Australian Stock Market Report – Afternoon 12/12/2012

Afternoon Market Report
(17:00)

'Gains by stealth' is one way of describing the local markets performance in recent days. Modest moves higher on successive days underpinned by similar volumes. The Australian share market traded at its highest level in close to 17 months amidst news flow that could be seen as positive if only for the fact that it didn't upset the applecart. An improved read on Germany's influential survey of business conditions was better than expected. In its commentary the author of the report, The ZEW institute, said that the German economy is expected to bottom out over coming months rather than move into expansion. Additionally the disquiet that marked the beginning of the week in Europe, Italy in particular, began to fade. There have been suggestions that Prime Minister Mario Monti is giving consideration to standing as a candidate at the upcoming general election. Mr Monti has been forced to step down after Mr Berlusconi's party withdrew support for the government. Mr Monti is seen as the lynchpin for the reform progress in Italy and market sentiment suffered on news of his imminent departure. On the other side of the Atlantic press reports suggested that progress had been made on U.S. budget talks.

At the close of trade the S&P/ASX200 had gained 0.17% to 4583.The All Ordinaries index rose 0.23% to 4591. Almost 1.7 billion shares were exchanged today valued at just over $5 billion. 526 shares finished higher, 405 ended down and 371 were unchanged.

At face value one of the investment themes of the day appeared to be the rotation into cyclical stocks. As a result resource stocks provided the cornerstone for the day's gains. Asset sales were the order the day for BHP and Rio in both cases Chinese interests were on the other side of the transaction. Rio Tinto (RIO) rose 0.7% to $62.20 on announcing the sale of its portion in a South African mining group to a consortium of Chinese interests led by Hebei Iron & Steel for $356 million.BHP Billiton gained 0.99% to $35.76 on news that it will sell its interest in the $30 billion Browse gas project off the coast of W.A to oil and gas giant Petro China for $1.56 billion. Shares in the Browse joint venture leader Woodside Petroleum rose 1.6% to $34.44.

Economic news today saw the focus remain on sentiment surveys, this time of the consumer ilk. The Westpac Melbourne Institute Index of Consumer Sentiment fell by 4.1% in December, following three consecutive increases. The level of the index has returned to a neutral level or the longer term average of 100, a level where there is an equal number of pessimists and optimists being surveyed. One of the key take outs from the survey is that RBA's December rate had little impact in thawing consumer negativity am. The overriding negatives for respondents were concerns over the domestic and international economic outlooks and fears of higher unemployment. The categories that fell were: current family finances compared to a year ago, 7.2%; economic conditions for the next 12 months, 4.3%; economic conditions in the next five years, 8.9%; and, is it a good or a bad time to buy a major household item, 4.8%. The only category to show a rise was the outlook for family finances over the next twelve months which rose by 4.6%. One conclusion that can be drawn on the back of the survey is the impact that lower interest rates are having on investment trends. Household savings rate are at historic highs although the falling rate environment is forcing investors out of the safety of cash into other asset classes, specifically stocks and property both of which have seen improvements in recent times. On its own the fall in consumer confidence is not an indicator of further rate cuts from the RBA.

Despite the drop in consumer confidence, consumer related stocks saw gains on the day. JB Hifi (JBH) ended at $10.44 a gain of 3.2%. Harvey Norman (HVN) finished at $1.82 up 0.55%, David Jones (DJS) closed at $2.50 up 1.2% Myer (MYR) lost ground to $2.18 a loss of 0.9%. Amongst consumer staples Wesfarmers (WES) finished flat at $36.28, Woolworths (WOW) finished at $29.83 up 0.98%

In northern hemisphere trade tonight, the US Federal Reserve's FOMC meeting continues for a second day. An announcement is due early Thursday morning (Sydney time). Operation Twist expires at the end of the year. It's expected that the FOMC will announce an increase in asset purchases (quantitative easing) although the impact of the announcement will be limited.

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