Australian Stock Market Report – Afternoon 6/29/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket recording an amazing recovery this afternoon to post its best daily improvement in around two weeks. The All Ordinaries Index (XAO) rose 1.2 pct or 49.9 pts to 4135.5 today. Prior to lunch, local shares were down by 0.2 pct and by early afternoon the market had jumped significantly thanks to positive signs from the European Leaders Summit in Belgium.

Euro leaders have apparently agreed to use the permanent bailout fund to directly assist (recapitalise) the weaker banks across the region. At the moment, assistance funds have been added to government debt rather than finding its way directly to the banks. The leaders from the 17-nation Euro Area have also agreed to a joint body to supervise the European banking system. This is expected to include the European Central Bank (ECB) and could be in place by year end. Italy's Prime Minister, Mario Monti has said that the move is very positive and is a step towards the introduction of Eurobonds. He is likely to be in high spirits also due to Italy making it to the Euro 2012 soccer finals by beating Germany this morning.

Today also marks the last day of trade this financial year. Defensive telco, Telstra (TLS) was the best amongst the 20 largest companies in Australia after rising around 27 pct over the past 12 months. Gold producer, Newcrest Mining (NCM) was the worst after slumping by 38 pct this year.

On the Australian sharemarket, the standout was David Jones (DJS), which rose by 14.6 pct or 33 cents to $2.59 after being approached for a potential takeover from a group in the U.K. The company's Chairman, Robert Savage said he received an unsolicited letter from a non-incorporated British entity (no public information available on the group). DJS first made its appearance on the Australian sharemarket back in 1995. Its competitor Myer (MYR) also benefited from the news and rose by 4.87 pct or 7.5 cents to $1.61, breaking an eight-day losing streak in the process. MYR operates 67 stores while DJS runs just 35.

Wholesale grocery distributor, Metcash (MTS) resumed trade and fell by 9.89 pct or 37 cents to $3.37. The company was in a trading halt yesterday after disappointing the market by announcing a large capital raising and recording a 63 pct drop in its full-year profit.

The mining sector recovered this afternoon, with BHP Billiton (BHP) up 2.34 pct or 72 cents to $31.45 while the smaller Rio Tinto (RIO) gained 2.43 pct or $1.34 to $56.50.

The major banks all managed to record solid gains today, with ANZ Banking Group (ANZ) rising 2.47 pct or 53 cents to $22.03. Westpac (WBC) gained by 1.49 pct or 31 cents to $21.13. Commonwealth Bank (CBA) and National Bank (NAB) both rose by close to 1 pct.

BlueScope Steel (BSL) was one of the day's best and gained by 11.11 pct or 3 cents to 30 cents. No major news was released by the company and it continues on its volatile ride. So far in June, its shares have jumped by more than 5 pct on five occasions while it has slumped by more than 5 pct four times.

On the economic front in Australia, there were no huge surprises with private sector credit edging higher by 0.5 pct (as expected) in May. In the region, Japan's unemployment rate unexpectedly improved from 4.6 pct to 4.4 pct.

Almost all markets improved across the region, with shares in Japan, South Korea, Taiwan and Hong Kong jumping by more than 1.5 pct.

In Europe tonight, the main thing to keep an eye on will be the results from day two of the European Leaders Summit which is being held in Belgium.

It will be a quiet evening of trade for economic news in North America, with the latest report on personal income out. This measures household spending and income over the month of May in the U.S.

Volume of shares traded came in at 2.31 billion today, worth $7.36 billion. 721 shares were up, 367 were weaker and 465 ended unchanged. Keep in mind that things were busier than usual partly due to today being the end of the month, quarter and financial year (book squaring taking place).

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.35 pct or 14 pts to 4071.

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.

U.S futures are pointing to better start to trade 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) gained strongly this afternoon following the news out of Europe. The AUD buys US101.7 cents, is trading at £65.08 pence and €80.8 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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