Australian Stock Market Report - Afternoon 3/7/2012

MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket lost ground for the third straight session today, making it the worst three day pullback for the local market this year. The All Ordinaries Index (XAO) slumped by 1.4 pct or 61.1 pts to 4234.4. All sectors ended in the red, despite some modest gains recorded by the telcos earlier in the day.

Commodity prices virtually fell off a small cliff last night, with investors spooked about the debt situation in Greece. This hurt our mining sector, which was the biggest drag on trade. The world's largest miner, BHP Billiton (BHP) lost 1.53 pct or 53 cents to $34.05 while the smaller Rio Tinto (RIO) dropped 1.89 pct or $1.20 to $62.42. Gold miner, Newcrest Mining (NCM) plummeted by 3.83 pct or $1.22 to $30.60 while Australia's third largest iron ore miner, Fortescue Metals (FMG) slumped by 3.98 pct or 22 cents to $5.31.

The S&P/ASX 200 Financials index fell 1.45 pct or 57.9 pts to 3931.7. Commonwealth Bank of Australia (CBA) lost 1.89 pct or 92 cents to $47.66, National Australia Bank (NAB) dropped 1.75 pct or 41 cents to $23.07, ANZ Banking Group (ANZ) fell 1.54 pct or 34 cents to $21.75 and Westpac (WBC) fell 1.26 pct or 26 cents to $20.30.

One of the best performing stocks of the day was subscription television company, Austar (AUN) which rose 5.15 pct or 7 cents to $1.43 and is trading around its highest level since December 2009. Australian pay-TV company, Foxtel moved a step closer to buying its regional competitor.

On the economic front today, the Australian Bureau of Statistics (ABS) released data showing that the economy expanded at a slower than expected 0.4 pct pace between October and December last year. Economists were expecting 0.7 pct growth over the period. Western Australia and Queensland were the best performing states while the Northern Territory underperformed most significantly.

Commsec's Chief Economist, Craig James said that "We should never forget that the economic growth data is ancient history. The Reserve Bank sets monetary policy by looking forward, not back. And in terms of published economic data, we already have a number of figures for February available, so the December quarter is now a long way in the past."

He still offered some commentary on the figures however by saying that "...the latest figures are disappointing. The Reserve Bank believes that economic growth is close to "trend" or "average", but you would be hard pressed to see that in the data. Economic growth averaged 3.0 per cent a year over the past decade and averaged 3.25 per cent over the past 15 years. But we haven't hit 3.25 per cent for almost four years. In fact average growth was just 2.6 per cent over the past 5 years of the mining "boom"."

No major data was released in the region today, however the next few days should be significantly busier on the economic front. It was a public holiday in Thailand today, so its markets were closed. Indian markets will be closed tomorrow due to a public holiday. Japan's latest quarterly growth reading will be released at 10.50am (AEDT) tomorrow morning and the market is expecting a 0.2 pct contraction over the period. Friday will be even busier due to a number of key economic readings scheduled to be issued in the world's second largest economy, China.

In Europe last night, Greek debt worries weighed heavily on sentiment and contributed to the 3.5 pct losses for the major markets in the region. Tomorrow is the deadline for a major private sector debt deal for the Greeks. This is particularly important because the final approval for the €130 billion bailout package is only expected to be passed on should a deal with private sector creditors go through.

The German market experienced its biggest daily fall since September 2011, however Germany's DAX index is still up 12.5 pct this calendar year. As expected, the European economy contracted by 0.3 pct in the final three months of 2012. No major economic data is expected to be issued in the Eurozone tonight.

The U.S markets slumped by 1.5 pct overnight (its biggest daily pullback since the start of December last year). Last night was termed "Super Tuesday", due to it being the biggest day of the Republican Primaries to date. Mitt Romney (the favourite to receive the necessary votes to take on President Obama at the end of the year) outspent Santorum 4:1. In the past, the biggest spending candidate has usually ended up winning the nomination.

Tonight, the latest ADP National Employment report will be issued for February and measures the number of jobs created or lost in the private sector over the month. The market is expecting that around 210,000 were added in February. This will be released prior to the U.S market open and could be a potential driver for trade tonight.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is up 0.05 pct or 2 pts to 4143.

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 higher; indicating that U.S stocks could open stronger 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 US105.6 cents (which is around 2 cents lower than this time last week). The AUD is currently trading at £67.1 pence and €80.3 cents.

Steven Daghlian, CommSec Market Analyst

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