Australian Stock Market Report – Afternoon 11/9/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket ended in the red for the second straight day this week, with the All Ordinaries Index (XAO) slipping by just 0.4 per cent or 19.7 pts to 4482.5. The value of shares traded was significantly higher than usual today. Over the past five sessions local shares eased by just 0.15 per cent, making it the third consecutive week of losses. So far this month, the XAO is down 1.3 per cent; equities have still improved by 8.89 per cent in 2012 which is 4 per cent better than American markets.

It certainly has been a big week across the globe, with the RBA deciding to keep rates on hold at 3.25 per cent; the Melbourne Cup took place on Tuesday; the U.S elections were held mid-week; there were more jobs created than expected last month; both the European Central Bank (ECB) and the Bank of England (BoE) decided to keep rates on hold; while Chinese economic news today showed that inflation is contained, leaving the potential for further stimulus ever present.

The banks were the biggest drag on trade, with National Bank of Australia (NAB) going ex-dividend for its 90 cent a share distribution scheduled to be paid to eligible shareholders on 18 December. This essentially means that buying NAB shares today or later will not make you eligible to receive the payment. NAB shares slumped by 4.26 per cent or $1.06 to $23.81, Westpac (WBC) slipped by 2.93 per cent or 76 cents to $25.17.

Commonwealth Bank of Australia (CBA) jumped 1.1 per cent or 64 cents to $58.82 while ANZ Banking Group (ANZ) rose 0.78 per cent or 19 cents to $24.56. WBC also went ex-dividend for its 84 cent a share dividend due to be paid on 20 December.

The S&P/ASX 200 Materials Index fell by 0.51 per cent or 51.9 pts to 10194.8. Iron ore focused Rio Tinto (RIO) dropped 1.11 per cent or 66 cents to $58.69. BHP Billiton (BHP) eased by 0.61 per cent or 21 cents to $34.46.

The defensive healthcare sector rose by 0.82 per cent, while the consumer discretionary stocks also edged a bit higher. The retailers were mostly better, with Myer (MYR) the rare standout. MYR jumped by 4.47 per cent or 8.5 cents to $1.98, while David Jones (DJS) rose by 0.82 per cent or 2 cents to $2.46.

On the economic front today, the Reserve Bank of Australia (RBA) issued its Statement on Monetary Policy. Essentially the bank has retired to the interest rate cutting sidelines for the time being. The RBA said that "there are signs that easier conditions have been having some of the expected effects, and further effects can be expected over time." The bank downgraded its growth forecasts for Australia by 0.25 per cent for December 2013 and June 2014.

Keep in mind that rates were cut in May, June and October and it now seems more likely for the RBA to remain in wait and see mode next month before potentially cutting rates in February next year. The RBA doesn't meet in January each year.

CommSec Economist Craig James said that "The RBA is of the view that the rate cuts are starting to work to lift growth.So for now it has retired to the sidelines to assess the impact of the last, and previous, rate cuts. Have rates bottomed? The optimists hope so; the pessimists are focussed on the problems in Europe and the "fiscal cliff" in the US. Given all the global risks, as well as the uncertainty of the domestic baton change from
mining to non-mining sectors, we continue to pencil in another rate cut in February. Certainly a rate cut in December can be ruled out unless there is a disaster in Europe. Much will depend on the domestic baton change. With momentum from the mining sector set to ease, housing, personal spending and non-mining business spending will need to fill the void. And given the sluggish response by the economy to rate cuts so far, it is wise to remain cautious."

Across the region today China was in focus, as a barrage of economic indicators were issued in the world's second largest economy. This included inflation, producer prices, industrial production and retail sales. This afternoon Chinese production, retail sales and investment all beat expectations. Shares in China, Taiwan and New Zealand are all modestly higher at 4.30pm (AEDT).

In Europe tonight, French and Italian production reports will be issued between 6.45pm (AEDT) and 8pm (AEDT). Final German CPI (consumer inflation) will be out at 6pm (AEDT), with no change expected.

In the U.S, a consumer sentiment report will be issued for November. The Presidential election, the recent super storm and the fiscal cliff could play their part in tonight's reading.

Volume of shares traded came in at 1.49 billion today, worth just $7.2 billion. 400 shares were up, 493 were weaker and 364 ended unchanged.

At 4.30pm (AEDT) on the Sydney Futures Exchange, the ASX24 futures contract is down 0.07 per cent or 3 pts to 4483.

Due to the end of daylight savings in Europe, most major European markets are now trading between 7pm (AEDT) and 3.30am (AEDT). Futures are currently pointing to a weaker start to trade tonight.

U.S futures are pointing to a slightly better start tonight. Due to the start of daylight savings in Australia and its end in the U.S, American markets will now be trading between 1.30am (AEDT) and 8am (AEDT).

Turning to currencies, the Australian dollar (AUD) is a little stronger than this time yesterday. One AUD buys US104.28 cents, is trading at £65.1 pence and €81.5 cents.

Australia is a commodity based economy, with commodities in general accounting for almost 80 pct of all our exports over the past nine months. In essence, when the going gets tough globally, there is fear of less demand for our commodities, which tends to result in a weaker AUD.

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