Australian Stock Market Report – Afternoon 12/17/2012

Afternoon Market Report

Sellers were able to impose their will on regional markets today in quiet trade. Most indices ended the session lower, although there was limited conviction on the part of buyers and sellers.

The news pulse from the US & Europe at weeks end was mixed. Consumer inflation and manufacturing data from the US were below forecasts although a report on industrial production was substantially better than expected. The tech sector was overshadowed by continued weakness in Apple shares.

An improving picture of manufacturing in China at the end of the week resonated with northern hemisphere investors and underpinned gains in commodity prices.

The ASX200 fell 0.21 per cent to 4573.4 points; The All Ordinaries slipped 0.15 per cent to 4588 points. Volume was light, 1.4 bln shares changed hands valued at $3.6 bln. 422 stocks ended higher, 474 finished lower and 356 were unchanged.

One of the main themes that continues to guide investor thinking is the reallocation of money out of defensive stocks into cyclicals.Most sectors measured by the ASX ended lower, although the materials sector was the best improver and the reason the index didn't slip further into the red. An improvement in iron ore prices to their highest levels in 5 months has helped the general atmosphere in the sector in recent times in addition to the view that Chinese manufacturing activity may have turned a corner. Fortescue Metals group (FMG) was one of the sectors biggest gainers. The CEO confirmed in a statement that the company was in negotiations with a group of investors in relation to the sale of its Pilbara rail and port assets. FMG shares ended at $4.47 up 16 cents or 3.7%. Rio Tinto (RIO) closed the day at $63.52, up 52 cents or 0.83%. BHP shares settled at $36.35 an improvement of 28 cents or 0.77%.

Fairfax Media rose by 0.5% to 51.5 cents on news that proceeds from the sale of its stake in auction website Trade Me will be used to make a substantial reduction in the groups debt. Fairfax is selling its 51 per cent stake in Trade Me which is expected to raise more than $610 million.

Looking at the region Japan was in sharp focus. Over the weekend, the Liberal Democratic Party (LDP) was returned to power in the lower house in a landslide victory. A coalition between LDP and New Komeito will have a super-majority in the Japanese lower house, enabling it to override most decisions by the opposition-controlled upper house. Mr Abe will be sworn in and a new Japanese government formed on 26 December. Mr Abe has been a vocal proponent of supporting the Japanese economy via both expansionary fiscal and monetary policy. Notably, Mr Abe has also called for the Bank of Japan to replace its 1% inflation 'goal' with a 2% inflation 'target'. Mr Abe has indicated that he will appoint a new Governor to the central bank who will commit to the higher inflation target when the current Governor's term ends in April 2013. A new inflation target implies an even more accommodative monetary policy by the Bank of Japan. Central Banks in recent weeks in varying degrees have re-deployed efforts in helping their respective economies which will ultimately be supportive for commodity currencies such as the Aussie dollar. As a consequence the local currency continues to show signs of consolidation at higher leaves despite further downside risk to lower interest rates,

The early pulse out of the European and US hemispheres late in the Asian session indicated a positive start to the week for US and European markets. There have been some signs of progress in the US fiscal cliff negotiations. The Republican House of Representatives speaker Boehner reflected on the possibility of tax increases for Americans earning over US$1 million a year. Although Democrats have been advocating higher rates of taxation on those earning more than$250,000, the latest development is seen as a thawing of the of the Republican position given the stated resistance for any tax increases.

Ahead of the European open, stock futures point small gains for European indices whilst Dow futures are showing gains of 88 points.

[Kick off your trading day with our newsletter]