Australian Stock Market Report – Afternoon 6/4/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket lost ground for the fourth straight session, with the All Ordinaries Index (XAO) down 2 pct or 83.5 pts to 4033.4. The ASX200 Index also closed below 4000 pts for the first time since November last year. All sectors lost ground, with the exception of the gold producers and the defensive telcos.

Today's weakness should not come as a huge surprise, with U.S shares down around 2.5 pct on Friday while European markets dropped by as much as 3.5 pct (hitting a six-month low). This was triggered by some much worse than expected jobs data in North America. There were less than half as many jobs created in May than expected in the U.S. The American unemployment rate also edged higher for the first time since June 2011 and sits at 8.2 pct.

The energy sector was the worst performer today, driven lower by an oil price which has fallen for four straight days and is trading at around an eight-month low of just US$81 a barrel. Australia's second largest oil and gas producer, Woodside Petroleum (WPL) fell 3.41 pct or $1.09 to $30.87 while the larger BHP Billiton (BHP) dropped 3.09 pct or 98 cents to $30.75.

The four major banks all slumped by at least 1 pct today, with National Australia Bank (NAB) the worst of the day after falling 1.96 pct or 44 cents to $22.03.

The gold producers recorded some gains however, with the price of the precious metal up almost 4 pct on Friday. This was partly due to increased market expectation of additional stimulus announcements from the U.S central bank (which could result in a weaker U.S dollar). Newcrest Mining (NCM) rose 1.74 pct or 42 cents to 24.53.

It was a dismal day for economic news locally today. A report has shown that the number of jobs being advertised by businesses in newspapers and on the internet slumped by 2.4 pct last month (second slump in a row).

Commsec's Chief Economist, Craig James said that "The combined number of internet and newspaper job advertisements, as tracked by ANZ, fell for the second straight month, dropping by 2.4 per cent in May after a 3.1 per cent decline in April. Job ads are down 4.3 per cent on a year ago. Newspaper job ads fell by 2.0 per cent in May while the far larger component of internet job ads fell by 2.4 per cent."

The Australian Bureau of Statistics (ABS) today issued its quarterly report on company profits, which have slumped by 4 pct over the first three months of 2012.

Mr James said that "Company gross operating profits fell by 4.0 per cent in the March quarter after sliding by 6.4 per cent in the December quarter. Profits have risen in just two of the past seven quarters and are down 0.5 per cent on a year ago. Profits fell in 7 of the 15 industry sectors in the March quarter, led by Professional, scientific and technical services (down 13.7 per cent) and mining (down 13.3 per cent). In key sectors, manufacturing profits fell by 9.8 per cent with construction down 2.3 per cent but retail profits surprisingly rose by 3.3 per cent."

On a positive note, inflation remains under control which would make the Reserve Bank of Australia (RBA) slightly more comfortable to cut rates. The monthly inflation gauge was largely unchanged in May following a 0.3 pct rise in April.

Mr James said that "With inflation under control and the economy effectively treading water, the Reserve Bank is well placed to cut interest rates again. We expect a rate cut tomorrow of at least 25 basis points or a quarter of a per cent. At the same time that rates are falling, the Aussie dollar is also softening, delivering a healthy dose of stimulus to the economy."

The national average price of unleaded petrol at the pump fell 1.7 cents to 145.1 cents a litre last week. Melbourne currently has the lowest petrol prices of any capital city. The good news for motorists should continue, with prices expected to ease by another 2 cents a litre over the next fortnight.

Mr James commented and said that the "...The wholesale price of petrol in Australia has fallen 8.8 cents a litre from the highs in mid-April. But so far the retail price has come down by 7.1 cents a litre. CommSec expects pump prices to keep dropping. The national retail petrol price should ease another 2 cents over the next 7-10 days and given that Asian regional gasoline prices are still falling, there is further good news ahead for motorists. In some capital cities, petrol signboards could show 128 cents a litre by late this week. A petrol price war is adding to the good news for Melbourne motorists."

There was no major economic news out in the region today; however the latter part of the week will be relatively busy. On Friday, statistics on GDP (growth) will be issued in Japan (Australia's second largest trading partner. Saturday will be the biggest day of the month on the Chinese economic calendar, with everything from inflation, investment, production and retail sales released.

In Europe tonight, the British markets will be closed due to a public holiday and the economic calendar is largely bare. The latest Sentix Investor Confidence report will be out for the month of June and gives the market an idea of consumer sentiment a few weeks ahead of the Greek elections.

This week, both the European Central Bank (ECB) and the Bank of England (BOE) will be meeting to make decisions on interest rates. The ECB will meet on Wednesday and is expected to keep rates on hold at 1 pct for the fifth straight month while the BOE is likely to keep rates steady at 0.5 pct, for the 39th straight month (a 318-year low). Tomorrow will also be a public holiday in the U.K.

No major economic data is due for release tonight in the U.S. The Federal Reserve will take centre stage this week, with the Fed Beige Book out on Wednesday night. This is a summary of economic conditions in all 12 Fed Reserve districts. A number of speeches by Fed officials will also be issued. The market will be paying close attention to Ben Bernanke's speech on Thursday for hints into QE3 (stimulus), which could settle investors' nerves (much needed since Australian shares have slumped by almost 10 pct over the past five weeks).

Volume of shares traded came in at 1.77 billion today, worth $4.5 billion. 188 shares were up, 864 were weaker and 312 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.3 pct or 12 pts to 4009.

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 to trade tonight.

U.S futures are pointing to a lower 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) buys US96.6 cents and lost ground against the greenback following disappointing job numbers in the U.S, uncertainty in the Eurozone and soft manufacturing numbers in China last week. The AUD is trading at £62.9 pence and €77.8 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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