Australian Stock Market Report – Afternoon 5/7/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket slumped to a 3-week low, with the All Ordinaries Index (XAO) falling by 2.2 pct or 97.8 pts to 4361.6. The local market had its worst single day since mid-December last year. Most sectors fell by at least 1.5 pct, while energy and mining stocks plummeted by more than 3 pct.

The losses came to us courtesy of both the Europeans and the Americans. On Friday night, U.S shares fell by around 1.5 pct, after some worse than expected job numbers were released. There were 115,000 jobs created in April, which was around 50,000 lower than forecast. The unemployment rate hit a 3.5-year low of 8.1 pct, due to a shrinking workforce. The fact that 350,000 Americans dropped out of the jobs market last month concerned investors.

The French and Greek elections took place over the weekend and created political uncertainty. Francois Hollande, has become France's first Socialist President in 17 years and will now serve a 5-year term. Nicolas Sarkozy has become the first President in 30 years to lose re-election. The Euro hit its weakest level against the greenback since 2008.

The market seems concerned that Hollande has different policies than Germany's Angela Merkel. For example, he is not overly keen on austerity and prefers increasing taxes on the rich and companies. He has never held a ministerial position in his 30 year career in politics. He was known in the past for being the partner of Segolene Royal, who lost against Nicolas Sarkozy in the 2007 Presidential election.

He has vowed to increase taxes for those earning more than $1 million to 75 pct and to use these funds for schools and to create additional government jobs.

The world's largest miner, BHP Billiton (BHP) fell 4.05 pct or $1.46 to $34.57 while its smaller competitor, Rio Tinto (RIO) slumped by 4.48 pct or $2.91 to $62.00. Since September last year, BHP shares have been trading within a range between $34.00 and $38.00.

The price of oil has slumped sharply and currently trades at around US$97 a barrel, dipping below the US$100 a barrel mark for the first time since February.

Whitehaven Coal (WHC) fell by 6.31 pct or 31 cents to $4.60 and has offered $142 million to takeover NSW based coal explorer, Coalworks (CWK). CWK shares rose by 16.37 pct or 14 cents to 99.5 cents,.

The financials dropped by 1.4 pct, with the big four banks all ending between 0.8 pct and 1.7 pct weaker. National Australia Bank (NAB) was the worst performer while ANZ Banking Group (ANZ) fell by 1.45 pct ahead of its interest rate decision this Friday.

Despite stronger retail sales numbers today, the largest retailers in Australia all ended significantly lower.

Today was the busiest day of the week on the economic front, with 5 separate readings released. The number of job advertisements in newspapers and on the internet slumped by 3.1 pct in April, making it the first pullback in four months.

Interestingly, ANZ (the company that compiles the data) said that it is "...currently investigating the reliability of data provided by a small internet website, which has been driving the recent improving trend in overall job advertising. As a result, greater caution should be given to the results of the job ads series in recent months. This may reflect data error or double counting of jobs already advertised on other larger internet websites."

The National Australia Bank business confidence index improved from +2.6 in March to +3.7 in April. Any number above 0.0 indicates improving conditions. Commsec's Chief Economist, Craig James said that "Inflationary pressures remain well contained. The monthly reading of labour costs "picked up to a modest 1.1 per cent (quarterly rate) in April. The survey suggests that wage costs pressures are reasonably well contained and are unlikely to be too concerning for policy makers." Prices rose at a 0.1 per cent quarterly pace, a similar result to March. Retail prices fell at a 0.7 per cent quarterly rate in April. But bucking the trend, purchase costs rose at a 0.7 per cent quarterly rate in April, up from the 0.4 per cent growth in March."

The latest retail trade and building approval reports were both better than market expectations today. Retail spending rose by 0.9 pct (the market was expecting a 0.3 pct improvement) while building approvals jumped by 7.4 pct (the market was expected a 3.2 pct rise). The number of dwelling approvals granted by councils to developers is still around 15 pct lower now than it was a year ago.

Mr James said that "Australia's retailers have finally something to celebrate. Not only did spending lift in March by the biggest margin in almost a year, once you adjust for inflation, the gain over the March quarter was the best in almost three years. No one will be getting carried away with one month's sales result. But it shows there is life out there in consumer land. Why did we start to spend again? It seems like lower prices had a lot to do with it. There has never been a bigger fall in retail prices in 30 years. A stronger Australian dollar, cheaper food, on-going innovation in technology goods, strong global competition and good old fashioned discounting have prompted Aussies to part with their cash again."

This week, Newscorp, National Australia Bank and Optus will release their latest profit results. Oil refiner, Caltex, AMP and Rio Tinto will all be holding their Annual General Meetings (AGMs) with shareholders. The latest monthly jobs report will be released on Thursday, with Australia's unemployment rate expected to remain at around 5.2 pct and only 5,000 jobs to have been created last month.

This is the biggest week of the month for economic news out of China, with the latest inflation, retail sales and investment reports issued in the latter part of the week. If Chinese data is positive, it might act as a much needed distraction from European uncertainty. In Europe, the Bank of England's monthly meeting on interest rates will take place on Thursday. The U.K's rates are expected to remain steady at 0.5 pct. The economic calendar in the U.S will be relatively bare this week.

Tonight, sharmarkets will be closed in the U.K due to a public holiday.

Volume of shares traded came in at 2.17 billion today, worth $5.06 billion. 192 shares were up, 915 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 significantly weaker start to trade tonight (a 2 pct fall is expected). European markets will have their first opportunity to react to the French and Greek elections.

Dow Futures are 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 US101.6 cents. The AUD is currently trading at £62.9 pence and €78.1 cents. The AUD is trading at its lowest level against the greenback so far in the 2012 calendar year.

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