Australian Stock Market Report – Afternoon 6/15/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket managed to improve for the second time this shortened trading week. It certainly was quiet over the past four days, partly due to the Greek Presidential elections which will take place this Sunday. Markets were closed on Monday due to the Queen's birthday. The All Ordinaries Index (XAO) rose 0.4 pct or 17.2 pts to 4107.

There are sure to be a number of sweaty palms around the world at the moment, particularly in Greece and the Eurozone. Why should investors care about elections on the other side of the world? Well, they could have an impact on the future of the Eurozone, the Euro and have the potential to impact sharemarkets across the world. At the start of May (the first Greek attempt to nominate a President), the Greeks went to the polls and could not agree on a leader. The Australian sharemarket subsequently slumped by more than 8 pct over just two weeks, making it the biggest slide in close to a year.

Opinion polls are showing that the liberal New Democracy party are favourites with somewhere around 27 pct of the vote expected. The far left SYRIZA party is a close second however. Should either the far left or far right parties take power, sharemarkets are likely to struggle. This is due to the fact that these parties tend to be anti-austerity, anti-bailout and anti-Euro. We should have a relatively good feel for the results from these elections on Monday afternoon.

The borrowing costs for the Greek government are approximately 10 times greater than the Australian government at 27 pct. Spain's borrowing cost is 6.8 pct, 7.1 pct for Ireland and 10 pct in Portugal.

Commsec's Chief Economist, Craig James said that "If you went back five years ago, and someone told you one of the most anticipated events in 2012 would be an election in Greece, you would have had doubts about their sanity. But so it is. The first Greek election didn't produce a clean result with no single party or group of parties able to form government. The results were splintered as Greeks shifted away from the main parties and opted to make "protest" votes. That is understandable as ordinary Greeks were let down by a succession of governments over time that took on too much debt, spent too much and didn't collect taxes."

Almost all sectors improved today, however the defensive healthcare industry finished a touch lower. Australia's two largest miners both improved modestly. Rio Tinto (RIO) gained 0.42 pct or 23 cents to $54.50 while the larger BHP Billiton (BHP) edged higher by 0.13 pct or 4 cents to $31.84.

Australia's largest insurance company, QBE Insurance (QBE) was one of the better performers after rising 3.31 pct or 41 cents to $12.78.

Australian casino owner, Echo Entertainment (EGP) was in a trading halt today and announced it will raise around $454 million, partly to pay down debt. The company operates four casinos, including Sydney's The Star and Jupiters Casinos in Queensland.

Whitehaven Coal (WHC) gained by 2.86 pct or 12 cents to $4.31 and has improved by over 10 pct this week. Earlier this week Nathan Tinkler, Australia's richest person under 40 made a takeover offer for the NSW focused coal mining company. WHC said the offer was only in its early stages and would not progress further at this point. Mr Tinkler approximately has a 21.4 pct stake in the business.

The economic calendar was bare in Australia today, however a number of reports will be out next week. Early in the week, the numbers of car sales will be issued and can give an indication into just how confident Australians are to buy big ticket items. We will also find out how many properties started being built over the first three months of the year. Australia currently has a population of close to 23 million people and on Wednesday the latest population data will be out. On Thursday, we will have the first look at the results from the 2011 consensus.

As expected, the Japanese central bank decided to keep rates unchanged at <0.1 pct today. Rates have not been above 0.1 pct in Japan since December 2008 (when rates were at just 0.3 pct).

In Europe tonight, the European Central Bank (ECB) President, Mario Draghi is due to speak at a conference in Frankfurt. Italy and the U.K will release their latest trade balances for the month of April.

In the U.S tonight, industrial production numbers and a consumer sentiment report will both be issued. Confidence is likely to remain subdued due to the uncertainty in Greece and the broader Eurozone in addition to the American jobless rate.

Volume of shares traded came in at 1.85 billion today, worth $4.2 billion. 495 shares were up, 492 were weaker and 382 ended unchanged. The market has been quiet this week ahead of the uncertainty surrounding the Greek elections.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.25 pct or 10 pts to 4054.

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.

U.S futures are also pointing to a better start 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) currently buys US100.2 cent. The AUD has only been above parity against the greenback a handful of times over the past month. The AUD buys £64.6 pence and €79.4 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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