Australian Stock Market Report – Afternoon 3/1/2013

Afternoon Market Report

The local share market battled calendar headwinds today stemming from the end of week and the start of a new month. The ASX200 fell 0.35 per cent to 5086; the All Ordinaries index slipped 0.38 per cent to 5100.9 points. A consistent theme for the local market this year has been the willingness of investors to support the market in the face of weakness. This remained the case on Friday. Almost $6 billion shares were traded during the session. There were just over 2 billion transactions, 416 stocks ended up, 616 were lower, and 335 were unchanged.

Mining stocks have been recent underperformers and weaker manufacturing numbers from China did nothing to change that theme today. The official Purchasing Managers index for China fell from 50.4 to 50.1 in February, against expectations of a rise to 50.5. The Chinese manufacturing sector continued to consolidate with the pace of the expansion easing somewhat modestly in February. The timing of Chinese New Year does has meant that the markets a prepared to look through the near term data and it will be a couple of months yet before more clarity emerges about the extent of the recent Chinese economic recovery. In the past couple of month the Chinese economy has recorded a healthy improvement. Retail sales and industrial production activity are holding at the best levels in around 10 months. BHP Billiton lost 0.62 per cent to $36.84, while rival Rio Tinto declined 1.45 per cent to $66.08. Fortescue Metals shed 4.03 per cent to $4.53. Whitehaven Coal shares fell to their lowest price in more than three-and-a-half years. The markets continue to digest the weak result the miner announced earlier in the week. WHC posted a net loss of $47.011 million compared to a $19.881 million net profit posted in the previous corresponding period. Whitehaven shares closed 4.29 per cent lower at $2.68.

The counterpoint to the under performance of the mining sector has been the continued rise of the financials, specifically the banks. Helping the atmosphere around financials in general was today's RP Data Rismark index, which confirmed that housing prices are on an improving trend. The index showed a 0.3% rise in house prices in February, following a 1.2% gain in January. Higher prices are being supported by residential rents which are also on the rise and sales activity has reportedly picked up. Elsewhere a the view being offered by ratings agency Standard & Poor's on the fortunes of Australian banks caused barely a ripple. The group indicated that deterioration in global economic conditions could see Australia's four big banks lose their current credit ratings. ANZ closed with a loss of 0.35 per cent to $28.62, CBA rose 0.86 per cent to $67.85,NAB rose 0.66 per cent to $30.40 & Westpac rose 0.84 per cent to $31.03.

Looking ahead, the US budget "sequester" commences today. Concerns about the automatic spending cuts help explain the end of session weakness in US equities yesterday. From today, US$ 85 billion of cuts to US Federal government spending will be phased in unless the Congress changes the law. The US Senate rejected two partisan proposals to replace the spending cuts yesterday. The President will meet with Congressional leaders today to try to agree to a compromise. The US has two other unresolved fiscal issues: the debt ceiling in mid-May and the budget continuing resolution at the end of March. Despite the obvious concerns for the market, it appears as though recent improvements for the world's biggest economy put it in a good position to absorb a modest fiscal tightening.

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