Australian Stock Market Report – Afternoon 6/18/2012

MARKET CLOSE (4:30pm AEST)

The Australian sharemarket gained strongly today thanks to a largely positive result from the Greek Presidential elections this weekend. The All Ordinaries Index (XAO) rose 1.9 pct or 76.9 pts to 4183.9.

Antonis Samaris, from the centre-right New Democracy Party received the most votes in the Presidential elections with around 30 pct of the vote. This would give the party around 128 seats (in a 300 seat parliament). This is good news for markets at least over the short term due to the party being pro-Euro and pro-bailout. Despite the good news, the gains might be short lived because this is just a small hurdle that the Greeks have cleared. Mr Samaras still needs to form a coalition (probably with the Socialist Pasok Party. Adding to the complications is that the far left, anti-austerity Syriza party will be well represented in parliament and provide significant resistance.

Borrowing costs for the Greek government have eased a touch from 27 pct on Friday to around 25 pct. This compares to borrowing costs of around 3 pct in Australia. NSW is around six times larger than Greece in terms of land size, and Greece also has around half the population of Australia.

The results from Greece have given commodity prices a boost, which in turn has seen our mining sector end higher. Australia's second largest mining company, Rio Tinto (RIO) ended 4.59 pct or $2.50 higher to $57.00 while BHP Billiton (BHP) jumped by 2.51 pct or 80 cents to $32.64.

The big four banks improved, with National Australia Bank (NAB) up 3.12 pct or 69 cents to $22.81. ANZ Banking Group (ANZ) jumped 2.44 pct or 52 cents to $21.80, Westpac (WBC) rose 2.06 pct or 42 cents to $20.76 while Commonwealth Bank of Australia (CBA) ended 1.28 pct or 65 cents higher to $51.54.

Australia's second largest newspaper publisher, Fairfax (FXJ) jumped 7.44 pct or 4.5 cents to 65 cents after announcing some fundamental changes to its business. Amongst other things, the publisher of a number of papers, such as the Sydney Morning Herald is expected to cut 1900 jobs over the next three years. It also is aiming at increasing its presence as a digital media company.

On the economic front today, a report showed that the national average price of unleaded petrol fell by 2 cents to 141.6 cents a litre. Wholesale petrol prices hit a 16 month low, which is good news for motorists. Commsec expects pump prices to fall by an additional 4 cents a litre over the next seven to ten days.

Commsec Economist Savanth Sebastian said that "Petrol prices have now fallen for five consecutive weeks and more importantly motorists will have further reason to celebrate in coming weeks. The key Singapore unleaded price has fallen by a staggering USD $28 in past two months and given the Aussie dollar has held up well in recent weeks most of the falls should filter through to domestic pump prices. In fact in Aussie dollar terms the Singapore unleaded price has fallen by $12 in the past fortnight and is now holding at an 18-month low - importantly the falls are yet to be fully reflected at petrol signboards across the nation."

The number of new cars sold last month nationwide rose by a better than expected 2.41 pct. A rise of around 1 pct was anticipated by markets. The report can signal just how confident Australians are to buy big ticket items such as motor vehicles (when people are nervous about the future and their finances, they tend to be more unlikely to buy more expensive, major goods).

Mr Sebastian said that "The latest set of car sales data is encouraging. In May, car sales recorded a healthy gain and are now up 22 per cent on a year ago. Clearly the improvement in car affordability is the clear driver. Car affordability is at the best levels since the 1970s, and coupled with the recent rate cuts it seems to have prompted consumers to update their rides. Interestingly the strength in vehicle sales is due to strong growth in sales of sports utility vehicles or 4WDs. In fact sales of 4WDs rose by almost 56 per cent in May compared with a year ago. It is clear that Australians have a love affair with 4WD vehicles with one in every three vehicles sold in Australia a sports utility vehicle."

Looking ahead to the rest of the week, tomorrow the Reserve Bank's (RBA) board minutes will be released from its June meeting. This will be closely looked at for hints of further rate moves. On Wednesday, the latest dwelling starts and population data (both quarterly) will be issued. On Thursday, the results from the 2011 Census will be published.

Most markets in the region performed strongly today, with shares in Japan and South Korea up around 1.7 pct. Hong Kong's Hang Seng jumped by 1 pct while China's Shanghai Composite index edged higher by just 0.34 pct. Shares in Hong Kong jumped by 3.95 pct last week, while stocks in China gained 1.11 pct.

On Thursday, keep your eye on the latest HSBC update on the state of China's manufacturing sector. This will be released at around 12.30pm (AEST) and has a tendency to influence markets in the region.

It will be a relatively quiet evening for economic news in Europe tonight; however on Friday the leaders of France, Germany, Spain and Italy will meet to discuss the Eurozone crisis.

Around 30 minutes into trade, some data on the U.S housing market will be issued. Tonight, the G20 Summit will take place in the Mexican city of Los Cabos. This is a two day summit. One major talking point will be ways to boost global economic growth. Tomorrow night, the U.S Fed will kick off its two day meeting on interest rates. Rates are expected to remain steady until at least 2014; however commentary by the Fed's Chairman Ben Bernanke will be closely read/listened to by markets.

Volume of shares traded came in at 1.63 billion today, worth $4.04 billion. 659 shares were up, 371 were weaker and 356 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.19 pct or 8 pts to 4127.

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 better start also. 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) has gained strongly following the Greek elections. The AUD is trading at US100.9 cents, £64.4 pence and €79.6 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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