Australian Stock Market Report – Afternoon 6/22/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket lost ground today for the third time this week, with the All Ordinaries Index (XAO) falling 1 pct or 39.9 pts to 4093.8. Despite today's slump, the Aussie market has actually only eased by 0.32 pct over the past five days thanks to a strong performance on Monday.

Commodity prices plummeted overnight, due in part to growth concerns and disappointing manufacturing reports in China, Europe and the U.S over the past 24 hours. Australia's largest miner, BHP Billiton (BHP) fell 2.11 pct or 68 cents to $31.52.The miner has committed US$845 million to construct a new mine in Eastern Australia. This comes just days after Rio Tinto (RIO) said it would commit around $4.2 billion to the expansion of its iron ore business. RIO dropped by 1.55 pct or 88 cents to $56.02. Fortescue Metals Group (FMG) was one of the few major players to improve strongly today, after rising 2.51 pct or 12 cents to $4.91. FMG has lodged a high court challenge against the Mineral Resource Rent Tax (the Federal Government's mining tax). According to FMG, the tax gives unfair preference to one state over another.

The price of both gold and oil were hit hard overnight, which hurt the energy and gold sectors today. Woodside Petroleum (WPL) fell 2.24 pct or 72 cents to $31.36 while Santos (STO) fell 2.16 pct or 25 cents to $11.32.

Qantas (QAN) lost 1.75 pct or 2 cents to $1.12, taking the falls for the year to 22 pct. Australia's largest airline seems concerned with the threat of Etihad Airways, which has expressed a desire to increase its stake in Virgin Australia (VAH).

The big four banks finished mixed, with National Australia Bank (NAB) managing to improve by 0.13 pct or 3 cents to $23.17. ANZ Banking Group (ANZ) fell 1.39 pct or 30 cents to $21.28, Westpac (WBC) fell 1.1 pct or 23 cents to $20.75 while Commonwealth Bank of Australia (CBA) eased 0.17 pct or 9 cents to $51.69.

It certainly has been a very eventful week on the world stage, with the Greeks finally forming a government led by Antonis Samaras. A three-way coalition was formed with the Socialists and the small left-wing part called The Democratic Left.

To the disappointment of many in markets, the Federal Reserve announced a continuation of 'Operation Twist' rather than new stimulus. This is essentially when the U.S central bank sells short-term bonds (debt) and purchases longer term bonds. This has a desired outcome of pushing down long term interest rates.

Manufacturing readings out of China, Europe and the U.S mostly disappointed. New Zealand's economy grew at a better than expected 1.1 pct over the first three months of the year. There was also a shakeup in the media industry with both News Limited and Fairfax announcing restructures and potential job cuts. Finally, Japan recorded its 14th consecutive trade deficit, with the natural disasters and nuclear problems hurting exports.

No major economic news was out today in Australia, but the business community is still sifting through the 2011 Census results which were released yesterday. For the first time since the European settlement, there has been an increase in the number of people living in each home. There are currently almost one million homes remaining unoccupied. This is all partly due to higher rent (the average rent paid has almost doubled over the past 10 years). Interestingly, for the first time on record there are more people paying off their mortgages than those who own their homes outright.

Commsec's Chief Economist, Craig James said that "One hundred years ago there were almost five people in the average home (dwelling). In fact there were 4.82 people per occupied dwelling. Today there are just 2.63 people per home. However this represents a small increase from 2.61 people per occupied private dwelling in 2006. While we still have to dig through the results, presumably higher rents and mortgage repayments have resulted in more children staying home longer with their parents. At the same time, more seniors are probably also living with their children."

Mr James also commented on the number of people paying off their mortgages by saying that "Also of note over the past five years is the fact that more Australians are paying off mortgages than those who own their homes outright. According to the latest data 34.9 per cent of dwellings were owned with a mortgage while 32.1 per cent of dwellings were owned outright and 29.6 per cent of properties were rented. Clearly when the Reserve Bank moves the cash rate it has more pronounced effects on incomes and the broader economy than in the past."

Most markets in the region lost ground today, with South Korea's KOSPI index one of the worst after falling 1.97 pct or 37 pts to 1846.34. There was no major data issued in Asia Pacific today. Chinese markets were closed due to the Dragon Boat Festival public holiday. The next holiday in the region will be observed on Monday July 2 in Hong Kong and will be followed by Independence Day on July 4 in the U.S.

In Europe tonight, the European Central Bank President, Mario Draghi and a member of the Bank of England (BOE) will be delivering talks. Germany's latest business confidence report will also be issued. The leaders of France, Germany, Spain and Italy (the Eurozone's four largest economies) will be meeting to discuss the European crisis in Rome.

There will be no need to stay up late tonight, as no major economic news will be issued in the U.S. Shares in North American slumped by more than 2 pct overnight, so for the Australian market's case on Monday let's hope U.S shares record a bit of a recovery.

Volume of shares traded came in at 1.75 billion today, worth $3.82 billion. 288 shares were up, 717 were weaker and 380 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.02 pct or 1 pt to 4000.

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 pointing to a stronger 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 lower than this time yesterday. The AUD is trading at US100.2 cents, £64.2 pence and €79.9 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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