Australian Stock Market Report - Afternoon 3/6/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket lost ground for the second straight day, with the All Ordinaries Index (XAO) falling by 1.3 pct or 58.7 pts to 4295.5. Almost all sectors finished in the red with the I.T sector the lone improver. The world's largest share registry, Computershare (CPU) was the biggest contributor to the sector's gains, rising by 1.9 pct or 15 cents to $8.05. Listed companies tend to have a share registry that looks after their administration tasks and shareholder responsibilities.

Australia's two largest miners, BHP Billiton (BHP) and Rio Tinto (RIO) both struggled today, with commodity prices falling following China downgrading its growth forecasts for its economy yesterday. Combined, BHP and RIO make up around 11 pct of the Australian sharemarket. BHP fell 2.29 pct or 81 cents to $34.58 while the smaller RIO (which is around four times smaller on the local market) slumped by 2.26 pct or $1.47 to $63.62. BHP is trading at its lowest level since the end of 2011.

The big four banks were helping minimise losses early in the session, but could not hold onto the gains. Commonwealth Bank (CBA) fell 1.04 pct or 51 cents to $48.58, Westpac (WBC) lost 0.96 pct or 20 cents to $20.56, ANZ Banking Group (ANZ) eased by 0.5 pct while National Australia Bank (NAB) dropped by 0.2 pct.

The insurance sector was one of the bright spots this morning, however ended mostly flat by close. QBE Insurance (QBE) fell 0.25 pct or 3 cents to $11.82. Australia's largest listed insurance business said that it is close to finalising a number of acquisitions which should eventually add around US$500 million to its premiums each year.

Cotton prices rose by 4.5 pct last night partly due to India's Commerce Ministry banning cotton exports until further notice. India is the second largest producer of the fibre and last year made up around 12.5 pct of total global exports. Wheat and soybean prices fell while corn ended higher.

The Reserve Bank of Australia (RBA) met this afternoon at 2.30pm (AEDT) for its monthly meeting on monetary policy. As expected, interest rates were kept on hold at 4.25 pct for yet another month (for the second straight RBA meeting). December was the last time the central banks cut rates by 25 bps (0.25 pct).

The RBA has kept the door open for further rate cuts however, saying that "Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy". Effectively (in English), should Australians continue cutting back on spending money and if the situation in Europe worsens significantly, the central bank will not hesitate cutting rates.

Commsec's Chief Economist, Craig James said that "The Reserve Bank Governor is in that "happy place". Inflation is in the middle of the 2-3 per cent target band; economic growth is expected to be close to "trend" over the next year; and the European debt crisis is a "watching brief" rather than a major issue. In short, there are no pressing reasons to cut interest rates and there are no pressing reasons to lift rates. And the Reserve Bank would require a significant shove to move from its current stance."

Tomorrow, the latest GDP (economic growth) reading will be out for the previous quarter in Australia. The market is expecting the economy to have expanded by 0.8 pct over the quarter. Deputy Governor, Philip Lowe will be delivering a speech and the Australian Industry Group will issue its Performance of Construction Index (PCI) for February.

In the region yesterday, China reduced its growth forecasts for its economy from 8 pct, down to 7.5 pct. China has targeted an 8 pct growth rate for the last eight years. It is important to keep in mind that China's actual growth rate tends to often exceed its government's targets. China's Premier Wen Jiabao expressed a slight shift in attention after saying that he hopes to "guide people in all sectors to focus their work on accelerating the transformation of the pattern of economic development and making economic development more sustainable and efficient".

No major data was released in the region today. Tomorrow is a public holiday in Thailand and its markets will be closed.

In Europe last night, the British services sector (which makes up around 75 pct of its economy) grew at a slower than expected pace in February. An investor confidence report showed that investors in Europe are more pessimistic about the state of the European economy than expected. Although the 2008 Global Financial Crisis (GFC) is behind us, many are still feeling its affects. Geir Haarde, Iceland's former Prime Minister is going to trial facing charges of negligence over the crisis. Iceland's three largest banks went bust and triggered its crisis, due to taking on too much risk and debt. Mr Haarde is being accused of not placing sufficient regulatory standards on the banks.

Tonight, Europe's revised GDP (growth) reading will be out for the previous quarter at 9pm (AEDT). The market is expecting the Eurozone to have contracted by 0.3 pct. Should the result surprise the market, shares will potentially react to the numbers.

In the U.S last night, the Dow Jones Industrials Average (DJIA) eased by 0.1 pct. Last week, the index crossed the key 13,000 pt mark on more than 70 occasions. This psychological barrier was not breached once overnight and the U.S markets remained in the red for the duration of the session.

The American services sector showed some signs of improvement. Internet giant, Yahoo (YHOO) is considering making significant job cuts to try and revamp its business. Google and Facebook have been winning advertising dollars from Yahoo, which has been hurting the business. Yahoo currently has around 14,000 employees.

No major data is scheduled for release in the U.S tonight, however weekly retail sales numbers will be issued. Tonight has also been termed 'Super Tuesday', due to it being the busiest day of the U.S Republican primaries to date in North America. This will be one further step towards deciding the Republican nominee to face President Obama in the November elections later this year.

It was a busier day on the market today, with the volume of shares traded coming in at 2.19 billion today, worth $5.25 billion. 317 shares were up, 707 were weaker and 360 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is down 0.05 pct or 2 pts to 4208.

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 weaker start to trade tonight.

Dow Futures are currently lower; indicating that U.S stocks could open 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 US106.2 cents (around 1 cent lower against the greenback than at this time yesterday). The AUD is currently trading at £67.0 pence and €80.5 cents.

Steven Daghlian, CommSec Market Analyst

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