Australian Stock Market Report - Afternoon 2/3/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket lost ground for the fourth time in five days today with the All Ordinaries index (XAO) easing by 0.3 pct or 13.1 pts to 4320.1. This was the first week of losses so far in 2012. On a positive note, Australian shares have gained by around 5 pct over the past five weeks.

We did not receive much of a lead from either the U.S or European markets overnight, hence the choppy session of trade today. Shares were down by as much as 0.35 pct at one point today and gained by as much 0.16 pct earlier in the session.

Almost all sectors ended the day lower with the S&P/ASX 200 Financials index falling 0.45 pct or 18.3 pts to 4009.6. ANZ Banking Group (ANZ) slumped by 1.17 pct or 25 cents to $21.11 and was the worst of the big four today. Westpac (WBC) lost 0.62 pct or 13 cents to $20.79, National Australia Bank (NAB) eased by 0.59 pct or 14 cents to $23.75, while Commonwealth Bank (CBA) fell 0.18 pct or 9 cents to $50.57.

Commodity prices fell overnight and our largest miners followed suite. The S&P/ASX 200 Materials index dropped 0.17 pct or 19.8 pts to 11629.6, with RIO Tinto (RIO) losing 0.31 pct or 22 cents to $70.50 while the larger BHP Billiton (BHP) ended only 0.05 pct or 2 cents lower to $37.60.

A Qantas Airways (QAN) plane carrying 74 passengers to Canberra was forced to make a priority landing today due to some engine trouble. The airline has also increased fuel surcharges on ticket prices to offset the higher cost of petrol. QAN shares rose 0.63 pct or 1 cent to $1.61.

On the economic front today, the Federal Chamber of Automotive Industries reported that 76,783 cars were sold last month which was a 4.3 pct improvement on a year ago. 4-wheel drives continue to remain extremely popular with Australians and have experienced a 29.9 pct increase in sales over the past 12 months.

Commsec Economist, Savanth Sebastian said that "The latest set of data is heartening and may be the clearest indication yet that last year's rate cuts are starting to take effect. Car sales recorded the best January result in four years and in annual terms sales are up just shy of 5 per cent on a year ago. In addition the services sector recorded its first expansion in four months. With the key, forward looking, new orders index expanding at the fastest pace in 26 months. Granted the improvement is at the margin and comes after a considerable period of weakness but the data is the timeliest data we have had on activity in the New Year."

Cars are currently at their most affordable levels in around 40 years. Mr Sebastian said that "Car affordability is at the best levels since the 1970s, and coupled with the recent rate cuts it seems to have prompted consumers to update their rides."

A report on the state of the services industry called the Performance of Services gauge was released today and showed that the services sector has improved for the first time in four months. Mr Sebastian warned however that "The improvement in the services sector is just one month and further gains would be needed to claim a turnaround in the sector. Unfortunately there are an array of headwinds for the sector including the strength of the Australian dollar and the lack of consumer activity. However the pickup in new orders and likelihood of further rate cuts should support activity levels in coming months."

In the Asian region today, there was no major economic data released. Singapore Airlines however announced a 53 pct fall in profit in the third quarter due to persistently high fuel prices. Net profit between October and December last year fell to US$100 million. Revenue rose by 1 pct while expenses rose by a much more considerable 12 pct.

Out of Europe last night, the latest reading on the British and European construction sector showed that the industry is still remaining weak.

Tonight, the latest European retail sales report will be released at 9pm (AEDT) for the month of December. The market is expecting a rise of 0.4 pct at the retail level.

The complex situation in Greece and the broader Eurozone will continue to remain in focus also. One of the issues the Germans and other larger European nations have with Greece is the fact that they struggle with revenue (tax) collection. At the moment, it seems that there are currently two major potential paths that the Europeans could follow. The first is that the more troubled nations within the Eurozone carry out huge reforms, effectively changing their cultures and the way their people live. This would make the lives of these struggling nations significantly tougher and different than in the past however would be the ideal scenario for the other European nations.

Another option is for a fiscal union to take shape. In a fiscal union, the collection of taxes and expenditure are carried out by a central organisation and shared by participating governments. With this option, the larger nations would have more power (as they would contribute a bigger portion of the income to be distributed). This would be an easier option for nations such as Greece. Having said this, you also have to remember that Greece, Spain, Portugal, Ireland and the weaker nations would potentially lose power to an extent. Another option for the Europeans would be a breakup of the Eurozone.

So far this week, the U.S markets have remained largely unchanged and have been waiting for the all-important monthly employment report which will be issued tonight at 12.30am (AEDT). The market is expecting an additional 150,000 to 185,000 jobs to have been created in the U.S and for the unemployment rate to remain at around 8.5 pct in January. Should the result surprise the market in any way, you would expect investors to react on sharemarkets in the U.S and Europe tonight. The report will be out around one hour prior to the open of the U.S markets.

Next week, the Reserve Bank of Australia (RBA) is expected to cut interest rates for the first time this year (first interest rate meeting of 2012).

The volume of shares traded came in at 1.89 billion today, worth $4.22 billion. 533 shares were up, 470 finished weaker and 374 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is up 0.12 pct or 5 pts to 4227.

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 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 US106.9 cents and €81.36 cents. The AUD is currently trading at £67.6 pence.

Steven Daghlian, CommSec Market Analyst

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