Australian Stock Market Report – Afternoon 6/20/13

Afternoon Market Update
(17:00 AEST)

The Bernanke Effect

The much vaunted US Fed meeting has come and gone, and some of the more significant market concerns have been realised. Chairman Bernanke re-iterated that risks facing US economic growth and employment had eased in recent months and as a result it was reasonable that the Fed should looking at slowing the pace of bond purchases (quantitative easing) later this year, with a view to ending the initiative by the middle of 2014. Whilst this was by no means a revelation, the commitment of the central bank to rolling back stimulus caused another downdraught for markets globally.

One of the factors that have exacerbated market concerns in the face of the Fed changing its stance on Q.E has been the global growth outlook. The markets are anxious that the end of the Fed's bond buying program comes at a time when the growth pulse in the US and globally is beginning to wane. This concern was brought to a fine point today with the release of Chinese manufacturing data. Figures showed that the 'flash' Purchasing Managers index in China for June was at a 9-month low of 48.3, down from 49.2 in May.

Mining stocks were seized upon by sellers in response to the Chinese data. Fortescue Metals Group (FMG) was one of the bigger decliners in the sector having trimmed guidance saying it will miss production targets for the 2013 financial year. An earlier estimate suggested the group producing between 82m-84m tonnes; FMG now expects to produce between 80m-82m tonnes. The company has blamed wet weather for disrupting exports. The sale of a stake in their rail and port assets has been another key feature of sentiment around the miner. The sale was expected to be completed this month; however it is now expected to be concluded sometime in the September quarter. The sale of the assets is expected to yield $US3bn. FMG expects to export between 127m-133m tonnes of iron ore in 2014

On a different note, Goodman Group (GMG) increased their profit forecast. The contribution made by increased online shopping activity has seen better results in their logistics business. They now expect operating EPS in the second half of 16.2c, the same as in the first half. This brings the full year to 32.4c which was above earlier guidance of 32.3c.

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