Australian Stock Market Report - Afternoon 3/14/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket recorded its best daily improvement in three weeks yesterday and gained almost as impressively today. The All Ordinaries Index (XAO) rose 0.9 pct or 39.1 pts to 4375.6 and is close to hitting its highest level in seven months.

Last night, a number of America's largest banks survived tough stress tests late in U.S trade which boosted markets between 6am (AEDT) and 7am (AEDT). U.S shares reached their highest levels since 2007.

Around 70 pct of Australian listed companies either ended unchanged or higher, with the country's largest listed insurer, QBE Insurance (QBE) one of the day's best. QBE improved by 3.29 pct or 41 cents to $12.87 and is up more than 8 pct this week. The company hit an eight year low in January after warning the market that its profit will be lower than expected due to natural disasters. A strong Australian dollar has been bad news for the insurer due to a large portion of its income being earned in U.S dollars.

Commodity prices were mostly higher overnight which helped our miners gain today. BHP Billiton (BHP) jumped 1.31 pct or 46 cents to $35.61 while Rio Tinto (RIO) rose 1.48 pct or 95 cents to $65.30.

The S&P/ASX 200 Financials index gained 1 pct or 40 pts to 4053.3, with Commonwealth Bank of Australia (CBA) up 0.89 pct or 43 cents to $48.80, ANZ Banking Group (ANZ) up 0.86 pct or 19 cents to $22.30, while Westpac (WBC) and National Australia Bank (NAB) edged higher by around 0.75 pct.

Australia's largest forestry company, Gunns (GNS) remained in a trading halt for the third straight day ahead of a company announcement.

On the economic front, the Westpac/Melbourne Institute index of consumer confidence fell by 5.0 pct in March to a reading of 96.1. Despite the disappointing result, not all Australians are so negative. Commsec's Chief Economist, Craig James shared his surprise by saying "OMG! Why is Generation Y so happy and the rest of us so glum? In the space of a month, sentiment in the 18-24 age grouping lifted by almost 10 per cent while sentiment slumped in all the other age groupings. The Aussie dollar remains high, so perhaps more young people are travelling. And a large portion of the 18-24 age group attend universities and other education centres, so they haven't got to contend with a fluky job market."

Australians continue to consider the bank as the wisest place to park their savings. Mr James said that "Consumer conservatism is going ahead in leaps and bounds. Over half of all Aussies believe the wisest place for new savings is in the bank or paying off debt. Encouragingly real estate is back in the mix as well - and with rates stable, the jobless rate low, no oversupply of properties and house prices easing, there are plenty of good reasons to be looking at property."

The number of dwelling starts (properties that started being built between October and December 2011) fell for the third consecutive quarter, dropping by 6.9 pct. This was worse than market expectations. Mr James said that "Starts fell most in Northern Territory (down 20.1 per cent), followed by ACT (down 18.5 per cent), Queensland (down 17.9 per cent), South Australia (down 15.4 per cent), Victoria (down 7.3 per cent), and Western Australia (down 3.3 per cent). Starts rose 5.8 per cent in Tasmania and rose 0.6 per cent in NSW."

In the region today, Japan's Ministry of Finance released the results of its latest survey of large manufacturers. The reading fell short of expectations, with conditions worsening by around 7.3 pct in the previous quarter.

European markets hit an 8-month high overnight, with Germany's DAX index up 1.37 pct, France's CAC40 jumped by 1.72 pct and the U.K's FTSE improved by 1.07 pct.

Germany's latest investor sentiment survey reached its best level since June 2010 overnight, which was significantly better than forecast. The index is calculated by asking 350 German institutional investors and analysts to rate the economic outlook for the next six months in Germany (the Eurozone's largest economy).

Lloyds and RBS said last night that they could cut as many as 1,900 jobs. RBA is 40 pct owned by the British government and is expected to reduce its workforce by 1,600 while Lloyds, which is 80 pct owned by the tax payer could cut around 460 jobs.

Tonight, the Eurozone's Consumer Price Index (CPI) will be out and is likely to show that inflation continues to not be a concern for Europeans. We will also find out if the U.K's unemployment rate remains steady at 8.4 pct, as expected.

In the U.S last night, the results of the Federal Reserve's stress tests were released a day early. Fifteen of the nineteen largest American banks are expected to be able to withstand a severe economic downturn, including a 13 pct jobless rate, a 21 pct drop in home prices and a sharp fall in share prices.

JP Morgan Chase said it would raise its dividend by 20 pct and announced a $15 billion share buyback. Retail sales in February increased by the most in five months and jumped by 1.1 pct which was a little better than expectations. The U.S Federal Reserve decided to keep interest rates unchanged once again at between 0 and 0.25 pct. The Fed (the U.S central bank) has previous already vowed to maintain interest rates at low levels until at least 2014.

Tonight, the Fed's Chairman Ben Bernanke will be delivering a talk while the latest weekly crude oil inventory report will be issued late in the evening.

Volume of shares traded came in at 2.18 billion today, worth $5.06 billion. 658 shares were up, 409 were weaker and 365 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is down 0.26 pct or 11 pts to 4282.

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 stronger start to trade tonight.

Dow Futures are currently lower; indicating that U.S stocks could open in the red tonight. Due to daylight savings taking place in the second week of March in North America, U.S markets will now be trading between 12.30am (AEDT) and 7am (AEDT).

Turning to currencies, the Australian dollar (AUD) buys US105.5 cents and has remained relatively unchanged over the past 24 hours. The AUD is currently trading at £67.1 pence and €80.6 cents.

Steven Daghlian, CommSec Market Analyst

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