Australian Stock Market Report – Afternoon 2/8/2013

Afternoon Market Report
(17:00 AEDT)

Local stocks ended the week on a sound footing as investors continued to push the index towards the 5000 mark. The re-emergence of European political risk has been one of the main themes for investors globally this week. The local experience suggested that investors were willing to support the market in the face of the modest amount of weakness that was on offer in recent days.Some of the main points of the day included, The stock market hitting a 22-month high, miner Newcrest reporting half year results, the RBA releasing its Quarterly Statement on Monetary Policy (SMP) better than expected Chinese trade data and the Aussie dollar hitting a 3 month low.

The ASX200 index rose 35 points or 0.72% to 4,971, The All Ordinaries was up 33 points, or 0.68%, at 4,989.4.Turnover saw 1.66 billion shares change hands valued at $4.56 billion. 542 stocks ended higher, 435 finished weaker and 435 were unchanged.

The constructive note that was maintained in the second half of the day was helped by the RBA leaving the door open for lower interest rates. The central bank spoke of the developments in offshore markets over the past few months as being generally favorable for the world growth outlook and Australia's exporters. The Bank recognised the reduced risk in financial markets, especially in the EU, has resulted in a distinct shift towards equities. The February SMP has a more positive tone in relation to the global perspective offered over the course of the last year ,for example "global economic developments have been more positive in recent months after conditions weakened earlier in 2012". The bank said there was more evidence that the Chinese economy had stabilized and that this had supported commodity prices and economic activity throughout the region. Other important contributions to the improved outlook have been made by the Japanese government's plan to boost activity and combat deflation; and the fact that the legislated large fiscal contraction in the US scheduled to commence in January 2013 (the "fiscal cliff") has been avoided. The RBA said that these factors together with more positive news out of Europe in recent months have boosted financial markets and diminished the downside risks to global growth.

The Aussie dollar came under pressure after The Reserve Bank downgraded its economic growth and inflation forecast for June 2013 by a quarter of a per cent. Over the medium term economic growth has been trimmed modestly to be below trend until the end of 2014.

Inflation is expected to remain comfortably within the 2-3 per cent target band. The upshot being that despite recent improvements in the global picture, the interest rate stance is clearly biased towards more rate cuts. Instability in Europe, a high Aussie dollar, lower terms of trade, along with a lack of non-mining investment all remain potential triggers for another rate cut.

The potential for more rate cuts was supportive for financial stocks;the NAB remained one of the preferred names amongst buyers, ending at $29.02 up 39 cents or 1.36%, CBA closed at $64.83 up 13 cents or 0.20%, Westpac gained ground to $28.08, an improvement of 12 cents or 0.43%. ANZ was the best improved amongst the big 4 banks closing the session at $28.12, for a gain of 61 cent or 2.22%. Amongst the regional players Bank of Queensland ended at $8.60, a gain of 2 cents or 0.23%, Bendigo Bank settled at $9.55, up 5 cents or 0.53%. Investment bank, Macquarie concluded the session at $37.78, an improvement of 28 cents or 0.75%

Elsewhere Chinese trade data was supportive of the idea that the Chinese economy continues to improve, The figures showed that in January, Chinese exports rose by 25%, while imports expanded 29% from a year ago, in each case the result was better than expected helping the fortunes of the resource sector. BHP ended the day at $37.95 a gain of 30 cents or 0.80%, RIO closed at $69.60 up 92 cents or 1.34%, Fortescue Metals advanced to $4.94 a gain of 7 cent or 1.44% Australia´s largest gold miner, Newcrest Mining Limited reported its first half profit for 2013 today, posting a 51% fall in NPAT to $320.0M which was in line with market expectations in the wake of its production report in early January. The shares rose more than 5% or $1.17 to $24.52 despite the hill that must be climbed to meet its full year production guidance. Elsewhere, Iron ore explorer Sundance Resources dropped 4 cents or 12 % to 30 cents following another delay in its drawnout takeover process by China´s Hanlong.

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