Australian Stock Market Report – Afternoon 5/3/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket lost ground today for the first time in four sessions, with the All Ordinaries Index (XAO) easing by 0.2 pct or 10.3 pts to 4494.5. The mining, energy and industrial sectors all ended lower which put downward pressure on the broader market. Those three sectors make up around 37 pct of the Australian sharemarket.

The banks were in focus today, with two of the big four banks passing on part of the Reserve Bank's (RBA) 50 bps rate cut over the past 24 hours. Commonwealth Bank of Australia (CBA) cut rates by 0.4 pct while National Australia Bank (NAB) cut its standard variable rate by 0.32 pct. Westpac (WBC) is expected to announce its decision tomorrow and we should hear from ANZ Banking Group (ANZ) next Friday.

Westpac was the best performing bank today, with its shares rising by 0.97 pct or 22 cents to $22.91. National Australia Bank (NAB) rose 0.41 pct or 10 cents to $25.20, CBA ended flat and ANZ fell by more than 0.6 pct.

Australia's second largest bank, WBC reported a 25 pct slump in its first half profit (six months to 31 March) to $2.97 billion. This was broadly in-line with expectations, but the bank recorded its smallest improvement in profit in three years. The result was partly impacted by bad debts and a fall in its margins, which have declined by 6 bps. The Australian consumer is still shying away from taking on additional debt, with customer deposits in accounts rising by 11 pct to $320 billion while lending only increased by 5 pct over the half.

WBC is Australia's first company and has over 12.4 million customers. It also holds around 23 pct of the household deposit market share. The bank's CEO, Gail Kelly said that she expects the difficult and volatile conditions to continue globally and Asia to become increasingly important to growth. She is also Australia's highest paid woman and has done exceptionally well in the business world. She became the first female Chief Executive of a top 15 company in 2008. Interestingly, she originally taught Latin in a South African high school prior to moving into the banking world.

The bank announced an 82 cent a shares dividend, scheduled to be paid to shareholders on July 2. WBC's shares have improved by around 15 pct since the start of this year, which is around 5.5 pct more than the broader sharemarket.

Harvey Norman (HVN) was one of the worst performers, after delivering a disappointing sales update and a larger than expected fall in its profit margin. Retailers have been resorting to heavy discounting to attract customers. HVN is around twice as large as JB Hi-Fi (JBH) on the Australian sharemarket. Both JBH and HVN fell by 1.5 pct today.

On the economic front, a report showed that beer consumption has hit a 65-year low. Surprisingly, total consumption of alcohol fell for the fourth consecutive year.

Commsec Economist, Savanth Sebastian said that "Australia used to be a beer drinking nation. Well that has changed, just like a whole host of other things. Wine and beer consumption were neck and neck at the end of June last year and it could very well be the case that today more Australians are consuming alcohol in the form of wine, not beer. Interestingly Aussies aren´t just cutting back on beer, alcohol consumption as a whole fell for the fourth straight year and is now down at 9-year lows. Perhaps it's all about quality not quantity or perhaps Aussies are taking health matters seriously. Not only are we cutting back on alcohol, spending on cigarettes and take-away food is falling. Australia is making a serious attempt at climbing the ranks of world healthiest nations."

The latest Performance of Services Index (PSI) plummeted by 7.4 pts to 39.6 last month which is a 3-year low. The index is calculated by conducting a survey of about 200 service-based companies. Mr Sebastian said that "The latest figures on the services sector were clearly disappointing. However the result does further validate the recent super-sized rate cut by the Reserve Bank. The services sector has contracted for nine months out of the past year. And the latest result suggests that that there is no real catalyst for a turnaround. In fact in April the pace of contraction was the fastest in three years."

Most markets in the region ended in the red today, with shares in the Philippines one of the exceptions. The Japanese sharemarket was closed today for the Constitution Day holiday. It is a day intended to reflect on the meaning of Japanese democracy.

In Europe tonight, the European Central Bank (ECB) will be meeting to make a decision on interest rates. The market is expecting rates to remain at 1 pct for the sixth consecutive month. This will be followed by a press conference held by the ECB. The French government will hold a 10-year bond auction, with borrowing costs expected to remain elevated.

Last night, the Eurozone's jobless rate hit an all-time high after rising from 10.8 pct to 10.9 pct in March. The two remaining candidates for the French Presidency faced off in a televised debate overnight. Instant polls were showing the Socialist Party's Francois Hollande as the clear victor with 64 pct of the vote. The elections take place next week in both France and Greece.

In the U.S tonight, the weekly unemployment claims report will be issued at around 10.30pm (AEST) and is expected to improve to 381,000 claims. This report measures the number of people applying to receive unemployment benefits for the first time over a week. Two Federal Reserve (the U.S central bank) officials will be delivering talks late in the evening.

Volume of shares traded came in at 1.97 billion today, worth $4.59 billion. 428 shares were up, 582 were weaker and 394 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.09 pct or 4 pts to 4425.

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

Dow Futures are currently a touch lower, indicating that U.S stocks could open in the red 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) continues to lose ground against the greenback and buys US103 cents. The AUD is currently trading at £63.6 pence and €78.3 cents. The AUD hit a low of US102.85 earlier in the session.

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