Australian Stock Market Report - Afternoon 2/14/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian market wiped out yesterday's gains and fell 0.9 pct or 40.5 pts to 4318.9. Yesterday, global markets performed well following the Greek parliament's decision to pass tough new austerity measures.

BHP Billiton (BHP) and RIO Tinto (RIO) announced that they would be lifting their current investment in the Escondida copper mine in Chile. This is the world's largest copper mine. BHP owns 57.5 pct of the mine and BHP will put an extra $US2.2 billion into the project while RIO will be contributing $US1.2 billion. The additional funds will be used to help extract higher grades of ore at deeper levels. BHP shares fell 1.34 pct or 49 cents to $36.17 while the smaller RIO slumped by 1.63 pct or $1.15 to $69.28.

Australia's third largest iron ore miner, Fortescue Metals (FMG) jumped 2 pct or 11 cents to $5.61 ahead of tomorrow's profit results. FMG has hit a five month high and has improved by an impressive 30 pct in the 2012 calendar year so far.

On the reporting front today, Paladin Energy (PDN) posted a US$120 million first half loss (July to December 2011) just before 3pm (AEDT) while its revenue increased from US$115.8 million (in the previous corresponding period) to US$173.4 million. PDN has also downgraded its production guidance for the FY (Full Year). PDN shares lost 5.56 pct or 10 cents to $1.70.

GWA Group (GWA), a manufacturer and supplier of building fixtures and fittings recorded a $13.3 million profit between July and December 2011. This was a 60 pct fall in profit due to lower building and renovation activity and its shares lost 6.85 pct or 17 cents to $2.31.

Tomorrow, Fortescue Metals (FMG) and Westfield (WDC) are both scheduled to post their latest profit results.

On the economic front today, a report has shown that Australian businesses are a little more confident with the state of the economy and trading conditions. As expected, conditions are best in the mining sector.

Commsec's Chief Economist, Craig James said that "Australia still has a multi-speed economy with mining well in front from transport while manufacturing and retail sectors are depressed. But cracks are appearing in the high-flying mining sector with the business confidence slumping from +11 to -8 in the latest month."

Tomorrow will be a busy day on the economic front locally, with consumer sentiment, lending finance and new motor vehicle sales numbers scheduled for release.

Out of Asia yesterday, there were signs that the Japanese economy is slowing faster than expected. Japan's economy shrank by 2.3 pct between October and December last year. A strong yen and flood damage in Thailand indirectly impacted the world's third largest economy.

There has been significant political bickering slowing down the rebuilding efforts in Japan. Once the almost US$156 billion budget commitment to rebuild Japan is passed by parliament, you would expect the Japanese economy to pick up. Last month, Japan recorded its first trade deficit (when imports exceed exports) in over 30 years.

In Asia today, Japan's central bank decided to keep interest rates unchanged once again in its monthly meeting on monetary policy. The Bank of Japan topped up its asset purchases by buying up private and government debt while lending funds at very low interest rates.

Out of Europe last night, markets reacted positively to the Greek parliament's passing of tough new austerity measures, including a 20 pct cut in minimum wages. It is perhaps pertinent to compare the €750 minimum wage in Greece to some other European nations so as to put the cuts into perspective. This is more than the minimum wage in Spain, Malta, Portugal and Slovakia. Luxembourg currently has the highest minimum wage in the Eurozone of €1801 a month which is around AU$2218.

This morning, Moody's (one of the big three ratings agencies) downgraded the credit ratings of Italy, Portugal, Spain, Malta, Slovakia and Slovenia. The ratings group also reduced the outlook for France, the U.K and Austria.

Tonight, Germany's economic sentiment report will be out for February at 9pm (AEDT). The market is expecting a significant worsening of confidence over the month. The U.K's latest Consumer Inflation reading will be out at 8.30pm (AEDT) and is expected to have risen by 3.6 pct over the year. Both the Greek and Spanish governments will be raising funds via the bond market tonight.

Out of the U.S last night, President Obama outlined some draft budget proposals for 2013. He is expecting the U.S budget deficit to fall from US$1.33 trillion this year to US$575 billion in 2018. The pentagon has said it plans on spending around US$487 less on its military over the next decade by moving a number of permanent bases in Europe over to the U.S. Some of the cuts are also expected to come from the wind-down of operations in Iraq and Afghanistan. The U.S spends more on its military than any other country.

Apple, the owner of the iPhone and the iPad has seen its share price rise above US$500 a share for the first time on record overnight.

Tonight, the retail sales report for January will be issued in the U.S. A solid 0.6 pct lift in sales is forecasts.

The volume of shares traded came in at 1.97 billion today, worth $4.56 billion. 379 shares were up, 636 finished weaker and 386 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is down 0.85 pct or 36 pts to 4209.

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 weaker; indicating that U.S stocks could open a touch lower 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 US106.8 cents and has fallen by around US0.5 cent over the past 24 hours. The AUD is currently trading at £68 pence and €81.2 cents.

Steven Daghlian, CommSec Market Analyst

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