 498 finished weaker and 365 ended unchanged.
At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is up 0.14 pct or 6 pts to 4192.

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 higher, indicating that U.S stocks are expected to kick off trade tonight in the black. 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 US103.9 cents and €81.4 cents. The AUD is also trading at a 27 year high against the sterling and buys £67.7 pence.

Steven Daghlian, CommSec Market Analyst

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