Australian Stock Market Report – Afternoon 12/10/2012

EVENING MARKET REPORT
(17:30 AEDT)

Whilst several regional indices ended the session in the red, the general market atmosphere at the start of the week was constructive. The Dow and S&P 500 concluded last week on positive note following an upbeat government jobs report. US Non-farm payrolls gained by 146k in November (60K better than expected), although October job gains were revised lower.The unemployment rate dropped from 7.9% to 7.7%, the lowest since December 2008.

Despite the better employment report, US job creation remains weak. It's reasonable to suggest that the FOMC could move to provide further stimulus at the conclusion of their meeting on Wednesday. The Greenback is likely to remain firm on the run into the FOMC meeting on Thursday morning (4.30am AEST). Tech stocks were noted underperformers, the NASDAQ closed in the red in the wake of the sharp sell off for Apple shares.

One of the factors helping the regional tone on Monday was the generally better than expected monthly data released in China on Sunday. The data for November added to the view that China's economy is gradually accelerating. Amongst the figures released, Chinese retail trade (14.9%pa) and industrial production (10.0%pa) were encouraging and are likely to be supportive for the local currency in the early part of the week.

The S&P/ASX200 index rose 0.13% to 4557; the All Ordinaries index improved 0.14 per cent to 4562.

The better local tone was sullied somewhat following a weaker than expected report on Chinese trade. China´s monthly trade surplus dropped to $18.78 bln in November, down 38% from last month suggesting soft global demand for Chinese exports. Notwithstanding the trade report, mining stocks were the best improved group, with the sub-index rising 0.8% .Fortescue Metals Group (FMG) shares were amongst the best improvers closing 6.9% higher at $4.05. FMG announced that it had reached an agreement with joint venture partner BC Iron to sell half of its iron ore miner´s interest in the Nullagine joint venture. BC Iron will pay $190 million for a 25 per cent of Nullagine, taking its total interest in the project to 75 per cent. BHP Billiton gained 0.6% to $34.95, and rival Rio Tinto added 1.88% to $61.30.

Figures released from the ABS today point to investor attitudes changing in face of a low interest rate environment. Housing Finance figures for October revealed a 0.1% rise in the number of loans to owner occupiers which was significantly weaker than market expectations which centred on a rise of 3.0%. The surprise aspect of the report was the significant jump in construction lending to investors. This reading rose by 128% to $0.89bn in October, to be 182% higher over the past year (its highest level since January 2008). It appears that the combination of below average mortgage rates and firm rental yields is attractive to investors. Construction lending to owner occupiers rose by just 0.5% to $2.27bn, to be 16.5% higher than a year ago. Total construction related lending rose by 19.4% in October to be 39.7% higher over the past year.The housing finance numbers helped financials rise as a group although the big bank performances were mixed. ANZ (ANZ) fell 0.2 % to $24.84, the CBA (CBA) gained 0.03% to $60.90, National Australia Bank (NAB) improved 0.33% to $24.58, and Westpac (WBC) gained 0.58 % to $25.90.

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