Australian Stock Market Report – Afternoon 5/14/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket has kicked off the week in better form, with the All Ordinaries Index (XAO) up 0.2 pct or 9.2 pts to 4351.9. Last week was the worst weekly performance for the local market in around six months. This weekend, the Chinese Central Bank cut its reserve requirements for Chinese banks to give the economy a bit of a boost. This essentially means that banks will have more cash to lend out to borrowers.

Energy stocks were leading the rise early on, but the gains did not last long. The oil and gas producers in addition to the mining sector ended lower, weighing on the broader market. Both regions of the market combined make up around a third of the ASX. BHP Billiton (BHP) edged higher by 0.26 pct or 9 cents to $34.46, while the smaller Rio Tinto (RIO) eased by 0.11 pct or 7 cents to $61.00. Australia's third biggest iron ore miner, Fortescue Metals (FMG) ended 0.93 pct or 5 cents to $5.34.

Three of the four major banks ended higher today, with Commonwealth Bank of Australia (CBA) the best performer. CBA shares rose 1.93 pct or 100 cents to $52.80. National Australia Bank (NAB) jumped 1.02 pct or 25 cents to $24.80 while ANZ Banking Group (ANZ) gained 0.73 pct or 16 cents to $22.20. Westpac (WBC) fell by 2.86 pct or 65 cents to $22.07 after going ex-dividend today. WBC will be paying out an 82 cent a share dividend on 2 July to eligible shareholders. This means that you will no longer receive the next distribution if you bought the shares today or purchase then from here on in.

The major retailers ended mostly higher today, with adventure retailer, Kathmandu (KMD) and discount electronics retailer JB Hi-Fi (JBH) two of the better performers after gaining by more than 1.5 pct.

Home improvement and paint product company, Dulux Group (DLX) recorded a 1.6 pct drop in first half profit to $47.9 million, partly impacted by higher costs. The result met market expectations and its shares ended unchanged.

On the economic front, housing finance rose for the first time in three months in March. The market reacted well to the news initially however the improvements were short lived. Confidence amongst home buyers still remains weak and we are expecting one rate cut over the next three months.

Commsec Economist, Savanth Sebastian said that "The housing sector has been finding conditions difficult but it is important to highlight that today's data is backward looking. On an encouraging note there does seem to be light at the end of the tunnel- particularly given that the super-sized rate cut should entice potential home buyers to sign on the dotted line. And the lift in loans for newly-erected homes should lead to more building ahead. The fundamentals for the housing sector remain sound. The lack of new residential construction has led to pent up demand, and with migration levels at 3½-year highs, demand for new and existing homes should lift. It really comes down to confidence. A substantial pick up in confidence is needed to justify a turnaround and the recent interest rate cut may just be the catalyst."

Petrol prices surprisingly rose last night to a 3.5 year higher. This is despite a significant fall in wholesale prices. The good news for motorists is that a drop of as much as 4 cents a litre is likely over the next fortnight.

Mr Sebastian said that "According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 1.2 cents a litre to 151.4 cents a litre in the week to May 13. The metropolitan price rose by 1.7 c/l to 150.5 c/l, while the regional average price rose by 0.7 c/l to 153.4 c/l. The national weekly average weekly retail diesel price was down by 0.1 cents a litre to 153.4 cents a litre."

This week will not be quite as busy as last week in relation to news and economic news, but a number of events are still scheduled to take place. Both Coco-Cola Amatil and Westfield will be holding their Annual General Meetings (AGMs) with their shareholders over the coming days. The latest consumer sentiment/confidence report in addition to a quarterly report on wages will be out on Wednesday.

This week will be subdued in the Asia Pacific region on the economic front; however the latest quarterly growth (GDP) report will be issued on Thursday in Japan.

In Europe tonight, the latest industrial production report and a 10-year bond auction will take place tonight in Italy.

This week, Greece will remain in focus and continue to be a concern for investors. The Greeks will need to form a government by Thursday this week to prevent another election next month. Francois Hollande will be sworn in as the first Socialist President in France in 17 years tomorrow. The success of the relationship between France and Germany (the Eurozone's two largest economies) will be a key focus for markets. European Finance Ministers will be meeting tomorrow in Brussels and the leaders from the G8 nations are expected to meet at the end of the week.

No major data is scheduled for release in the U.S tonight, however the economic calendar will start filling up tomorrow.

Volume of shares traded came in at 1.48 billion today, worth $4.23 billion. 401 shares were up, 551 were weaker and 428 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.33 pct or 14 pts to 4283.

Due to daylight savings, most major European markets are now trading between 5pm (AEST) and 1.30am (AEST). Stocks are expected to open in the red tonight.

Dow Futures are weaker, indicating that U.S stocks could open in lower 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) has lost ground against the greenback and buys US99.84 cents. This is its weakest level against the U.S dollar this year and is the first time since mid-December that the AUD is trading below parity. The AUD is currently trading at £62.1 pence and €77.56 cents.

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