Australian Stock Market Report – Afternoon 5/31/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket lost ground for the second straight day today, with the All Ordinaries Index (XAO) falling 0.4 pct or 15 pts to 4133.7. At its worst, the market was down 1.3 pct early in the session. May was the worst performing month for Australian shares in two years, with stocks down 7.5 pct.

Last night, there were continued signs that Spain's economic crisis is worsening. The borrowing costs for its government hit a six-month high. Spain is the Eurozone's fourth largest economy.

Most sectors actually improved today, however the energy, mining and financial stocks all ended in the red. This was enough to drag the rest of the market lower. Rio Tinto (RIO) fell 0.85 pct or 49 cents to $56.86 while the larger BHP Billiton (BHP) dropped 0.62 pct or 20 cents to $31.97.

National Australia Bank (NAB) was the worst performing major bank, with its shares falling 5.63 pct or $1.34 to $22.48. NAB went ex-dividend today, which means that if you purchase its shares today onwards you will not be eligible for the next dividend payment (scheduled to be paid to shareholders on16 June). Generally speaking, the share price of a company tends to fall on its ex-dividend day.

Commonwealth Bank of Australia (CBA) fell 0.68 pct or 34 cents to $49.40, Westpac (WBC) fell 0.64 pct or 13 cents to $20.29 and ANZ Banking Group (ANZ) eased by 0.33 pct or 7 cents to $20.90.

Upmarket department store owner, David Jones (DJS) said it made $399.8 million in sales at its stores for the three months ending April 30. This compares to Myer's $651 million in revenue. Keep in mind that MYR has close to double the number of stores than David Jones has. DJS operates 35 stores while MYR manages 67. MYR fell 2.78 pct or 5.5 cents to $1.92 today while DJS dropped 1.78 pct or 4 cents to $2.21.

The defensive healthcare stocks were the best today, with the S&P/ASX 200 Health Care Index rising 1.15 pct or 102.3 pts to 8971.1. Telstra (TLS) fell 0.28 pct or 1 cent to $3.55.

It was a busy day for economic news today, with the latest building approvals, business investment and private sector credit numbers issued early in the day (11.30am AEST).

The number of building approvals granted to developers by councils in April slumped by 8.7 pct, which was substantially worse than market forecasts. Effectively, this wiped out the 6 pct rise recorded in March.

Commsec Economist, Savanth Sebastian said that "The slump in building approvals is certainly not great news for tradespeople and retailers. But the latest result is effectively a reversal of the prior month's gains. The fundamentals for the sector remain sound particular with, a lack of building, strong population growth and further rate cuts likely, but it really comes down to confidence. A substantial pick up in confidence is needed to justify the turnaround."

Despite the disappointing building approval numbers, there were some signs that Australian businesses have boosted investment. Spending has improved by 28.6 pct over the past year. Mining heavy states such as Western Australia drove the rise. Manufacturing spending plummeted by 21.2 pct in the March quarter (January to March).

Mr Sebastian said that the report was "...encouraging, but not over the top. That's the best way to sum up the latest investment figures. Businesses are still spending on new equipment and buildings. But short-term spending plans have been slashed with over $6.3 billion worth of investment plans being mothballed private businesses - the largest downgrade on record. And while expectations for spending in the next financial year remain strong, there is a little more caution apparent in the latest estimates."

The market is currently factoring in a 157 pct chance of a rate cut next week.

In the region today, most sharemarkets ended lower. Shares in New Zealand, Taiwan and the Philippines managed to rise however. Japan's Nikkei 225 was the worst and fell by more than 1 pct. A report showed that the Indian economy is growing at 5.3 pct, well below market forecasts.

In Europe tonight, a referendum will be held in Ireland. Its citizens will vote to accept or reject the European Union's Stability Treaty. Under the fiscal pact/stability treaty (German-led), the 17 Eurozone member states would need to commit to balance their budgets and strive for surpluses. The nations that fail to do so will be subject to financial penalties.

The latest retail sales numbers will be issued in Germany, the Italian President Mario Monty will be speaking at a conference in Brussels, French consumer spending numbers will be out for the month of April and an update on Germany's jobs market will be out shortly tonight.

In the U.S tonight, the March quarter's GDP (growth) reading will be issued. Recently, the flash estimate (a reading taken at that exact point rather than for a particular month or quarter) showed growth of 2.2 pct. Another report will show us how many private sector jobs were created in May. The market is expecting around 138,000. The more important government report will be out tomorrow night.

Volume of shares traded came in at 2.01 billion today, worth $6.16 billion. 481 shares were up, 499 were weaker and 394 ended unchanged. It was a much busier session today than it has been so far this week.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.29 pct or 12 pts to 4085.

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 futures are pointing to a better start 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 US97.3 cents and lost ground against the greenback following the negative session of trade last night offshore. The AUD is trading at £62.8 pence and €78.4 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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