Australian Stock Market Report – Afternoon 5/21/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket managed to improve for the first time in five sessions today, with the All Ordinaries Index (XAO) gaining by 0.6 pct or 25.6 pts to 4124.4. Shares were up by as much as 1 pct in early trade, fell by 0.12 pct at around lunch however managed to recover in the last few hours of trade.

The mining sector was the best of the day, with index leader (the largest stock on the Australian sharemarket) BHP Billiton (BHP) rising 2.03 pct or 64 cents to $32.10 while the smaller Rio Tinto (RIO) ended 1.36 pct or 75 cents higher to $55.95. Both companies are still trading close to three year lows. The mining sector has only improved for three of the past 13 trading days.

The big four banks all ended in the black, with National Australia Bank (NAB) up 1.2 pct or 28 cents to $23.60. Last week, NAB shares slumped by 5 pct and 2.35 pct in the prior week. Westpac (WBC) rose 0.98 pct or 20 cents to $20.61, Commonwealth Bank of Australia (CBA) edged higher by 0.49 pct while ANZ Banking Group (ANZ) rose by 0.38 pct.

On the profit result front, agribusiness Elders (ELD) returned to profitability for the first half. Underlying profit was a little lower than the previous half at $6.1 million. Net profit was $40.5 million, boosted significantly by a tax win. ELD shares ended 2.44 pct or 0.5 cents lower to 20 cents.

Building materials company, James Hardie (JHX) said it made US$604 million in the 12 months to 31 March 2012. This is compared to a US$347 million loss in 2011. Its compensation fund for asbestos victims will be increased to US$200 million, due to a rise in its cash flow. Since 2007, around 35 pct of its cash flow has needed to be forwarded to its compensation fund. JHX shares fell 1.42 pct or 10 cents to $6.95

Inner ear implant maker, Cochlear (COH) received a broker downgrade today due to an increase in implant malfunctions in March. COH shares fell 2.57 pct or $1.64 to $62.13.

No major economic data was issued today and this week should be a quiet one for economic news. The national average price of unleaded petrol did fall by 2.5 cents per litre to 148.9 cents last week, easing from a 3.5 year high. The good news should continue for motorists, with prices at the pump likely to fall by as much as 4 cents per litre over the next fortnight. This is due to lower wholesale prices that are yet to be passed onto the consumer.

Commsec Economist, Savanth Sebastian said that "Petrol prices eased from 3½-year highs over the past week, albeit modestly. And while it has certainly been a tough few months for motorists, it does seem like that a reprieve is around the corner. Regional oil prices have now fallen by over US$20 in the past six weeks. Importantly the slide in regional petrol prices have far outweighed the fall in the Australian dollar. In fact in Aussie dollar terms Singapore unleaded petrol has fallen by almost $15 a barrel in the past six weeks - pointing to a sustained fall in pump prices."

The problems in Greece have been one of the main drivers for the recent sharemarket weakness. Commsec's Chief Economist Craig James put it in perspective today, saying that "There are
fears that Greece may exit the euro area, but these are merely fears at present. After issuing the protest vote in the first attempt elections, the Greek people may actually see sense and vote for parties that can steer the economy out of the mess. If Greece was to leave the euro area it would be at risk of experiencing a painful depression and perhaps civil unrest. But the world would survive a Greek exit from the euro area."

Mr James went on to explain that "Investors have taken a negative view of these events and decided to trim positions in equity markets, instead embracing safe-haven government bonds - including US and Australian government securities - and in more recent days have drifted back to gold. The drop in Australian fixed-term rates to historic lows and a weaker Aussie dollar are positives for the Australian economy. But share investors must ensure that they are well diversified in the current environment."

No major economic data was issued in the region today. On Thursday, the HSBC Flash Manufacturing reading will be released and could impact markets in the region. This is despite the results recently giving slightly conflicting views of China's manufacturing industry when compared to the official Chinese government reports.

No major data is scheduled for release in Europe tonight; a spokesperson from the Bank of England (BOE) will be delivering a speech as will an official from the U.S Federal Reserve.

Over the weekend, G8 leaders expressed their desire to keep Greece in the Eurozone however has seemed to do little to boost investor confidence.

Tonight, Facebook will be trading for its second session. The social media giant made its much anticipated debut on the NASDAQ. Its shares were up by as much as 18.5 pct at one point only to end around 0.75 pct higher by close. Facebook raised around US$16 billion and has a market capitalisation (the size of the business on the market) of US$104 billion. To put this into perspective, it is larger than Woolworths (WOW), Telstra (TLS) and Westfield (WDC) put together.

Volume of shares traded came in at 1.55 billion today, worth $4.62 billion. 459 shares were up, 533 were weaker and 353 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.07 pct or 3 pts to 4075.

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 higher, indicating that U.S stocks could open in the black 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 trading below parity once again and buys US98.5 cents. The AUD is currently trading at £62.2 pence and €77.1 cents.

The AUD has fallen by more than US5.5 cents over the past three weeks, despite the Aussie economy being in reasonably good shape. Australia is a commodity based economy, with commodities in general account for almost 80 pct of all our exports over the past nine months. In essence, when the going gets tough globally, there is fear of less demand for our commodities, which tends to result in a weaker AUD.

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