Australian Stock Market Report – Afternoon 5-10-13

Afternoon Market Report

(17:00 AEST)

Friday's session largely boiled down to a tug of war between the resources and banks. As has been the case all week the miners won and financials underperformed. At face value Friday's performance appears underwhelming. The ASX200 finished with a gain of almost 8 points, having squandered an early lead of 44 points at its best levels which were seen in late morning trade. Investors appeared happy for some book squaring ahead of the weekend after the market gained 1.7% in the last 5 days.

A belief that is slowly beginning to permeate market thinking at present is the idea that even if the current level of official rates is the low point in this cycle, interest rates in the bigger picture will likely remain lower for a longer period of time. Today's release of the RBA's Statement on Monetary Policy (SMP) supported this argument. The RBA has lowered its inflation forecasts slightly, which was a follow on from the lower than expected March quarter CPI reading. The Bank maintained its GDP forecasts at slightly below trend for 2013 and into 2014. The risks associated with the somewhat surprising rate cut to 2.75%, have been balanced by the low March quarter CPI and the likelihood that inflation readings will continue to skew towards or hit 2% pa in the near term.

Primary Health Care increased its earnings guidance for the financial year by $10 million. The medical centre operator and pathology group expects earnings before interest, tax, depreciation and amortisation to be between $380 million and $390 million, compared to a range of $370 million to $380 million previously. The better news delivered a counter intuitive result, with the shares ending lower by almost 6% as investor tread warily ahead of the Federal Budget next week.

The big talking point in early trade remains in sharp focus as the European session gets underway. The sharp fall in the Aussie dollar has brought key support levels around parity with the Greenback into play. The reasons offered for US dollar strength remain unconvincing, so in the near term the risk is that the strength in the USD will be partially unwound, and AUD/USD should likely grind back up towards its 2.5-year average of around $US1.03.

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