Australian Stock Market Report - Afternoon 12/08/2011

MARKET CLOSE (4.30pm AEDT)

The Australian sharemarket ended a touch lower today with the All Ordinaries index (XAO) losing 0.3 pct or 12.4 pts to 4338.9. Almost all regions of the market lost at least some ground, with the energy sector by far the worst in percentage terms. The miners flirted with positive ground for most of the day and did not add to the market's weakness today.

The S&P/ASX 200 Energy index (which is a measure of the performance of companies in the energy sector) fell 1.53 pct or 212.6 pts to 13675.2. Oil and gas producer, Santos (STO) fell 3.85 pct or 52 cents to $13.00 while Woodside Petroleum (WPL) dropped 2.26 pct or 76 cents to $32.90.

The S&P/ASX 200 Financials index (a measure of market performance of stocks in the financial sector) lost 0.33 pct or 13.4 pts to 4090.6 with three of the four big banks ending the day in the red. National Australia Bank (NAB) rose 0.86 pct or 21 cents to $24.61. Commonwealth Bank (CBA) fell 0.98 pct or 49 cents to $49.68, ANZ Banking Group (ANZ) eased by 0.52 pct or 11 cents to $21.13 while Westpac (WBC) dropped 0.37 pct or 8 cents to $21.53.

The S&P/ASX 200 Materials index (a measure of stocks in the mining sector) ended 0.07 pct or 7.7 pts higher to 11432.3. BHP Billiton (BHP) fell only very modestly while RIO Tinto (RIO) lost 0.24 pct or 16 cents to $66.09.

The S&P/ASX 200 Health Care index (a measure of Australian companies in the defensive health care sector) could not escape the selloff and fell by close to 1 pct.

The S&P/ASX 200 Telecom Services index was one of the few regions of the market to gain some ground with Telstra (TLS) rising 0.62 pct or 2 cents to $3.27.

Most of the retailers did it tough today with David Jones (DJS) falling 3.52 pct or 10 cents to $2.74, specialty retailer Harvey Norman (HVN) dropped 1.86 pct or 4 cents to $2.11 and Westfield (WDC) lost 1.68 pct or 14 cents to $8.18. Earlier in the day iconic clothing retailer, Fletcher Jones became the latest victim of a cautious consumer and tough trading conditions.

It is no secret that Australian retailers have been doing it tough over the past several months as consumers remain tentative to splurge on items at retail outlets. Just a few months ago, department store owner, David Jones (DJS) cut its profit expectations by close to 20 pct, clothing retailer Colorado closed down 140 of its underperforming stores in addition to slashing around 1000 jobs.

On the economic front today, the Australian Bureau of Statistics (ABS) released its latest monthly report on the state of the jobs market. The market was expecting an additional 10,000 jobs to have been added last month and for the unemployment rate to remain steady at around 5.2 pct. Instead, there were 6,300 jobs lost in November and the unemployment rate crept a little higher to 5.3 pct.

Full time employment fell by 39,900 while part-time jobs rose by 33,600 during the month. Commsec Economist, Savanth Sebastian said that "The latest result is consistent with the anecdotal evidence we are hearing from businesses outside the mining sector. Conditions are tough, and the lack of consumer spending and inherent weakness in the housing sector is filtering through to other parts of the economy. In addition the strength of the dollar continues to hurt the tourism dominated regions. And over the next few months the ongoing uncertainty about the global environment, is likely to ensure businesses remain cautious and as such hiring intentions will be curtailed - a result that has been mirrored in the ongoing weakness in job advertisement and will result in the unemployment rate rising modestly toward 5.5 per cent over the coming year.":

All eyes remain on the Eurozone (also known as the Euro area) which will have a big end to the week over the next two days. The European Central Bank (ECB) is holding its monthly meeting on interest rates tonight. The market is expecting rates to stay at 1.25 pct, however there remains every possibility that rates will be cut to 1 pct due to the significant problems in Europe.

The U.K's central bank, the Bank of England (BOE) is also scheduled to deliver its rates statement and make a decision on interest rates which the market is expecting will stay at an already low 0.5 pct.

Tonight, the European Economic Summit kicks off. This will include European Union (EU) and ECB officials and will take place in Brussels, Belgium. The EU leaders are promising a package of 'comprehensive solutions' to the debt crisis but the market seems yet to be entirely convinced.

Earlier this week, Standard & Poor's (S&P) put the entire Eurozone on negative credit watch. The ratings agency (which is one of the big three) said that tightening credit conditions across the region was part of the reason. Europe finds itself in a very difficult spot and there remains every possibility that either the Euro will no longer exist in its current form or even that the Eurozone stops operating as it has for almost a decade.

Portugal, one of the more troubled Eurozone nations has transferred assets from four of its biggest banks to the state's books. Although this does not sound quite so legal, Portugal has reportedly notified both the EU and the International Monetary Fund (IMF) of its actions. Three of the nation's pension plans were moved from Portugal Telecom on to the state's social security system (another questionable act). The purpose of doing this was to meet its deficit targets.

No major economic data is expected to be issued tonight in the U.S.

The volume of shares traded came in at 2.5 billion today, worth $4.42 billion. 420 shares were up, 545 finished weaker and 353 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is down 0.58 pct or 25 pts to 4283.

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 tonight.

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) currently buys US102.6 cents.

Steven Daghlian, CommSec Market Analyst

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