Australian Stock Market Report – Afternoon 7/10/2012

MARKET CLOSE
(4.30pm AEST)

It was yet another extremely quiet session on the Australian sharemarket today, with the All Ordinaries Index (XAO) down 0.5 pct or 21.9 pts to 4137.9. This did not come as a huge surprise due to the falls on most global markets overnight and the lack of interest in shares in Europe and the U.S.

The property groups and the telcos managed to record strong gains today however most other regions of the market ended in the red.

Family-owned Australian chocolate company, Darrell Lee is now up for sale after 85 years in business. The company has been placed in voluntary administration. This basically means that the company's affairs and books will be investigated by a voluntary administrator who then will report to creditors, making a recommendation into the future of the business. The confectionary company operates in Australia, New Zealand and the U.S.

Despite the weakness in markets, Telstra (TLS) was one of the standouts and improved for the fourth straight trading session. TLS rose 0.79 pct or 3 cents to $3.81 and has gained on six of the past eight trading days. It is also trading at around a 3.5 year high. Australia's largest telco has added almost one million new mobile phone users well within a year.

The four major banks all ended in the red, with ANZ Banking Group (ANZ) down 0.71 pct or 16 cents to $22.34, while National Australia Bank (NAB) edged lower by 0.51 pct or 12 cents to $23.55. Commonwealth Bank (CBA) fell 0.63 pct or 34 cents to $53.44 and Westpac (WBC) eased by 0.19 pct or 4 cents to $21.56.

The major mining players also lost ground, with gold producer Newcrest Mining (NCM) dropping 3.5 pct or 82 cents to $22.62 while both BHP Billiton (BHP) and Rio Tinto (RIO) dropped by around 0.75 pct.

Property group, Lend Lease (LLC) received a broker upgrade today, following ratings agency Moody's affirming its current credit rating. LLC rose by close to 3 pct today. It first listed on the ASX back in 1962 and has its head office in Sydney.

Workers have gone on strike at a Coles warehouse in Melbourne due to a dispute over work conditions and pay. Wesfarmers (WES), the owner of Coles, generates around 60 pct of its revenue from the supermarket chain. WES shares fell 1.09 pct or 33 cents to $29.95.

On the economic front, the latest NAB business survey was issued this morning. The reading worsened to -3. Any number below 0 shows that conditions are not improving in the business world. Business confidence is at around a 10-month low, showing that the recent rate cuts have so far done little to boost confidence.

Another bad sign is that manufacturers have had a fall in forward orders for the 15th straight month and are currently at around a 3-year low. Forward orders are agreements between two parties that a certain number of goods will need to be produced by a future date. An example of a forward order is if the NSW government entered an agreement with a train manufacturer to build 100 trains by December 2013. No funds are likely to exchange hands at that point however this would be a forward order for the manufacturer.

Commsec Economist, Savanth Sebastian said that "Any hope of a revival in business sentiment has been eroded after the latest business survey. The latest business survey is certainly disappointing, particularly given that it took place in late June well after the back to back rate cuts. Business confidence deteriorated to the weakest levels in 10-month, while conditions bounced of three year lows. It is clear that business remain decidedly worried about current economic conditions. The tough domestic trading conditions coupled with the downside risks to global growth and the concerns surrounding the Europe Union are dampening confidence and increasing caution."

Tomorrow, the July report for consumer confidence in addition to May's housing finance numbers will both be issued. Lending is tipped to have fallen by another 3 pct and the Australian consumer is likely to continue being cautious.

In the region today, China recorded a better than expected trade surplus (exports are greater than imports). Australians should care about the economic situation in China because around a quarter of all our goods end up in China, with a substantial percentage of our commodities exported to Asia and in particular China, Japan and South Korea.

In Japan, a report on household confidence was out at 3pm (AEST) and showed that the Japanese are less confident now than in the previous month.

No major economic news is scheduled for release in Asia tomorrow; however Friday will be the busiest day of the week on that front.

In Europe, the 27 European Union finance ministers are meeting to discuss the problems the region is facing. Last night, the Council of the European Union issued its latest one page statement to the market.

The Council amongst other promises, pledged to "...promote enhanced economic and fiscal surveillance as well as financial stability in the euro area." There certainly was no shortage of abbreviations in the document, however essentially this was a follow-up meeting from the June 29 Euro Summit.

It said that "The Eurogroup has today reached a political understanding on the draft MoU (Memorandum of Understanding) underlying the financial assistance for the recapitalisation of financial institutions for Spain, to be provided via the EFSF until the ESM becomes available and then transferred to the ESM without gaining seniority status. The Eurogroup envisages providing the final approval of the programme by 20 July, after national procedures have been completed. The Eurogroup supports the recently adopted Commission recommendation to extend the deadline for the correction of the excessive deficit in Spain by one year to 2014."

No major economic news is scheduled for release in the U.S tonight.

Volume of shares traded came in at 1.51 billion today, worth just $3.33 billion. 359 shares were up, 546 were weaker and 350 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.12 pct or 5 pts to 4070.

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 better start to trade tonight. 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 a little weaker than this time yesterday. The AUD buys US101.8 cents, is trading at £65.7 pence and €82.9 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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