Australian Stock Market Report – Afternoon 6/1/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket fell for the third consecutive session today, with the All Ordinaries Index (XAO) down 0.4 pct or 16.8 pts to 4116.9. Half the market actually improved today, however the energy, mining, industrials and consumer discretionary stocks all ended significantly lower. Modest gains from the financial sector were not enough to lift the market higher. Last month, shares fell by 7.5 pct, which was the worst performing month in two years (let's hope this month is better).

Bluescope Steel (BSL) was one of the worst performing companies today, with its share price falling by 7.25 pct or 2.5 cents to 32 cents. The company is facing a hefty tax bill due to a dispute with the Australian Tax Office (ATO) over a deal reached five years ago. This could cost the company around $203 million. BSL is likely to contest the decision.

The miners struggled today with the S&P/ASX 200 Materials index falling 1.65 pct or 161.4 pts to 9626.8. Rio Tinto (RIO) slumped by 2.34 pct or $1.33 to $55.53 while BHP Billiton (BHP) eased by 0.75 pct or 24 cents to $31.73. Australia's largest gold miner, Newcrest Mining (NCM) plummeted by 3.25 pct or 81 cents to $24.11.

Three of the big four banks ended higher with National Australia Bank (NAB) easing 0.04 pct or 1 cent to $22.47. NAB went ex-dividend yesterday. ANZ Banking Group (ANZ) rose 1.63 pct or 34 cents to $21.24 while Commonwealth Bank (CBA) and Westpac (WBC) both rose by between 0.5 pct and 0.75 pct.

A number of reports were released on the economic front today, with all disappointing. Home prices fell 1.4 pct, taking the falls for the year to 5.3 pct. Apartments continue to remain popular though, with prices up 1 pct.

Commsec's Chief Economist, Craig James said that "The average Australian capital city house price (median price based on settled sales over quarter) was $490,000 and the average unit price was $430,000. Dwelling prices rose in only one city: Adelaide (up 1.2 per cent). Prices fell most in Melbourne (down 2.7 per cent), followed by Darwin (down 2.4 per cent), Perth (down 1.7 per cent), Canberra (down 1.5 per cent), Hobart and Sydney (both down 1.2 per cent), and Brisbane (down 0.3 per cent)."

Another report showed that Australia's manufacturing sector is continuing to contract. Production is sitting at a three-year low. Despite the worsening conditions, the lower Australian dollar certainly is a positive for the industry. Mr James said that "Further declines of the Aussie dollar will assist the manufacturing sector. But something more than rate cuts will be required to help housing. There is a crisis of confidence, with underlying housing demand reasonably solid but home-owners, investors and developers haven't got the confidence to build. Federal and state governments need to come up with a comprehensive Australia-wide solution to kick start the housing sector."

A new month usually means a barrage of new economic news is released and next week should be no different. On Monday, the latest inflation gauge and job advertisement reports will be issued. On Tuesday, the Reserve Bank of Australia (RBA) will be making a decision on interest rates. The market is factoring in a 150 pct chance of a 0.25 pct rate cut. On Wednesday, we'll find out how fast the Australian economy is growing at while the latest job numbers will be issued in the latter part of the week.

In the region, China released two of its most important monthly economic reports today. Both showed that the manufacturing sector in China is doing worse than expected. The HSBC manufacturing index fell from 48.7 to 48.4. A reading below 50.0 indicates contraction in the industry. This report specifically targets small to medium sized organisations.

The more important official government numbers also came in worse than forecast, falling from 53.3 to 50.4. This was worse than the expected reading of 52.1. This report takes into account the larger Chinese firms. The data gives Chinese authorities another reason to provide additional stimulus. Why do we care so much about China? Australia exported more than 25 pct of its goods to China last year, which is around seven times more than to the U.S.

Ireland had a referendum last night to vote on the European Union Fiscal Pact (this is where countries have to commit to balancing their budgets and aiming to record surpluses. If countries fail to do so, they would receive financial penalties. The turnout for the referendum was relatively poor, with less than half the Irish population making their opinions heard. A 'NO' vote would not necessarily be detrimental to the Eurozone's plans, because only 12 of 17 nations have to agree to have the fiscal pact passed. Ireland was the only nation to go to a referendum to vote on this.

Tonight in Europe, the latest manufacturing report and Eurozone unemployment rate will be issued. The jobless rate is expected to rise from 10.9 pct or 11 pct.

In the U.S tonight, the official government job number will be issued (this is considered to be more important than the ADP private sector employment figures released last night). In addition to this, the latest personal spending and manufacturing survey results will also be issued.

Volume of shares traded came in at 1.52 billion today, worth $3.95 billion. 323 shares were up, 626 were weaker and 347 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.17 pct or 7 pts to 4063.

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 weaker start. 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 US96.7 cents and lost ground against the greenback following the worse than expected Chinese manufacturing reports. The AUD is trading at £63 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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