Australian Stock Market Report – Afternoon 5/30/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket lost ground for the first time this week, with the All Ordinaries Index (XAO) easing by 0.5 pct or 19.5 pts to 4148.7. The market gained by around 1 pct yesterday and on Monday but could not continue the winning streak. At its low point of the day, shares were down by 1 pct, while the market was flat at its best. Despite today's losses, local shares are still around 1.6 pct higher now than on Friday last week. The dollar value of shares that exchanged hands today remained very weak.

10 out of 12 market sectors ended in the red, with the energy and mining sectors amongst the worst performers. The world's biggest miner, BHP Billiton (BHP) eased by 0.62 pct or 20 cents to $32.17 while the smaller Rio Tinto (RIO) slumped by 1.36 pct or 79 cents to $57.35. BHP is around four times larger than RIO. If you combined Woolworths, Telstra, AMP, Caltex and Suncorp into one organisation, it would be of comparable size to BHP.

Australia's largest gold producer, Newcrest Mining (NCM) fell 2.34 pct or 60 cents to $25.07 however rose 1.26 pct yesterday and 2.42 pct on Monday.

Coles plans to increase the size of its supermarkets and open 19 new stores over the financial year. As many as 400 stores are still expected to be refurbished. Wesfarmers (WES), the owner of Coles fell 0.21 pct or 6 cents to $28.95.

The banks ended mixed with National Australia Bank (NAB) and ANZ Banking Group (ANZ) rising slightly. ANZ gained 0.14 pct or 3 cents to $20.97 while NAB finished 0.04 pct higher. Westpac (WBC) fell 0.63 pct or 13 cents to $20.42 while Commonwealth Bank of Australia (CBA) eased by 0.28 pct or 14 cents to $49.74.

A survey today showed that XXXX beer has now toppled VB as Australia's biggest selling beer, accounting for around 12.5 pct of all beer consumed in the country.

On the economic front, a report released by the Australian Bureau of Statistics (ABS) has shown that people were a little more hesitant at the retail level last month than expected. Retail sales fell 0.2 pct in April, while the market was anticipating a 0.3 pct improvement.

Immediately following the report, the Australian dollar (AUD) started to lose ground. The market is now factoring in a 125 pct chance of a rate cut next week. If this does happen, rates would be at their lowest level since November 2009.

Commsec's Chief Economist, Craig James said that "Most businesses would tell you that it is hard work to make a quid. And the latest figures bear that out. Consumer spending had been looking encouraging but sales fell for the first month in four in April. And while construction spending hit record highs in the first quarter of 2012, it was all due to engineering spending in Western Australia. Residential and commercial building continues to slide."

On the topic of rates, Mr James said that "The Reserve Bank will discuss cutting rates again at next Tuesday's meeting. While we have pencilled in a rate cut in August, in reality the move could come in June, July or August. The good news is that we can contemplate a rate cut because inflation is under control. But the softness in non-mining sectors, caution about the carbon tax, the "troubles" in Europe and slower Chinese economic activity all are factors adding to the easing bias of the Reserve Bank."

The Australian Bureau of Statistics (ABS) also released its quarterly report on construction work, which recorded a 5.5 pct rise in construction over the March quarter (January to March). Mr James said that "Only one state reported stronger construction work in the March quarter - Western Australia. And only three states reported stronger retail spending in April. The dollars are out there, it's just that consumers don't want to spend. Still, the Bureau of Statistics clearly needs to do more work about online spending. More Aussies are travelling abroad as well as buying goods online, thus robbing momentum from Australian retailers."

Tomorrow will be a big day for economic news with private investment, building approvals and private sector credit reports all released for the month of April.

In the region today, the New Zealand market was one of the few to end a little higher (up by 0.09 pct). Shares in Hong Kong faired worst, with the Hang Seng down 1.96 pct or 374.39 pts to 18681.07.

South Korea's LG International Corp is apparently making a bid for Peabody Energy's Wilkie Creek coal mine in Queensland. Peabody is the largest private sector coal business in the world.

While on the topic of South Korean businesses, here are a few random facts on one of the nation's largest companies, Samsung. Most of us know at least one person with a Samsung product (likely to be a phone or TV). The company accounts for around 13 pct of all South Korea's exports and has a market capitalisation (number of shares on issue multiplied by its share price) of around $155 billion on the Seoul sharemarket (around 3.5 times bigger than Telstra). The company makes around 25 pct of all profits in the smart phone segment and is second only to Apple. It is the world's largest chip maker and flat screen TV manufacturer.

Interestingly, it operates under a Chaebol model of business which is quite popular in South Korea. This is a type of family controlled organisation of businesses. Samsung consists of 83 companies.

Tonight, an Italian 10-year government bond auction will be held and the European Central Bank (ECB) President, Mario Draghi (an Italian) will be speaking in Brussels.

In the U.S, a Federal Reserve (American equivalent of Australia's Reserve Bank) will be delivering a speech in New York. The latest report on pending home sales will be released at 12am (AEST). This measures the change in the number of homes under contract still awaiting settlement. The market is expecting a largely flat result.

Volume of shares traded came in at 1.52 billion today, worth $3.74 billion. 416 shares were up, 524 were weaker and 354 ended unchanged. It was 12 pct quieter on the market today than last Wednesday.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.02 pct or 1 pt to 4087.

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

U.S futures are pointing to a lower open also. 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) buys US97.8 cents and lost ground against the greenback following the worse than expected retail sales numbers. The AUD is trading at £62.7 pence and €78.5 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.

[Kick off your trading day with our newsletter]