Australian Stock Market Report – Afternoon 6/7/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket managed to rise for the third straight day today, with the All Ordinaries Index (XAO) improving by 1.3 pct or 52 pts to 4156.7. The gains early in the session were partly due to further stimulus measures in the U.S and news that European leaders are eager to assist Spain.

Australia's largest airline continued to lose ground today, with Qantas (QAN) shares down 5.78 pct or 6.5 cents to $1.06. Its shares have fallen by around 30 pct since the start of the week after announcing its profit could fall by 90 pct this year.

All sectors with the exception of the utilities improved today. Commodity prices ended a little higher and our largest miners performed impressively after a tough run recently. BHP Billiton (BHP) rose 1.54 pct or 48 cents to $31.58 while the smaller Rio Tinto (RIO) gained by 2.16 pct or $1.17 to $55.42.

The country's biggest telecommunications company, Telstra (TLS) edged higher by 0.27 pct or 1 cent to $3.66. Despite the modest gains, it has greatly outperformed the local sharemarket over the past few years. The XAO is up a little over 1 pct this year, while TLS is around 9 pct higher.

Brambles (BXB), the provider of pallet and container pooling solutions has completed the institutional component of its $448 million capital raising today. It raised $333 million from institutional investors and is expecting to gather $115 million from retail investors starting tomorrow. BXB shares fell 4.95 pct or 33 cents to $6.42.

The good news continued today on the economic front, with 44,000 more jobs created in May than expected. The monthly employment report showed that there were 38,900 new jobs created last month. The unemployment rate still rose from 4.9 pct to 5.1 pct however, due to an increase in the number of Australians looking for work. The solid numbers gave both the Australian dollar and sharemarket a boost.

Commsec Economist, Savanth Sebastian said that "The latest employment figures are certainly heartening - a pickup in jobs across the economy. For the last year the missing ingredient in the domestic economy has been confidence, however this week may just change all that - providing a real catalyst for a turnaround in confidence. Rate cuts, strong economic growth data and the latest employment figures should provide a great deal of encouragement to policymakers, households and businesses. More people in jobs will mean more spending across the economy and more tax receipts for the government."

Despite the positive result, these reports need to be put into perspective. Mr Sebastian said that "The job gains in April were revised lower to show almost half the job gains previously reported. In addition total hours worked fell in May while the unemployment rate ticked higher. What is clear is that the labour market is healthy but going sideways. Yes it was encouraging that employment grew for the third consecutive month but more forward looking indicators like job advertisements have suggested that further labour market gains may be more circumspect."

Tomorrow, the latest housing finance report will be issued, along with April's trade balance and a speech by the Reserve Bank Governor, Glenn Stevens. He will be addressing the American Chamber of Commerce in Australia.

Almost all markets in the region improved today, with the South Korean market playing catch-up (closed yesterday to observe Memorial Day). Shares in Japan rose 1.24 pct, shares in the Philippines jumped 1.12 pct, while the Hong Kong market gained by close to 1 pct. Tomorrow will be a busy day in Japan, with a number of reports scheduled for release including the latest growth numbers.

In Europe last night, the European Central Bank (ECB) kept rates on hold at 1 pct for the fifth straight month. The ECB told the European government to sort out their own financial problems rather than relying on the central bank to bail them out.

Tonight, the French government is holding a 10-year bond auction and the Bank of England (BOE) will be making its monthly decision on interest rates at 9pm (AEST). Rates are expected to stay on hold at 0.5 pct for the 39th straight month, keeping rates at an amazing 318-year low.

In the U.S, there has been speculation of additional stimulus by the Federal Reserve. Tonight, markets will be anticipating comments by the central bank's Chairman, Ben Bernanke on hints of stimulus when he delivers a talk. Mr Bernanke is occasionally referred to as Helicopter Ben. This is due to a speech he gave a number of years ago on printing more money (providing stimulus), when he referred to a statement by a famous economist who said he would use a "helicopter drop" of funds. That nickname has stuck ever since.

In addition to the speech, the weekly unemployment claims report will be issued prior to the open of the U.S market in addition to another talk by a Federal Reserve official at 2am (AEST). This will make it the fifth speech by a Fed member in two days.

Volume of shares traded came in at 1.75 billion today, worth $4.56 billion. 610 shares were up, 387 were weaker and 365 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 1.38 pct or 56 pts to 4118.

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 job numbers and speculation of U.S stimulus. The AUD is trading at US99.3 cents, £64.3 pence and €79.1 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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