Australian Stock Market Report - Afternoon 2/6/2012

MARKET CLOSE
(4.30pm AEDT)

Following the first week of losses for the Australian sharemarket in 2012 last week, shares kicked off trade today significantly higher. The All Ordinaries index (XAO) rose by 1 pct or 44.5 pts to 4364.6. Almost all sectors improved however the defensive healthcare space fell by 0.4 pct.

Today's gains came to us courtesy of the Americans, after a much better than anticipated economic report on jobs last Friday night gave markets globally a much needed boost.

The major banks all gained ground, with National Australia Bank (NAB) up 1.77 pct or 42 cents to $24.17, Westpac (WBC) gained 1.15 pct or 24 cents to $21.03, ANZ Banking Group (ANZ) improved by 1.04 pct or 22 cents to $21.33 and Commonwealth Bank (CBA) edged higher by 0.53 pct or 27 cents to $50.84.

Australia's largest retailers, including David Jones (DJS) and Harvey Norman (HVN) both improved while Myer (MYR) ended 1.86 pct or 4 cents lower to $2.11.

BHP Billiton (BHP), Australia's largest miner rose 1.62 pct or 61 cents to $38.21 today. The materials giant is currently trading at its highest level since November 9, when the stock closed above $38 for only one session, prior to a significant pullback.

The Australian earnings (profit) season kicks off this week, with inner ear implant maker Cochlear (COH) releasing its profit results tomorrow. COH shares are relatively unchanged ahead of the result and gained by only 0.19 pct or 11 cents to $58.11. On Wednesday, BHP Billiton (BHP), will issue its numbers and on Thursday, Newscorp (NWS), Telstra (TLS) and RIO Tinto (RIO) will all be announcing their latest results. Typically, week one of the earnings season is relatively quiet in terms of the sheer number of companies reporting. The number of results pick up in week two and reach a peak in week three.

Tomorrow, the Reserve Bank of Australia (RBA) will make its decision on interest rates. The market is expecting rates will be cut by 25 bps (0.25 pct) to 4 pct.

On the economic front today, the latest report on the number of jobs advertised in January was released in addition to the monthly inflation gauge and the latest update on retail spending patterns.

Australian consumers are still keeping their dollars away from retail stores, with retail spending falling by 0.1 pct in December. In 2011, retail sales rose by just 2.5 pct which is close to the slowest growth rate in 50 years.

Commsec Economist, Savanth Sebastian said that "Across the states sales rose in just Victoria (up 1.5 per cent) and the ACT (up 1.8 per cent). Sales fell the most in the Northern Territory (down 2.6 per cent), followed by Queensland (down 1.4 per cent), South Australia and Western Australia (down 0.7 per cent), NSW (down 0.2 per cent) and Tasmania (down 0.1 per cent)." Last year's rate cuts do not seem to have had their desired impact on boosting consumer spending.

The latest inflation gauge has clearly confirmed that inflation is largely under control at the moment, with only a 0.2 pct rise recorded in January.

Mr Sebastian said that "Interestingly the latest figures have highlighted the widespread discounting taking place, ensuring a raft of cheaper goods. In fact four of the 15 retail industries recorded a fall in prices in the December quarter. Food, fruit & vegetables, pharmaceutical, and electrical good outlets are all experiencing deflation falling prices. No doubt the higher Australian dollar is also playing a key role. In fact retail inflation grew at just 0.1 per cent in the December quarter - marking the weakest quarterly price growth in over two years."

On a positive note, employers picked up advertising for new jobs last month by 6 pct. Advertising in newspapers has continued to pullback however online ads increased significantly in January following on from the slump during the December holiday period.

Mr Sebastian said that despite the "...lift in hiring, unemployment is set to edge higher in coming months. The jobless rate is likely to lift - albeit modestly - from 5.2 per cent to around the 5.5-5.75 per cent region. A softer job market will keep downward pressure on wages and prices and should provide the Reserve Bank more reasons to deliver another rate cut. CommSec expects interest rates to be cut once again tomorrow."

The average price of unleaded petrol across Australia rose by 1.6 cents to 145.1 cents last week; however petrol prices are expected to fall over the next few weeks. Mr Sebastian said that "Petrol prices hit their peak last Thursday and are on the way down across all the capital cities. The discounting cycle has shifted out to around nine days between peak to trough and as such prices are likely to be at their cheapest over the coming weekend. CommSec expects unleaded petrol to fall by 2-3 cents a litre over the next fortnight as cheaper global oil prices and the strong Australian dollar support cheaper fuel prices."

No major data was released in the Asian region today; however a number of reports will be issued over the coming days. The New Zealand share market was closed today due to the Waitangi Day public holiday. Tomorrow, a leading indicators reading will be out for the month of January in Japan. This is calculated by combining 11 separate economic indicators/readings into one index. The Japanese government will be raising funds via the bond market on Tuesday, Wednesday and Thursday. On Thursday, Japan is holding a 40 year government bonds auction (the longest term debt issue of the week).

On Thursday, Japan's latest household confidence report will be released for the month of January and will show us just how confident the typical Japanese consumer is with the state of both their finances and the broader economy. A slight worsening in sentiment is expected.

Thursday will also be a big day for the Chinese. Inflation readings will be released for both consumers and producers of goods. Inflation readings are important and measure the change in prices paid by consumers (CPI) and producers (PPI). CPI stands for the Consumer Price Index while the PPI stands for the Producer Price Index. Both are expected to be weaker than in the past, which would be a good sign for China's growth prospects as China would have less of a reason to slow the nation's growth rate.

On Friday, China will be releasing its latest trade balance which is expected to be a surplus of US$10.8 billion in January alone. The monthly trade balance measures the difference between exported and imported goods for a nation over a given period.

It will be a relatively quiet week for economic news in both Europe and the U.S but will be busy in Australia over the coming days. Tonight, the change in the number of factory orders will be issued in Germany at 10pm (AEDT). This measures the change in the total value of new purchase orders placed with manufacturers. This is important because rising purchase orders signals that manufacturers will increase activity as they work to fill orders and in turn impact a number of other industries.

On Thursday, both the European Central Bank (ECB) and the Bank of England (BOE) will both be making their monthly decisions on interest rates. Rates are expected to be kept unchanged at 1 pct and 0.5 pct respectively.

Out of the U.S on Friday night, a report showed that there were significantly more jobs created last month than expected. In fact, around 243,000 jobs were added in January, around 93,000 more than expected. The U.S jobless rate also fell from 8.5 pct to 8.3 pct, a three-year low. This result helped the U.S market end the week around 1.5 pct higher while European markets jumped sharply immediately following the data. Germany's DAX index rose 3.9 pct, France's CAC40 jumped by 3.29 pct and the U.K's FTSE index ended 2.92 pct higher over the week.

Out of the U.S tonight, no major market moving data is scheduled for release. Tomorrow night, Federal Reserve Chairman Ben Bernanke will be testifying on the economic outlook and federal budget balance situation before the Senate Budget Committee in Washington DC.

The volume of shares traded came in at 1.77 billion today, worth $4.21 billion. 610 shares were up, 389 finished weaker and 398 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is flat.

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.

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 US107.1 cents (close to a six month high) and €82 cents. The AUD is currently trading at £67.9 cents.

Steven Daghlian, CommSec Market Analyst

[Kick off your trading day with our newsletter]