Australian Stock Market Report – Afternoon 5/29/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket improved following a slow start to trade, to finish significantly higher for the second day running. The All Ordinaries Index (XAO) rose 1.2 pct or 48 pts to 4168.2. This morning however, shares were down by as much as 0.67 pct in the first hour of trade only to steadily improve as the day wore on. At the start of trade, nine of 12 market sectors were losing ground, whereas only two of 12 ended the day in the red.

Both yesterday and today were a little quiet for the local market due to the Memorial Day holiday in the U.S. Yesterday, around 25 pct less shares exchanged hands than last Monday, while it was around 10 pct quieter today than last Tuesday. Markets globally tend to remain subdued either end of a U.S public holiday.

European markets ended mixed overnight, with the health of the Spanish banks coming into question. Borrowing costs for the Spanish government rose to a touch over 6.5 pct at one point. Spain is the Eurozone's fourth largest economy, behind just Germany, France and Italy.

The mining sector was holding the market back in early trade only to be one of the best performers by close of business. The world's largest miner, BHP Billiton (BHP) rose 1 pct or 32 cents to $32.37 while Rio Tinto (RIO) jumped 2.18 pct or $1.24 to $58.14. RIO is around four times smaller than BHP. Australia's third largest iron ore miner, Fortescue Metals (FMG) continued to make up for this month's big falls and rose by 7.47 pct or 34 cents to $4.89.

The retailers were mixed with specialty retailer, Harvey Norman (HVN) one of the best after rising by 1.52 pct or 3 cents to $2.00. Surfwear retailer, Billabong (BBG) slumped by 1.95 pct or 4 cents to $2.01.

Queensland based insurance group, Suncorp (SUN) has announced new initiatives that are expected to save the company around $200 million a year from 2016. SUN shares rose 1.69 pct or 13 cents to $7.81.

The managing director of Coles Supermarkets, Ian McLeod has signed a new contract after five years running the business and driving its turnaround. Wesfarmer (WES), the company that owns Coles rose 1.22 pct or 35 cents to $29.01.

There has been some speculation that rural services company, Elders (ELD) is being scoped for a potential bid. ELD ended unchanged at 20 cents.

On the economic front today, a monthly report showed that the number of newly built properties sold in April rose by 6.9 pct. Keep in mind that in March, new home sales fell to a fresh 11-year low and slumped by almost 10 pct. House sales in Victoria skyrocketed by 17.2 pct in April, ahead of the removal of the First Home Bonus. Rental vacancy rates are still at very low levels, with the lack of newly constructed buildings not helping.

The market is currently completely pricing in a 0.25 pct rate cut next week. This mean that those involved in debt markets are expecting a rate cut on Tuesday. If a drop in rates eventuates, the cash rate is likely to be at its lowest level since November 2009.

Commsec's Chief Economist said that "The good news is that home sales lifted in April. The bad news is that the lift only partially retraced the previous month's declines. The good news is that Victorian house sales soared. The bad news is that the upcoming expiry of the First Home Bonus probably had a lot to do with it. The good news is that home sales rose in Western Australia and NSW. The bad news is that sales fell in South Australia and Queensland. And unfortunately in economics it can get like that - on the one hand this, on the other hand that. However it is clear that home building is weak, certainly well below averages over the past five years."

Tomorrow will be a busy day of economic releases. The latest retail sales report will be issued for April and is expected to lift by 0.3 pct (after a 0.9 pct rise in March). A report on the amount of construction work done in the March quarter (January to March) will also be released and is expected to record a 1 pct gain.

A number of Annual General Meetings (AGMs) will be held tomorrow including a number of small names such as Sino Gas & Energy Holdings (SEH) and at least a dozen others. SEH is an oil and gas company focusing on exploring and developing gas assets in China. It first listed in September 2009 on the Australian sharemarket and has a market capitalisation (number of shares on issue multiplied by the current share price) of $62.7 million (around 1600 times smaller than BHP Billiton).

All markets in the region ended higher today, but none rose more significantly than the Taiwanese market (up 2.89 pct today). Japan's unemployment rate rose from 4.5 pct to 4.6 pct, which was worse than expected. Retail sales improved by a less than forecast 5.8 pct over the year (market was hoping for a 6.2 pct rise) while household spending gained by a more than expected 2.6 pct over the year.

The Japanese economy has been doing it tough since March 11 last year following the earthquake, tsunami and nuclear disaster. Last week, Japan recorded its 13th straight monthly trade deficit (imported more than it exported overseas). Recently, it also closed its last operational nuclear power plant. Japan was previously relying on nuclear power for around a third of its electricity needs.

No major market moving data is scheduled for release today; however the latest inflation reading will be posted in Germany. Inflation is not a concern for the time being in the Eurozone's largest economy. The Bank of Portugal will release its Financial Stability Report tonight. Markets are currently seeing Portugal as the second most likely nation to leave the Eurozone behind only Greece.

In the U.S the latest Case Shiller home price report for March in addition to the May reading for consumer confidence will both be issued. Home prices have fallen by approximately 3.5 pct in North America over the past 12 months. Despite a modestly improving U.S market, the European debt crisis has been weighing heavily on American sentiment.

Volume of shares traded came in at 1.7 billion today, worth $4.05 billion. 556 shares were up, 394 were weaker and 356 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.02 pct or 1 pt to 4102.

Due to daylight savings, most major European markets are now trading between 5pm (AEST) and 1.30am (AEST). Futures are currently pointing to a stronger start to trade tonight.

U.S markets will be trading for the first time this week tonight and futures are pointing to a stronger start to trade. 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 strengthened against the greenback and buys US98.9 cents. The AUD is trading at £62.9 pence and €78.7 cents.

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