Australian Stock Market Report - Afternoon 2/16/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket had its worst day of 2012 today, with the All Ordinaries Index (XAO) slumping by 1.6 pct or 70.2 pts to 4257.2. It was also one of the busiest days on the local market this month with around $5.8 billion worth of shares exchanging hands throughout the session.

Qantas (QAN) was one of the best performers today after recording some better than expected profit results in the previous half. The airline has said that around 500 jobs will be impacted/cut as part of a restructure. QAN shares rose 6.09 pct or 9.5 cents to $1.65.

Struggling surfwear retailer, Billabong (BBG) has received a $766 million takeover bid from what is believed to be a U.S private equity firm. The retailer is currently worth around $455 million on the local sharemarket (number of shares on issue multiplied by its current share price). BBG shares have slumped by 65 pct over the past six months however were placed in a trading halt today at the request of the company. This is pending the release of an announcement by the business.

The big four banks lost ground today, with Westpac (WBC) the worst following a trading update. WBS shares slumped by 3.53 pct or 74 cents to $20.22, ANZ Banking Group (ANZ) dropped by 2.3 pct or 50 cents to $21.20, National Australia Bank (NAB) lost 1.82 pct or 42 cents to $22.63 while Commonwealth Bank (CBA) fell 0.76 pct or 38 cents to $49.85.

The miners were the worst performers of the day and fell by over 2 pct as a sector. Rio Tinto (RIO) fell 2.31 pct or $1.59 to $67.28, BHP Billiton (BHP) dropped 2.22 pct or 80 cents to $35.30 while iron ore miner, Fortescue Metals (FMG) slumped by 3.98 pct or 22 cents to $5.31.

Today was the busiest day of the reporting season to date. The ASX Limited (ASX), the operator of Australia´s main sharemarket posted a $175.6 million profit in 1H12 (July to December 2011). This was largely in-line with market expectations but the company has signalled it expects market conditions to remain challenging. The ASX has essentially enjoyed a monopoly of Asia Pacific´s fourth largest sharemarket for more than 20 years, however now has new competition to deal with. Chi-X is an alternative market which was launched last year. Its introduction is yet to impact ASX´s bottom line significantly.

The interim dividend of $0.928 share will be paid to eligible shareholders on March 21 and is in-line with forecasts. This is the first profit result with Elmer Funke Kupper, the company´s new Chief Executive at the reigns. ASX shares edged higher by 0.23 pct or 7 cents to $30.40.

Wesfarmers (WES), a diversified company with interests in everything from coal mining to home improvement businesses delivered a lower than expected 1H12 (July to December 2011) profit result of $1.17 billion. Close to 60% of Wesfarmers´ revenue came from its Coles supermarket business, with earnings from Coles rising by 14.1% over the period. Around 30% ($8.8 billion) in sales can be attributed to its home improvement and department store businesses (including Target and Kmart). Its insurance division was impacted negatively by a high level of catastrophe claims from natural disasters such as the 2011 Christchurch earthquake.

WES has declared a fully-franked interim dividend of 70 cents a share, which will be paid to eligible shareholders on March 30. Looking ahead, WES said it remains optimistic for it retails businesses, but expects conditions to remain challenging over the short term. WES shares fell 2.55 pct or 76 cents to $29.09 today.

Wealth manager, AMP Limited (AMP) posted a net profit of $688 million for the full year (Jan to Dec 2011). This was short of market expectations and was 11.2% lower than in the corresponding period last year. It is pertinent to point out that this result also includes the M&A transaction and integration costs relating to its merger with AXA on March 30, 2011. AMP will pay out a 14 cent a share final dividend to eligible shareholders on April 5. This takes the full year dividend payout to $0.29 a share, which is largely in-line with market forecasts.

Looking ahead, the wealth manager has revised its dividend target payout ratio from a previous 75%-85%, down to 70%-80% of its earnings. This is to meet AMP´s capital requirements for its AXA business. This essentially means that it will be reserving less of its profits to distribute to shareholders. AMP shares have gained around 7.8% this calendar year. No guidance was given for the FY12 (Jan to Dec 2012). AMP shares fell 2.28 pct or 10 cents to $4.29 today.

On the economic front today, a report showed that there were 46,300 jobs created in January, while the unemployment rate improved from 5.2 pct to 5.1 pct. This was significantly better than the market's expectations that 10,000 jobs were created last month.

It is important not to be blinded by one month of positive employment numbers however. Commsec Economist, Savanth Sebastian said that "At first glance the latest employment figures are heartening - a pickup in jobs across the economy. But the result needs to be put into perspective. The job losses in December were revised higher to show almost 36,000 positions were cut, and in effect the January result just negates those losses. What is clear is that the labour market is going sideways. Yes it was encouraging that employment grew in January but looking forward a sustained pickup in employment will be needed to justify a turnaround in the fortunes of job seekers."

There were less hours being worked by employees over the month and most of the job gains flowed through to part-time jobs rather than full-time positions. The ACT currently has an unemployment rate of 3.7 pct (the lowest in Australia), followed by Western Australia and the Northern Territory at 4.2 pct, South Australia and Victoria at 5.1 pct, NSW at 5.2 pct and Queensland at 5.4 pct. NSW's jobless rate actually improved from 5.6 pct in December.

In Asia yesterday, the head of China's central bank made favourable comments regarding the Eurozone at an exhibition on the Euro in Beijing. Amongst other things, he said that China will continue to invest in European government debt and that China remains confident the European nations will find a way to solve the debt crisis. Markets in the region started improving following the commentary yesterday and got the Europeans off to a positive start to trade last night.

Today, there was no major economic data released in the region.

In Europe last night, some better than expected economic growth readings out of France and Germany added to the gains in Europe while the Italian economy has contracted by 0.7 pct in the previous quarter (October to December 2011), which was worse than expected. Part of the reason for the contraction has been the austerity measures introduced in Italy, which have held back growth.

Tonight, the European Central Bank's (ECB) Monthly Bulletin will be released at around 8pm (AEDT). This includes the data the central bank used when making its decision to keep rates on hold earlier in the month.

Italy's trade balance for December will also be issued at 8pm (AEDT) tonight and will likely show that Italy has recorded a €1.21 billion trade deficit over the month. This means that imports are greater than exports. There will also be a bond auction taking place in France.

In the U.S last night, markets kicked off the session higher following some signs that America's manufacturing sector is improving. The gains did not last however, after speculation that the Eurozone leaders might delay the next Greek bailout package until April (following the Greek elections).

Tonight, a number of readings on the housing market will be released in the U.S. This will include a report on housing starts for January, which measures the number of properties which have started being built over the month. The building permits report will also be issued. This is a forward looking indicator and gives us an idea how many properties are expected to be built in the future.

The volume of shares traded came in at 2.02 billion today, worth $5.81 billion. 317 shares were up, 681 finished weaker and 378 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is down 1.9 pct or 80 pts to 4140.

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 weaker start to trade tonight.

Dow Futures are currently lower; indicating that U.S stocks could open in the red 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 US106.6 cents. The AUD hit a high of US107.39 cents immediately following the better than forecast job numbers only to lose ground gradually as the day progressed. The AUD is currently trading at £68.0 pence and €81.92 cents.

Steven Daghlian, CommSec Market Analyst

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