Australian Stock Market Report - Afternoon 1/25/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket ended higher today for the first time this week, with the All Ordinaries index (XAO) rising by 1 pct or 42.7 pts to 4329.1. The consumer discretionary and utility sectors lost a little ground but all other industries ended the day higher. As long as Australian shares do not lose ground on Friday, the XAO will likely have improved for the fourth consecutive week.

Despite the banks ending mostly weaker in offshore trade overnight, Australia's financial sector was today's best performer. Westpac (WBC) improved by 3.5 pct or 72 cents to $21.30, Commonwealth Bank of Australia (CBA) jumped by 2.41 pct or $1.20 to $51.00, ANZ Banking Group (ANZ) gained 2.24 pct or 47 cents to $21.42 and National Australia Bank (NAB) rose 2.02 pct or 48 cents to $24.20.

The retailers were mostly higher today with the exceptions of discount retailer JB Hi-Fi (JBH) and department store owner, Myer (MYR). JBH fell 2.75 pct or 33 cents to $11.69 while MYR dropped 1.47 pct or 3 cents to $2.01. David Jones (DJS) rose 1.71 pct or 4 cents to $2.38, surfwear retailer Billabong (BBG) gained around 1.3 pct and Westfield (WDC) jumped 2.7 pct.

The airlines ended mixed with Qantas Airways (QAN) finishing flat while Virgin Australia (VAH) jumped by 3.28 pct or 1 cent to 31.5 cents. Middle Eastern carrier Etihad Airways may be considering taking a stake in VAH. Richard Branson and Air New Zealand are currently the airline's largest foreign owners.

The miners ended around 0.5 pct higher as a sector with BHP Billiton (BHP) rising 0.92 pct or 34 cents to $37.42. BHP has gained by 8 pct so far in calendar year 2012.

On the economic front today, the Australian Bureau of Statistics (ABS) released its quarterly Consumer Price Index (CPI) today which showed that inflation rose by a modest 0.2 pct last quarter. This makes it more likely that the Reserve Bank of Australia (RBA) will cut rates when it meets next in a fortnight. For those who do not know, the RBA meets on the first Tuesday of each month with January the exception.

Commsec Economist, Savanth Sebastian said that "As we have suggested in a number of recent reports, inflation is well and truly contained. The latest result removes the last standing hurdle for the Reserve Bank to cut interest rates next month. The sluggishness in the domestic economy has ensured that businesses continue to absorb any increases in costs, while the strength of the Australian dollar continues to keep imported prices low. In addition the uncertainty and downside risks to the global economy have resulted in subdued commodity price in recent months."

No major economic data is scheduled for release in Australia tomorrow partly due to the Australian Day public holiday.

In the Asian region today, markets in China, Hong Kong, Taiwan and Vietnam were all closed due to the Lunar New Year break. The South Korean market traded for the first time this week and is up 0.27 pct or 5.33 pts to 1955.22.

Japan released its latest trade balance which came in lower than expected and has resulted in Japan recording its first annual trade deficit (imports were greater than exports) since 1980. India has started easing monetary policy overnight by cutting bank reserve ratios. This basically means that Indian banks have more money to lend out which would normally result in added growth. India's interest rates are sitting at 8.5 pct and have not moved since October 2011. Rates could potentially be cut over the next few months to stimulate the Indian economy.

European shares eased from their highest levels in almost six months overnight. A report showed that Europe's manufacturing industry is picking up steam (particularly in Germany).

European finance minister met last night in Brussels to discuss a wide range of issues with a particular focus on the financial problems the Europeans must still deal with. Over 60 pct of Croatians have voted 'yes' in a referendum on whether to join the European Union (EU).

In Europe tonight, the German ifo business climate index will be released. This shows how confident German businesses are with the state of their finances and the economy. The survey is quite highly respected due to its large sample size of over 7,000 German businesses. The latest retail sales report will be released in Italy tonight for the previous month and the market is expecting spending to have contracted by 0.1 pct in November 2011. The World Economic Forum (WEF) kicks off in the Swiss Alps. The forum will be attended by central bankers, prime ministers, trade ministers and business leaders from over 90 countries.

In the U.S last night, the Federal Reserve (America's central bank and the equivalent of Australia's Reserve Bank) kicked off its two day meeting on interest rates. On the earnings front Johnson & Johnson, Apple, McDonalds and Yahoo! all posted their profit results. The standout was Apple (AAPL;us) after posting a huge US$13 billion profit in the previous quarter (October to December 2011). Apple sold 37 million iPhones which was around 7 million more than expected. The company also sold around 15.4 million iPads and iPods respectively which was around 2 million more than expected for each product. Apple also made around US$46.3 billion worth of sales, which was an all-time record for the electronics giant and was the first quarter without Steve Jobs at the reigns.

Last night, the International Monetary Fund (IMF) downgraded its forecasts for the global economy from 4 pct to 3.3 pct. The world economy grew at 3.8 pct in 2011 and the IMF expects growth to pick up to 3.9 pct in 2013. The organisation is usually considered to be one of the better forecasters of global growth (but do not always get it right).

Earlier in the day, President Obama gave his State of the Union address. The U.S leader said he wants states to adopt laws that make dropping out of school illegal in a bid to have students stay in high school until they have either graduated or turned 18. He has also called for more creative teaching and thinks that teachers should be paid more.

In the U.S tonight, the U.S central bank will be meeting for the second day. Expect the Federal Reserve to be a little more upbeat than they have been recently. On the economic front, the latest report measuring the number of homes pending sale in December (bought but not settled homes) will be issued while Boeing, ConocoPhillips, ETrade and Motorola will all be releasing their fourth quarter (October to December) profit results.

The volume of shares traded came in at just 1.65 billion today, worth $5.93 billion. 465 shares were up, 450 finished weaker and 413 ended unchanged. Activity was higher than expected due to option expiry yesterday.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is up 0.05 pct or 2 pts to 4241, however the Australian market will not be open tomorrow due to Australia Day.

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 better start to trade tonight.

Dow Futures are currently higher; indicating that U.S stocks could open a touch stronger tonight. American markets open at 1.30am (AEDT). Due to the Americans going back an hour on November 5 last year, U.S markets will be trading between 1.30am (AEDT) and 8am (AEDT).

Turning to currencies, the Australian dollar (AUD) buys US105.2 cents and €80.8 cents. The AUD is currently trading at £67.4 pence.

Steven Daghlian, CommSec Market Analyst

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