Australian Stock Market Report – Afternoon 6/21/2012

MARKET CLOSE
(4.30pm AEST)

Despite a stronger start to trade this morning, the gains fizzled with the All Ordinaries Index (XAO) slumping by 1 pct or 43.1 pts to 4133.7. Around ¾ of all companies ended either flat or in the red by close of business.

The energy sector was by far the worst today and slumped by 2.6 pct. This was after the price of oil hit an eight-month low overnight and is currently trading at around US$81 a barrel. Last night, a report in the U.S showed that oil inventories at commercial firms in North America are at their highest levels since 1990. The U.S is the world's third largest producer of oil.

Australia's second largest oil and gas producer, Woodside Petroleum (WPL) fell 2.05 pct or 67 cents to $32.08 today while the smaller Santos (STO) plummeted by 4.38 pct or 53 cents to $11.57. Australia's largest oil producer and biggest general miner, BHP Billiton (BHP) fell 1.23 pct or 40 cents to $32.20.

Surfwear retailer, Billabong (BBG) said it is seeking to raise around $225 million by issuing additional shares. The main reason for the raising is to reduce its debt. BBG's Chairman also announced he would step down in October. Earlier this year, the company had announced plans for a big restructure, including cutting 400 staff and was expected to close as many as 150 stores. Its stock was in a trading halt today at the request of the company, but its new shares will be issued at a 44 pct discount to its last traded price. In 2011, BBG shares fell 78 pct and 25 pct back in 2010.

It has been a busy week so far in the media industry, with job cuts and restructures announced at a number of major players. Today, Fairfax (FXJ) management agreed to temporarily put on hold its job cuts and restructure to sit for a conversation with unions. FXJ ended unchanged on the sharemarket today, while Newscorp (NWS) edged higher by just 0.2 pct or 4 cents to $20.19.

Australia's largest gold producer, Newcrest Mining (NCM) fell by 4.12 pct or $1.02 to $23.75 today while the big four banks all ended in the red. National Bank (NAB) fell 1.32 pct or 31 cents to $23.14, Westpac (WBC) dropped 1.04 pct or 22 cents to $20.98, ANZ Banking Group (ANZ) dropped 0.78 pct or 17 cents to $21.58 and Commonwealth Bank (CBA) eased by 0.6 pct.

Overnight, the Greek government finally managed to form a government led by Antonis Samaras from the centre-right New Democracy Party. A coalition was formed with the Socialists and a smaller left-wing party, the Democratic Left.

In the U.S no further stimulus was announced (as was hoped), however the Fed announced a continuation of operation twist. This is effectively when the Fed sells short term bonds to buy longer term treasuries. The idea behind this is to push down longer term interest rates.

On the economic front today, some results from the 2011 Census were released. A quarter of Australia's population was born overseas, with Western Australia experiencing the biggest jump in population thanks to the mining boom. Very interestingly, the average rent has almost doubled over the decade while income has only jumped by half that much. This highlights just how expensive housing really is in Australia.

In the region today, most markets lost ground with the exception of Japanese shares gaining impressively.

At lunch time (12.30pm AEST), the latest reading on the health of China's manufacturing industry was issued. It showed that China's small and medium sized manufacturing businesses are in a slightly worse position now than this time last month. The Flash Manufacturing Index (a reading taken at one particular time rather than data over a month) was issued and fell from 48.4 to 48.1. Any number below 50.0 indicates contraction and worsening conditions.

Commsec Economist, Savanth Sebastian said that "The latest flash reading on Chinese activity certainly doesn't suggest that the slide in activity has yet to bottom out. If anything the result adds to the more bearish views on the Chinese economy - especially given the sharp contraction in Chinese new orders and exports. However it could be argued that the data is effectively backward looking really highlighting the effect of
the tightening measures that policymakers embarked upon over the past year to curb inflation. And in effect the shift in policy by authorities to a more easing bias should result in
activity levels bottoming out in coming months."

New Zealand's economy grew at a better than expected 1.1 pct over the first three months of the year. This was significantly better than the expected 0.4 pct. Despite the result, shares in New Zealand still lost ground.

In Europe tonight, the latest readings on the health of Europe's manufacturing sector will be out. The May report for retail sales is scheduled for release and is likely to have improved by around 1.1 pct. The U.K will also be holding a 10-year bond auction.

It will be a busy evening in the U.S, with a number of major reports due out. Flash manufacturing, an update on U.S home prices, existing home sales and the latest weekly unemployment claims will all be announced.

No major data will be delivered in Australia tomorrow.

Volume of shares traded came in at 1.93 billion today, worth $6.62 billion. 364 shares were up, 620 were weaker and 406 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.12 pct or 5 pts to 4064.

Due to daylight savings, most major European markets are now trading between 5pm (AEST) and 1.30am (AEST). Futures are currently pointing to a weaker start.

U.S futures are also pointing to a lower start to trade. 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) is a little lower than this time yesterday. The AUD is trading at US101.5 cents, £64.8 pence and €80.2 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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