Australian Stock Market Report – Afternoon 4/27/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket ended a little lower today for the second time this week. The All Ordinaries Index (XAO) fell 0.3 pct or 11.6 pts to 4433.4 with almost all sectors losing ground. The market has remained largely unchanged over the shortened trading week (ANZAC Day public holiday on Wednesday).

Earlier in the week, Treasurer Wayne Swan returned from a trip to Washington and agreed to contribute $7 billion to the International Monetary Fund's (IMF) $430 billion additional pool of funds.

Seven West Media (SWM), the owner of the Seven Network has struggled and pulled back by 24.2 pct for the week. This came after it warned the market that its advertising business is doing worse than forecast.

Wesfarmers (WES), the owner of Coles, Kmart, Target and Bunnings has had a good week with its shares up 2.3 pct this week. The diversified business gave the market a relatively well received sales update yesterday.

Last night, both U.S and European sharemarkets improved for the third straight day, which helped our market kick off the session in the black. The gains started to fizzle away after just an hour of trade. Macquarie Group (MQG), Australia's largest investment bank posted a $730 million profit for the year, with weaker commissions and trading income weighing on the result. Profit was still broadly in-line with expectations which helped its shares rise 2.95 pct or 84 cents to $29.27.

Discount retailer, JB Hi-Fi (JBH) said it expects to meet its sales targets for the year however due to heavy discounting (to attract customers), profit is likely to be lower than expected. JBH shares fell 6.26 pct or 67 cents to $10.04 and wiped out its weekly gains completely.

The four major banks fell by between 0.1 pct to 0.79 pct today with National Australia Bank (NAB) the worst performer. The miners also finished in the red, with Rio Tinto (RIO) down 1.1 pct or 73 cents to $65.43, while both BHP Billiton (BHP) and Fortescue Metals Group (FMG) eased by around 0.7 pct.

This week, both business and consumer inflation reports were released and came in significantly lower than expected. This makes it almost certain that the RBA will cut rates for the first time this year on Tuesday by 0.25 pct. The market is factoring in a 30 pct chance that rates will be cut by a more significant 0.5 pct.

There was no major economic data out in Australia; however the economic calendar next week will be relatively full. On Monday, the monthly inflation gauge, private sector credit and the latest home price report will be issued. On Tuesday, an update on the manufacturing industry will be out in addition to the Reserve Bank's decision on interest rates. The quarterly economic assessment will be released in the form of a Statement on Monetary Policy at the end of the week.

In the region today, most markets lost ground, with shares in New Zealand and South Korea the exceptions. It was the biggest day of the week in Japan and one of the busiest of the month. The Bank of Japan (BOJ) announced additional quantitative easing measures today (printing additional cash to buy assets). Japan's unemployment rate remained steady at 4.5 pct, retail sales improved by a slightly lower than expected 10.3 pct for the year, inflation remains non-existant and the manufacturing industry is showing some modest signs of improvement. Japan's Nikkei 225 Index is down 0.4 pct.

In Europe last night, Spain's credit rating was cut for the second time this year by Standard & Poor's (S&P). The ratings agency said that it is becoming more likely the Spanish government will need to provide further support for Spanish banks. Back in January, S&P downgraded nine Eurozone nations including France, Austria and Spain. Tonight will be a quiet evening for economic news in Europe.

In the U.S last night, markets reacted well to a much better than expected 4.1 pct rise in pending home sales (which is a forward looking indicator). This was the best reading since April 2010. The number of Americans filing for unemployment benefits for the first time last week improved slightly, but not by as much as expected.

On the earnings front, most companies continued to outperform their own guidance however a number of businesses struggled. Deutsche bank, Germany's largest lender issued worse than expected numbers. Starbucks had an 18 pct jump in profit for the previous quarter and lifted its profit outlook for the year. The coffee maker is expecting to open additional stores and already has around 17,000 retail stores in 59 countries. For those interested, the "Starbucks" name was inspired by a character in the classic, Moby Dick.

Tonight, the latest growth reading (GDP) will be out of the U.S for the previous quarter and could be a driver for markets throughout the session. We will also hear from 41 U.S companies including Proctor & Gamble. The company owns brands such as Duracell, Hugo Boss, Pringles and Oral-B.

Volume of shares traded came in at 2.01 billion today, worth $5.48 billion. 494 shares were up, 509 were weaker and 476 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.14 pct or 6 pts to 4363.

Due to daylight savings, most major European markets are now trading between 5pm (AEST) and 1.30am (AEST). Futures in Europe are pointing to a weaker 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 and the end of daylight savings in Australia, U.S markets will now be trading between 11.30pm (AEST) and 6am (AEST).

Turning to currencies, the Australian dollar (AUD) is weaker and buys US103.7 cents. The AUD is currently trading at £64.1 pence and €78.7 cents.

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