Australian Stock Market Report - Afternoon 3/2/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket improved today for the second time this week, with the All Ordinaries Index (XAO) rising 0.5 pct or 21.7 pts to 4367.7. Almost all sectors rose today, however despite the gains, shares lost a bit of ground over the week.

One of the best performing stocks today was Virgin Australia (VAH) which rose 3.41 pct or 1.5 cents to 45.5 cents. Last week, the airline told the market that profit in the second half of 2011 more than doubled and yesterday said that domestic passenger numbers on its flights over the past year have jumped by 4.6 pct.

Australia's largest insurer, QBE Insurance (QBE) gained 2.25 pct or 27 cents to $12.25 and received a broker upgrade this week. Earlier in the week, QBE announced a 45 pct drop in annual profit and is still down 5.5 pct since the start of January.

Three of the four major banks gained ground today, with ANZ Banking Group (ANZ) the best, up 1.43 pct or 31 cents to $22.00. Westpac (WBC) edged higher by 0.29 pct or 6 cents to $20.76, Commonwealth Bank (CBA) improved by 0.12 pct or 6 cents to $49.12 while National Australia Bank (NAB) lost 0.55 pct or 13 cents to $23.45.

The mining sector rose, with BHP Billiton (BHP) gaining 0.39 pct or 14 cents to $35.69 while the smaller Rio Tinto (RIO) dropped 0.48 pct or 32 cents to $65.93.

No major economic data was scheduled for release in Australia today. The corporate earnings (profit) season has now come to an end and it's perhaps a good time to assess the performances of the country's largest corporations. 111 of 131 of Australia's largest companies managed to produce a profit between July and December last year. Despite the profits, only around 60 pct of reporting companies recorded an increase in profit for the half.

Commsec Economist, Savanth Sebastian said that "Another notable feature of the earnings season has been the drop in cash reserves. Of the companies reporting half year results, aggregate cash reserves fell between the end of June and the end of December by 14.1 per cent to $55.7 billion. However the result was driven by BHP Billiton. Excluding BHP Billiton, cash balances were actually up by 7 per cent. But across the board the performance was mixed with 48 per cent increasing cash holdings and 52 per cent cut cash levels. Still, given that aggregate profits for the period totalled $26.7 billion, it is clear that companies remain conservative."

Commsec's Chief Economist, Craig James said that "The good news for investors is that the bulk of companies continue to issue dividends and the majority of companies have either maintained or increased dividends. Of the companies reporting half-year earnings, 79 per cent of companies - more than three out of even four companies - reported an interim dividend. And of those reporting a dividend, 48 per cent lifted dividends, 31 maintained dividends while 21 companies trimmed their dividend compared with the previous year's interim results."

In the region today, most Asian markets ended the day higher. Japan said that all nuclear reactors could potentially be shut by the Japanese summer this year.

South Korean markets were closed yesterday for the Independence Day public holiday and rose slightly today. South Korea recorded a US$2.2 billion trade surplus in February, with a steady rise in exports helping the reading. Shipments to China (its largest export market) have increased by 14.5 pct over the year.

It was a busy session for economic data in Japan today, with everything from jobless figures to household spending statistics released. Japan's unemployment rate remained steady at 4.6 pct, while the market was expecting the rate to improve slightly to 4.5 pct. There was also further proof that the Japanese consumer is remaining frugal, with total household spending falling by 2.3 pct over the past year. Inflation has been virtually none existent in the world's third largest economy, and has eased by 0.1 pct over the past year.

Last night, Europe's unemployment rate continued to rise and is showing no signs of slowing down. The 17 Eurozone member states (European countries using the Euro) recorded a rise from 10.4 pct to 10.7 pct in January's jobless rate. The market was expecting a steady/unchanged result. Youth unemployment (those under 25 in the workforce) is highest in Spain, with half of its working population under 25 out of work. Germany's youth jobless rate is lowest, at 7.8 pct. The Eurozone's (also called the Euro Area) lowest unemployment rate is in Austria at 4 pct, followed by the Netherlands at 5 pct. The highest is in Spain at 23.3 pct, Greece at 19.9 pct and both Ireland and Portugal at 14.8 pct.

European markets gained strongly yesterday (by as much as 1.5 pct) partly due to cheaper funding for the Eurozone nations. Both Spanish and French governments received higher than usual demand for their national bonds and at lower cost (interest rates).

It will be a quiet session tonight in Europe, with a lack of key economic reports scheduled for release. The U.K's latest construction PMI (a measure of the British construction sector) will be issued. The market is expecting a slight improvement in the reading from 51.4 to 51.5. Any number above 50.0 will indicate industry expansion.

In the U.S last night, there were further signs that the state of the American job market is improving while the number of cars sold hit their highest level since February 2008. The state of the U.S manufacturing sector worsened a little more than forecast last month.

The Dow Jones Industrials index finished a little below the key 13,000 pt mark once again. However, the 13,000 pt level was still breached on 16 separate occasions last night and continues to be tested by the market.

The price of oil is currently sitting at US$108 a barrel. Last night, crude was trading at its highest level since May 2011 following reports of an explosion at a Saudi pipeline. Saudi officials later denied these reports as false which resulted in a slight pullback in the oil price.

Tonight, no major economic data is scheduled for release.

The volume of shares traded came in at 1.79 billion today, worth $3.55 billion. 565 shares were up, 437 were weaker and 395 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is down 0.07 pct or 3 pt to 4275.

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 tonight.

Dow Futures are currently flat; indicating that U.S stocks could open unchanged 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 US107.9 cents. The AUD is currently trading at £67.6 pence and €81.1 cents.

"Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones" - Benjamin Franklin.

Steven Daghlian, CommSec Market Analyst

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