Australian Stock Market Report – Afternoon 5/24/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket kicked off the session a little higher for the third time this week, only to start losing ground following some disappointing economic data in China. The All Ordinaries Index (XAO) fell 0.3 pct or 12.6 pts to 4106.2. Today, 10 out of 12 sectors finished in the red; however the defensive healthcare industry was the best and rose 1 pct.

Telstra (TLS) fell by 0.84 pct or 3 cents to $3.53. Despite the falls, TLS has outperformed the Australian sharemarket by around 6 pct so far this year.

Department store owner, Myer (MYR) ended flat today despite receiving a number of broker downgrades. Yesterday, it fell by 7.8 pct after telling the market it expects profit to be lower than forecast for the year.

The country's two largest miners, BHP Billiton (BHP) and Rio Tinto (RIO) both edged higher today. BHP gained by 0.19 pct or 6 cents to $31.99 and RIO lost 0.14 pct or 8 cents to $56.36.

The four big banks were improving for part of the day, however all ended in the red by the close of business. National Australia Bank (NAB) fell 0.89 pct or 21 cents to $23.48 while ANZ Banking Group (ANZ) dropped by 0.87 pct or 18 cents to $20.47. Commonwealth Bank of Australia (CBA) eased by 0.24 pct and Westpac (WBC) lost 0.39 pct. The four major banks account for around 25 pct of the Australian sharemarket alone.

Gina Rinehart is now not only Australia's richest person, but she is also the world's richest woman according to the BRW Rich List. Her business interests (mining) are worth around $29 billion. If we compare the results to this year's Forbes Rich List, she would be in the top 10 richest people in the world. Her net wealth is around 1.5 times greater than Mark Zuckerberg's (the founder of Facebook) and around 10 times greater than Oprah's.

At 12.30pm (AEST), the latest update on the health of China's manufacturing sector was issued and showed that the industry is continuing to contract. The latest HSBC Flash Manufacturing PMI came in at 48.7 (any reading below 50.0 indicates a contracting manufacturing industry). According to this particular report, this is the seventh consecutive month of contraction.

Keep in mind that these are not the official government figures which represent the largest companies in China. The HSBC Flash numbers focus on small and medium sized businesses in the world's second largest economy.

Commsec Economist, Savanth Sebastian said that "Granted the HSBC flash reading does not reflect the larger manufacturing and state owned corporations and as such the focus is on small and medium enterprises which would have less access to credit. But what is clear is that manufacturing activity amongst the small to medium enterprises in China's private sector contracted for the seventh consecutive month."

Many might be wondering why China is focused on to such an extent in Australia's media. Well, perhaps this is a good time to look at just where our exports end up. In the nine months ending March 2012, Australia exported around $198 billion worth of goods offshore, 27 pct of which made its way to China. Japan received 19 pct of our exports while South Korea bought around 8.5 pct. Amazingly, 74 pct of Australia's goods exported over that nine month period ended up in Asia.

Most sharemarkets in the region lost some ground today. New Zealand issued its trade balance (exports less imports) for April. A smaller than expected trade surplus of NZ$355 million was recorded last month. New Zealand's 2012/2013 federal budget was also issued today.

In Europe tonight, the latest flash composite PMI will be issued for the month of May. The reading is expected to be below 50.0 (as has been the case for the last seven of eight months). There are no doubts within the market that PMI will remain weak, however the extent of the weakness is up for discussion. For those who don't know, PMI stands for 'Purchasing Managers' Index' and is calculated by conducting a survey of purchasing managers, asking participants questions relating to employment, production, prices and inventories. The results are then expressed as a number. A reading below 50.0 indicates manufacturing industry contraction while anything above 50.0 represents improving conditions.

The European Central Bank (ECB) President, Mario Draghi has been scheduled to deliver a talk at the Bank of Italy (Italy's central bank) in Rome at 11pm (AEST). He has more power over the Euro (€) currency than any other person in Europe. This is one of the reasons why his speeches are listened to carefully by those involved in markets.

In the U.S tonight, the latest durable goods orders report, PMI readings for May and weekly jobless claims will all be released. Durable goods orders are expected to have jumped by 1.1 pct in April and measures the change in the total dollar value of new orders placed with manufacturers for durable goods (goods that do not wear out quickly, such as cars, furniture that last for around three years or more). An update on the state of the American manufacturing industry in addition to a report on weekly jobless claims (people applying to receive unemployment benefits from the U.S government for the first time in the previous week) be almost as important.

Volume of shares traded came in at 1.53 billion today, worth $4.01 billion. 386 shares were up, 555 were weaker and 358 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.02 pct or 1 pt to 4051.

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 black tonight.

Dow Futures are lower, indicating that U.S stocks could open weaker 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 at around a six month low at US97.3 cents. The AUD is currently trading at £62.1 pence and €77.6 cents.

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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