Australian Stock Market Report – Afternoon 2/27/2013

In recent days much has been made of the political uncertainty in Italy, Europe's 3rd largest economy. However the last 24 hours have shown where the markets real fault line lay. Overnight the US Federal Reserve Chairman, Ben Bernanke delivered a testimony to the Senate Banking Committee. The Chairman spoke about the risk reward balance in relation to quantitative easing, highlighting the negatives are outweighed by the positives. He reassured his audience that the central bank has has the requisite levers available reign in monetary policy when required. He indicated that the Federal Open Market Committee is paying more attention to the potential costs of quantitative easing. Most significantly global markets were seeking clarification on the matter of asset purchases. Mr Bernanke re-itterated that the Fed will continue its program of quantitative easing, a matter which had been causing concern in the market over the last week. This outcome was arguably the most important result in restoring a more constructive tome in the markets after the volatility of recent days.

At the close of local trade the ASX200 had gained 0.66 per cent to 5036, the All Ordinaries index had gained 0.62 per cent to 5033. Value remained strong, there were 2.1 bln transactions which gave rise to $4.5bln shares changing hands. 529 stocks ended the day higher, 454 ended in the red and 381 were unchanged.

Markets remained focused on a weather system of the coast of Western Australia. The 3 largest iron ore ports in Australia which account for more 50% global seaborne iron ore supply, have been shut down by Tropical Cyclone Rusty resulting in the closure of ship loading operations. Port Hedland, Cape Lambert and Dampier, operated by Rio Tinto, BHP Billiton and Fortescue, are expected to be impacted by Cyclone Rusty over coming days. The cyclone could strengthen to a category 4 storm by the time it reaches Port Hedland as compared to a weaker category 1system which passed the Pilbara in January. Rusty's weather pattern is expected to result in higher than usual rainfall and flooding in the region. These developments impacted sentiment amongst the miners to varying degrees. BHP Billiton rose 0.94 per cent to $36.69, Rio Tinto gained 0.67 per cent to $66.01, Fortescue Metals lost 0.22 per cent to $4.60, Atlas Iron dropped 4.21 per cent to $1.48.

Elsewhere, Energy stocks were amongst the best improved sectors. AGL Energy Limited (AGK) reported a 211% increase in net profit after tax to $364.7M for the six months ending December 2012. The figure reflected the inclusion of earnings from the Loy Yang A power station which was acquired in June 2012, in addition to changes in the valuation of electricity derivatives. Underlying Profit, which excludes the impact of significant items or events, rose 20% to $279.4M compared to the same time last year. Overall customer numbers grew by 1.6% to 56,700 which underpinned customer expansion in NSW which rose by 64,220. A change in the pricing methodology used for setting QLD electricity prices negatively impacted EBIT by $29M and the impact of the carbon price was only partially recovered over the period. AGL expects the remaining $40M deficit to be recovered in the second half of the year. The group reaffirmed guidance for the Full Year with expectations of an underlying profit in the range of $590M to $640M. AGK shares ended higher by 4.5%

Sydney Airport, (SYD), the owner of Australia´s busiest airport, returned to profit in 2012. The rise in income was driven by the 36.9M passengers using its facilities over the year; 3.6% growth on 2011. Net Profit rose to $179.2M, an improvement on the previous year when costs associated with the sale of assets in Belgium & Denmark impacted its bottom line. SYD shares closed higher by 1.9%.

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