Australian Stock Market Report - Afternoon 2/1/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket kicked off the new month in a less than desirable manner with shares losing ground for the third consecutive day today. Despite this week's losses, remember that January marked the best start to a new year since 1994 with shares rising by more than 5 pct and improving for four straight weeks. Today, the All Ordinaries index (XAO) fell 0.8 pct or 34.7 pts to 4291.0.

Today's standout performer was Fairfax Media (FXJ) which rose 10.14 pct or 7.5 cents to 81.5 cents by market close. Mining billionaire, Gina Rinehart acquired 12.8 pct of the media giant to become its biggest shareholder. Ms Rinehart purchased around $192 million worth of stock in the 181 year old business.

Optus today won a landmark TV copyright case against the AFL, NRL and Telstra. The victory will allow the company to continue offering its TV Now mobile phone and internet broadcast service. The AFL, NRL and Telstra were claiming that the service was breaching copyright laws. Telstra (TLS) shares fell 0.9 pct or 3 cents to $3.30 while Singapore Telecom (SGT) improved by 0.87 pct or 2 cents to $2.32. SGT owns Optus.

The mining sector was the biggest drag on the market today, with the S&P/ASX 200 Materials index falling 1.33 pct or 154 pts to 11418.8. BHP Billiton (BHP) fell 1.52 pct or 57 cents to $36.91 while RIO Tinto (RIO) lost 0.61 pct or 42 cents to $68.74.

The major banks were mixed for most of the session however all turned negative by the close of business. Westpac (WBC) slumped by 1.42 pct or 30 cents to $20.85, National Bank (NAB) fell 0.8 pct or 19 cents to $23.66, ANZ Banking Group (ANZ) dropped 0.65 pct or 14 cents to $21.27 while Commonwealth Bank (CBA) eased by 0.43 pct or 22 cents to $50.44.

On the economic front, a report showed that Australia's manufacturing sector has expanded for the second straight month while the number of new homes sold in December slumped by 4.9 pct. This result was worse than expected and highlights the fact that recent rate cuts have not had their desired impact on boosting property sales.

Commsec Economist, Savanth Sebastian said that "Australian manufacturing expanded for the second consecutive month. And while that may not sound like a big deal it has been a while between drinks for the sector. In fact manufacturing contracted for nine out of the 12 months last year, as the sector had to contend with an array of headwinds. While the manufacturing sector is experiencing the best conditions in seven months, it is unlikely that manufacturers will be getting too far ahead of themselves. While two interest rate cuts have provided a boost to domestic spending and production, the high Aussie dollar is still making life difficult for exporters, whilst domestic demand remains soft and more competitive - due to cheaper foreign imports."

Mr Sebastian commented on the housing numbers and said that "The latest new home sales result is certainly disappointing. Housing activity remains weak and new home sales is holding just shy of the 11-year lows reached in September. Importantly the data is backward looking and given the cuts in fixed and variable mortgage rates it is likely to result in a pickup in buying interest in coming months."

Out of Asia yesterday, Japan's unemployment rate rose from 4.5 pct to 4.6 pct.

Today, China released two contradictory economic reports on the state of their manufacturing sector. At 12.30pm (AEDT), the official government report showed that China's manufacturing industry was improving a little better than forecast. This resulted in Chinese shares rising strongly over the next hour. Unfortunately, at 1.30pm HSBC released its monthly report on the manufacturing sector and showed that the industry is still contracting. The worse than expected report dragged shares in the world's second largest economy lower. This perhaps raises the question to the accuracy of these reports and the necessity of having two separate organisations issuing figures on the sector.

Shares in European markets ended a little higher last night. This was partly thanks to the European leaders approving stricter budget controls and speculation of a debt deal for Greece continued. A report on retail sales in Germany last night showed that the German consumer pulled back on their spending by a more than expected 1.4 pct in December.

The situation is similar in France, with consumers cutting their spending by around 0.7 pct in December which was also worse than forecast. The Eurozone's unemployment rate rose from 10.3 pct to 10.4 pct as expected. Italy's jobless rate rose from 8.8 pct to 8.9 pct which was worse than estimated. In Germany, there was a 34,000 drop in the number of unemployed Germans. The Eurozone is made up of the 17 nations currently using the Euro (€) as their official currency.

Tonight, the latest manufacturing reports for both the U.K and the Eurozone will be out over the next few hours.

Sharemarkets in the U.S last night ended a little lower. Consumer confidence was significantly worse than expected in January while property prices in the U.S continued to fall.

On the earnings front, Amazon, McGraw-Hill Companies and Exxon Mobil released their profit reports last night. Internet sales giant, Amazon beat profit expectations however fell short with its revenue of US$17.43 billion last quarter (October to December 2011) despite it being around US$4.5 billion more than a year ago. The company's shares fell by more than 8 pct in after-hours trade.

McGraw-Hill earned US$214 million last quarter, which was around US$60 million more than in the previous year and was better than expected. According to the company's Chief Executive, Harold McGraw III, 2011 was its second best year on record. McGraw-Hill is a textbook and magazine publisher and is the parent company of ratings agency; Standard & Poor's and has approximately 20,000 employees. The business was founded back in 1888.

Exxon Mobil shares fell by close to 2 pct due to production and fuel margins falling short of market expectations.

Today in the U.S, Mitt Romney won the Republic primary in Florida by a significant margin over both Gingrich and Ron Paul.

Tonight, the latest ADP employment report will be released. This measures the number of jobs created or lost in the private sector last month. The latest manufacturing report will also be released for the American economy tonight at around 2am (AEDT), which is around 30 minutes into trade. The latest crude oil inventories report will also be released, which will show us how much oil the Americans had in stock last week.

On the earnings front, Chrysler, Las Vegas Sands (the casino) and Manpower (the Human Resource firm) will all be releasing quarterly results.

The volume of shares traded came in at 1.94 billion today, worth $4.65 billion. 417 shares were up, 576 finished weaker and 351 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is down 0.19 pct or 8 pts to 4185.

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 slightly stronger start to trade tonight.

Dow Futures are currently lower; indicating that U.S stocks could open a touch weaker 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 US105.9 cents and €81.1 cents. The AUD is currently trading at £67.3 pence.

Steven Daghlian, CommSec Market Analyst

[Kick off your trading day with our newsletter]