Australian Stock Market Report – Afternoon 5/31/13

Evening Report

(17:00 AEST)

May; A month which was charactarised by the US Federal Reserve signalling, tacitly or otherwise, that it was developing a strategy to exit its quantitative easing policy. The impact on the local market has been significant. The ASX200 has shed 4.7%, marking its worst decline in 12 months. Additionally there has been a precipitous decline in the Aussie dollar which has also dealt confidence a blow. The local unit has lost more than 7% in May.

Friday's session could be boiled down to the strength of the resource sector balanced by weakness in the financials. Miners performed relatively well despite the price of (spot) iron ore slipping back to $110 per tonne. Iron ore prices had held up well around the $120 level for some time, notwithstanding concerns about slowing Chinese growth and steel demand in particular. The move in price back to $110 has suggested that prices are enroute to the $100 per tonne level.

Financials on the other hand have become a victim of their recent strength. Another important influence that has been touted for the recent selling has turned around the currency. Foreign investors from low interest rate jurisdictions have targeted local banks in particular for their yield certainty. Although with the Greenback in the ascendant at present this dynamic is well and truly in flux if not turning in outright terms.

Whilst there is a smattering of economic news due in the US on Friday night, including a reading on consumer confidence, markets globally will train their attention on Chinese manufacturing data which will be released on Saturday morning. The strength of this outcome will be the main determinant of how the local market opens up on Monday.

The first day of the local trading week will also see the release of Retail Trade data for the month of April. Additionally the ANZ will release its job ads report and the TD Securities and Melbourne Institute will release their monthly inflation gauge. The markets expectations in relation to inflation are well honed, with price pressures well contained. The risk for consumer spending remains to the downside, although the impact on retail stocks could be modest the profit warnings that group has seen in recent week. The impact on the job ads data is debatable given the disconnect that has developed between this series and the ABS unemployment data.

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