Australian Stock Market Report - Afternoon 2/2/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket improved for the first time in four days today and has effectively wiped out most of this week's losses. The All Ordinaries index (XAO) gained 1 pct or 42.2 pts to 4333.2 with all sectors bar the healthcare companies ending higher.

Wesfarmers (WES), the owner of Coles supermarkets, Target and Kmart released its latest sales results which were broadly in-line with market expectations in the previous quarter (October to December 2012). Comparable sales at Coles supermarkets rose by 3.7 pct in the second quarter and 4.4 pct in the first half (July to December 2011). Comparable sales do not include the impact of newly opened stores. WES rose 0.64 pct or 19 cents to $29.90.

Media giant, Fairfax Media (FXJ) slumped by 3.68 pct or 3 cents to 78.5 cents today however rose by more than 10 pct yesterday. The gains came after mining billionaire, Gina Rinehart acquired close to 13 pct of the business. This has made her FXJ's largest shareholder. Ms Rinehart is on track to become the world's richest woman.

Commodity prices ended mostly higher overnight which helped our miners end in the black. BHP Billiton (BHP) jumped 1.92 pct or 71 cents to $37.62 while the smaller RIO Tinto (RIO) gained 2.88 pct or $1.98 to $70.72. BHP seems to have broken through a resistance level but still fails to crack the $38 mark.

There was good and bad news on the economic front today. Firstly, Australia posted a $1.7 billion trade surplus in December which was around $500 million better than expected. There was a 2 pct rise in goods exported and a more modest 1 pct jump in goods imported.

Commsec Economist, Savanth Sebastian said that "Australia is certainly paying its way in the world. The total trade surplus for the 2011 calendar year was just shy of $20 billion - the highest surplus in records going back over 40 years. But the high Aussie dollar also means fewer tourists, more Aussies travelling abroad and therefore a record deficit on our services account. In the space of two years the monthly services account has gone from near balance to a $1.1 billion shortfall."

The bad news was that property developers are remaining hesitant to build a significant number of properties. The number of building approvals granted by councils to developers fell by 1 pct in December, which was significantly lower than expected.

Mr Sebastian said that the "...release of the latest figures on building approvals is certainly disappointing. Not only is the private sector underbuilding but even the public sector has virtually shut up shop. Just 139 public sector approvals were committed to in December - marking the weakest reading in records going back over 28 years. Granted the monthly numbers can be volatile, but even if you look at the trend measure (a more smoothed reading) public sector approvals were still at the lowest levels on record."

In the region yesterday, 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 faster 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.

Today, no major economic data was scheduled for release. Electronics giant, Sony (6758;jp) named Kazuo Hirai as the company's new Chief Executive. Mr Hirai was previously Sony's Vice President and the announcement comes a day ahead of its earnings results which are expected to be weak. All listed companies in Japan (and a number of other Asian countries) have ticker codes (trading symbols) in numbers rather than letters.

In Europe last night, both the U.K and the broader Eurozone released better than expected manufacturing reports which helped lift the major markets in the region significantly higher. Germany's DAX index rose by 2.4 pct, France's CAC40 jumped by 2 pct and the U.K's FTSE rose by 1.92 pct.

European Union regulators however rejected the merger of the Deutsche Boerse and the NYSE Euronext. Regulators have decided that a merger between both organisations would give them too much control over a number of sectors. The Deutsche Boerse (the German stock exchange) would have had 60 pct ownership of the newly merged/combined firm.

In Europe tonight, the latest report on the state of the British construction sector in addition to the Eurozone's PPI for December will be issued. This measures the change in the price of finished goods and services sold by producers. The market is expecting a fall of 0.1 pct in the monthly reading.

In the U.S last night, the latest ADP employment report showed that there were less jobs created in the private sector than expected in January. The market was forecasting an additional 185,000 jobs to have been created whereas only 170,000 were added. The American manufacturing industry expanded but not quite as much as expected.

The price of crude oil also fell last night, which was partly due to a report showing that there are more oil stockpiles in the U.S than forecast.

In the U.S tonight, at around 12.30am (AEDT) we will find out how many Americans filed to receive unemployment benefits for the first time last week. Consensus (market expectations) is for a fall in jobless benefits to 371,000. Federal Reserve Chairman, Ben Bernanke testifies tonight at 2am (AEDT) on the economic outlook in Washington DC. The testimony usually takes place in two parts. The first section is a prepared statement while the second is a question and answer session which can move markets on occasion (particularly if comments surprise the market).

On the earnings front yesterday, Chrysler, Las Vegas Sands (the casino) and Manpower (the Human Resources firm) released their quarterly results. Tonight, Kellogg, MasterCard and Sara Lee are all scheduled to release their profit results.

The volume of shares traded came in at 1.76 billion today, worth $4.87 billion. 627 shares were up, 389 finished weaker and 365 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is up 0.09 pct or 4 pts to 4243.

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 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 US107.3 cents and €81.4 cents. The AUD is currently trading at £67.7 pence.

Steven Daghlian, CommSec Market Analyst

[Kick off your trading day with our newsletter]