Australian Stock Market Report – Afternoon 6/6/2012

MARKET CLOSE
(4.30pm AEST)

After a shaky start to the day, the Australian sharemarket managed to edge higher for the second consecutive session. In the first few hours of trade, shares changed directions more frequently than a lost tourist however settled with the release of some important economic news. The All Ordinaries Index (XAO) rose 0.3 pct or 12.3 pts to 4104.7.

Almost all sectors improved, however the industrials and consumer discretionary companies lost ground while the defensive telcos ended flat.

Australia's largest carrier, Qantas (QAN) slumped by 2.6 pct or 3 cents to $1.12 today adding to yesterday's 18.6 pct pullback. This was after the airline said it expects its profit for the year to drop by as much as 90 pct. This is mostly due to its underperforming international business.

The world's biggest miner, BHP Billiton (BHP) eased 0.19 pct or 6 cents to $31.10 while the smaller Rio Tinto (RIO) gained 0.93 pct or 50 cents to $54.25. The country's largest gold producer, Newcrest Mining (NCM) jumped 2.59 pct or 65 cents to $25.71.

The major banks ended mixed, with Commonwealth Bank (CBA) and ANZ Banking Group (ANZ) both rising by around 0.1 pct. Westpac (WBC) fell 1.17 pct or 24 cents to $20.35 while National Australia Bank (NAB) slumped by 1.33 pct or 30 cents to $22.25.

Commercial television network, Ten Network Holdings (TEN) raised $200 million from the market with the intention of strengthening its balance sheet. TEN's advertising business is remaining weak and the company expects the weakness to continue over the short term due in part to the Olympic in July, which Channel 9 has the rights to.

The latest Gross Domestic Product (GDP) reading was released for the March quarter (January to March 2012) and came in significantly better than expected. The Australian economy grew at 1.3 pct whereas the market expected growth of between 0.6 pct and 0.8 pct. Annual GDP now stands at 4.3 pct, which is above the long-term average. Immediately following the report, both the Australian dollar (AUD) and sharemarket gained ground.

Commsec Economist, Savanth Sebastian said that "The latest boost to growth was certainly surprising far surpassing economists' expectations. The domestic economy recorded 1.3 per cent growth for the March quarter. In fact if you exclude the June quarter last year - when the rebuilding following the natural disasters artificially boosted growth - the latest 1.3 per cent expansion marked the best result in five years. Consumers and businesses have been decidedly pessimistic in recent times and the heady headline result coupled with the recent rate cuts is just the right prescription to boost. The last thing the Reserve Bank would have wanted to see was a poor GDP reading to sap the impact of yesterday's rate cut. Especially given it is clear that the fundamentals for the domestic economy remain sound but it is a crisis of confidence that has held back activity."

Mr Sebastian also highlighted the disparity between growth in the mining states and the rest of the country. He said that the "The Northern Territory economy grew at a staggering 13.7 per cent over the past year, followed by Queensland (9 per cent) and Western Australia (7.7 per cent), while at the other end of the scale Victoria and NSW languished with below trend growth levels. And looking forward mining and related sectors will continue to be the backbone of growth ensuring further divergence in growth across the states."

Yesterday, the Reserve Bank of Australia (RBA) decided to cut interest rates by 25 bps (0.25 pct) as forecast. The RBA preferred to remain conservative with its rate move. The central bank perhaps thought it prudent to leave more ammunition at the ready should the situation offshore take a turn for the worse.

Commsec's Chief Economist, Craig James said yesterday that "This is a smart decision. This is an appropriate decision. And this is a decision that deserves support across all areas of the Australian community. This is where the Reserve Bank officials earn their money. Sometimes it is abundantly clear what should be done with interest rates. Other times - such as now - it gets a lot harder."

No major economic data was issued in the region today, however most sharemarkets ended higher for the second straight day. Singapore's manufacturing industry is showing some signs of modest growth with the Purchasing Managers' Index (PMI) coming in at 50.4 compared to the 49.5 which was expected by the market. Any reading above 50.0 indicates industry expansion.

In Europe tonight, the British sharemarkets will be trading for the first time this week due to public holidays on Monday and Tuesday. The European Central Bank (ECB) will be holding its monthly meeting on interest rates at 9.45pm (AEST). The ECB is expected to keep rates at 1 pct for the fifth straight month. It is more likely the central bank will wait for the results of the Greek Presidential elections prior to making a move on rates. The ECB will be holding a press conference at 10.30pm (AEST) tonight. Quarterly GDP figures for the March quarter (January to March) will be out at 7pm (AEST) and are expected to remain unchanged.

The U.S Federal Reserve (American equivalent of Australia's Reserve Bank) will dominate the economic calendar tonight. The central bank's Beige Book will be out at 4am (AEST) tomorrow morning. The report provides a summary of economic conditions across all 12 Federal Reserve districts. Three Fed officials will be delivering talks tonight while the latest update on crude oil inventories at commercial firms in the U.S will also be out. This has the potential to move oil prices overnight.

Social media giant, Facebook (FB;us) continued to struggle last night with its shares falling 3.83 pct or $1.03 to $25.87. Facebook shares have slumped by 31.92 pct since first listing on 18 May. The NASDAQ (the market Facebook listed on in the U.S), is expected to make a start on providing compensation to a number of brokerage firms that lost millions of dollars (around $100 million) due to technical glitches in its systems on the first day of trade in May. Facebook raised around US$16 billion from the Initial Public Offering (IPO), making it one of the biggest floats of all-time.

Apple (AAPL;us), the maker of the iPad, iPhone and iMac is holding its Worldwide Developers Conference next week. A number of new developments for its products are expected to be announced. So far this year, Apple shares have surged by 39 pct.

Tomorrow, the jobs report for the month of May will be issued at 11.30am (AEST) in Australia. The market is currently expecting less than 1,000 jobs to have been created in May, with the unemployment rate likely to rise from 4.9 pct (around a 10 month low) to 5.1 pct.

Volume of shares traded came in at 1.6 billion today, worth $4.11 billion. 549 shares were up, 390 were weaker and 406 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.15 pct or 6 pts to 4068.

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 to trade tonight.

U.S futures are pointing to a better 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) gained strongly following the better than expected GDP figures and currently buys US98.5 cents. The AUD is trading at £63.7 pence and €78.7 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.

[Kick off your trading day with our newsletter]