Australian Stock Market Report – Afternoon 5/4/2012

MARKET CLOSE
(4.30pm AEST)

The Australian market fell for the second straight day today, with the All Ordinaries Index (XAO) down 0.8 pct or 35.1 pts to 4459.4. Despite the losses, local shares still ended around 0.5 pct higher for the week.

Last night, most global markets weakened with shares in the tech specific NASDAQ amongst the worst performers. The European Central Bank (ECB) decided to keep interest rates steady at 1 pct for the sixth consecutive meeting overnight. Interestingly, the ECB President Mario Draghi said that officials did not discuss a rate cut in the meeting. This is a little peculiar since the meeting was created for officials to make a decision on rates on a monthly basis. Mr Draghi also said that the Eurozone's outlook has become a little 'more uncertain' as of late. In the U.S, the number of jobless claims improved more than expected to 365,000, which was not enough to lift markets higher.

Commodity prices fell overnight which resulted in the most significant weakness being felt by our mining and energy companies. Rio Tinto (RIO), one of Australia's largest diversified miners fell 1.13 pct or 74 cents to $64.91 while BHP Billiton (BHP) eased 0.61 pct or 22 cents to $36.03. The price of oil slumped by around 2.5 pct overnight and put some of our largest oil and gas producers under pressure. Woodside Petroleum (WPL) slumped by 2.21 pct or 80 cents to $35.40 while Santos (STO) dropped by a more significant 2.98 pct or 42 cents to $13.69.

Three of the four major banks have now passed on part of the Reserve Bank of Australia's (RBA) 50 bps rate cut. Today, Australia's second largest bank, Westpac (WBC) cut its standard variable rate by 0.37 pct to 7.09 pct. Commonwealth Bank (CBA), cut rates by 0.4 pct to 7.01 pct, National Australia Bank (NAB) dropped its rates by 0.32 pct to 6.99 pct. ANZ Banking Group (ANZ) is expected to announce its decision to the market next Friday and is likely to pass on any rate cuts on the following Friday.

Qantas (QAN) is set to save as much as $400 million by delaying the delivery of two brand new A380 Superjumbos by a number of years (as many as four). QAN shares fell by 1.25 pct today.

On the economic front today, the RBA released its quarterly Statement on Monetary Policy and has kept the door open for further rate cuts this year. The central bank now expects inflation to remain towards the lower end of its 2-3 pct target band. Controlling inflation is one of the RBA's main roles and it seems to be less of a concern for the time being.

Commsec Economist, Savanth Sebastian said that "The Reserve Bank has shifted its mid and longer term forecasts to broad ranges rather than specific forecasts. And while the shift to a growth band is fine, the magnitude of the range leaves something to be desired. The 2.5- 3.5 per cent growth forecast for December 2013 hardly provides any clarity on where growth is likely to be - in other words growth could be below, at or above trend "normal" rates. It is a similar story on the inflation front and effectively means that the longer term forecasts are less useful in gauging the Reserve Bank's view on how the economy will perform."

Next week will be busy, with the Federal Budget delivered in Canberra on Tuesday. The latest retail sales and jobs reports will be the key areas of focus. Australia's jobless rate is likely to stay steady at 5.2 pct, compared to the Eurozone's 10.9 pct and the 8.2 pct unemployment rate in the U.S.

Commsec's Chief Economist, Craig James said that for the Federal Government "To achieve a budget surplus of $1.5 billion from the current deficit of $37 billion would require no change in spending, 11 per cent growth in revenues and possible another $4-5 billion in additional savings. At the same time the Reserve Bank acknowledges that economic growth is sub-standard and has, in turn, cut interest rates by half a per cent."

Asian markets finished mixed today. Shares in the Philippines and Taiwan edged higher, while the Hong Kong and South Korean markets lost ground. The Japanese market was closed today due to a public holiday for the second day running. The last operational nuclear power plant is expected to shutdown tomorrow in Japan. Residents living near the plant have been concerned with the safety of the energy source. Japan is the world's third largest economy and sharemarket. The Tokyo Stock Exchange is around 2.5 times larger than the Australian sharemarket.

Looking ahead, next week will be the busiest week of the month in China for economic news.

In Europe tonight, the latest retail sales report will be issued, while both the French and Greek Presidential elections will be taking place this weekend. The European Union and the International Monetary Fund agreed on a €173 billion bailout package for the Greeks, however the troubled nation still has to find ways to cut spending by €11.5 billion by the end of June to receive all funds. Riots are likely this weekend in Greece by discontented voters.

In France, the showdown between the Socialist Party's Francois Hollande and the current French President, Nicolas Sarkozy will take place. Mr Hollande has been leading opinion polls from the outset of the campaign and is the favourite to win the Presidency. President Sarkozy has been closing the gap over the past few days however.

In the U.S tonight, the latest monthly jobs report will be issued at 10.30pm (AEST). An additional 176,000 jobs are expected to have been created last month, while the unemployment rate is expected to stay steady at 8.2 pct.

Volume of shares traded came in at 1.87 billion today, worth $4.13 billion. 352 shares were up, 629 were weaker and 409 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.07 pct or 3 pts to 4388.

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 weaker start to trade tonight.

Dow Futures are currently a touch higher, indicating that U.S stocks could open in the black 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 US102.6 cents. The AUD is currently trading at £63.4 pence and €78 cents.

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