Australian Stock Market Report – Afternoon 7/17/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket improved for the third straight day today, something which hasn't happened since the end of last month. The All Ordinaries Index (XAO) rose 0.8 pct or 32.1 pts to 4175.3. Despite the gains, investors continued to be uninterested in markets, with yet another quiet session when it comes to the number and value of shares exchanging hands.

Two of Australia's largest miners, Rio Tinto (RIO) and Fortescue Metals (FMG) issued their second quarter production reports today. FMG's iron ore sales rose by 40 pct, however there was a significant blowout with its expansion costs to $9 billion. FMG shares fell 2.16 pct or 10 cents to $2.31 however the stock is still up by more than 6 pct this calendar year.

The larger, RIO issued its production numbers later in the day at 3pm (AEST), with the market wiping out its daily gains in the final hour of trade. RIO still produced around 120 million tonnes of iron ore and shipped 115 million tonnes of the commodity over the past six months. Both were 4 pct higher than in the first half of 2011. FMG in comparison mined around 32 million tonnes and shipped 29 million tonnes over the same period (almost 4 times less than RIO).

RIO's shares fell 0.09 pct or 5 cents to $54.44, taking the losses for the year to 9.72 pct (2012 calendar year). Around half of RIO's total profit can be attributed to its iron ore operations. Iron ore accounts for more than 20 pct of Australia's exports.

NSW based coal miner, Whitehaven Coal (WHC) fell 3.19 pct or 13 cents to $3.94 after gaining close to 18 pct yesterday thanks to a $5.3 billion takeover offer from Nathan Tinkler (Australia's richest person under 40).

The four major banks all improved strongly and helped lift the market most significantly. ANZ Banking Group (ANZ) rose 1.73 pct or 39 cents to $22.87, Commonwealth Bank (CBA) gained by 1.55 pct or 84 cents to $54.90, Westpac (WBC) jumped by 1.53 pct or 34 cents to $22.50 and National Australia Bank (NAB) improved by 0.85 pct or 20 cents to $23.70.

The retailers ended mixed, with David Jones (DJS) one of the worst after falling 2.53 pct or 6 cents to $2.31, while surfwear retailer, Billabong (BBG) eased by close to 0.5 pct. Department store owner, Myer (MYR) performed better with its shares ending 0.89 pct or 1.5 cents higher to $1.70.

On the economic front, the Reserve Bank of Australia (RBA) issued the minutes from its July interest rate meeting. The RBA still seems open to cutting rates, but you can sense a little less urgency for them to do so. The market was factoring in a 62 pct chance of a rate cut prior to the release of the minutes, which dropped to just 47 pct following the document's issue.

Commsec Economist, Savanth Sebastian said that "The latest Reserve Bank Board minutes maintain an easing bias however the sense of urgency to cut rates further has been reduced. In effect the Reserve Bank is back in a holding pattern. The added level of insurance taken out in the last few months ensures the Reserve Bank can afford to sit back and get a better gauge of what effect the rate cuts have had in spurring activity. Interestingly the minutes make mention of the general health of the domestic economy, with the recent round of domestic data highlighting "the divergence between the resource and non-resource economies". The mining sector continued to dominate activity while conditions in construction, retail trade and manufacturing were well below average. The patchiness of the recovery will ensure that the Reserve Bank will maintain an easing bias; however a commitment to further rate cuts would more than likely be as a result of global factors."

A report has shown that the number of new cars sold in June fell by a worse than expected 0.6 pct. Over the past 12 months, Australians have bought about 1 million new cars. This compares to around 14 million car sales in the U.S and 15 million in China over the same period. While on the topic of cars, Ford said it will lay off approximately 400 of its staff and reduce the production of its vehicles.

Despite the fall in car sales, 4WDs or Sports Utility Vehicles (SUVs) are still remaining as popular as ever. Over the past 12 month, there has been a 50 pct increase in the number of new SUVs sold.

Mr Sebastian said that "Despite the modest fall in seasonally adjusted terms, the car sales figures in recent months have been relatively encouraging. In original terms, car sales hit a record high in June and even in seasonally adjusted terms sales are up just shy of 20 per cent on a year ago. Clearly the improvement in car affordability is the clear driver. Car affordability is at the best levels since the 1970s, and coupled with the recent rate cuts it seems to have prompted consumers to update their rides."

In Asia today, most markets ended higher with shares in Hong Kong the best, up 1.7 pct. The Japanese sharemarket traded for the first time this week following the Marine Day public holiday yesterday.

In Europe tonight, the latest economic confidence (sentiment) report will be issued in Germany. This is important, with Germany being the 17 nation Eurozone's largest economy. The latest inflation report will also be released in the U.K, with no surprises expected.

In the U.S tonight, 37 large companies are releasing their quarterly profit numbers, including Harley Davidson, Coca Cola, Intel and Yahoo!. The head of the U.S Federal Reserve, Ben Bernanke will be kicking off his two day testimony before the Senate Banking Committee, to give an economic update. The market will be watching closely for hints of further stimulus. The latest consumer prices (inflation) report will be issued, in addition to industrial production and the Fed Beige Book. This is a summary of conditions across the 12 Federal Reserve districts.

Volume of shares traded came in at 1.23 billion today, worth just $3.48 billion. 473 shares were up, 413 were weaker and 335 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.07 pct or 3 pts to 4109.

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.

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) has gained over the past 24 hours. The AUD buys US102.9 cents, is trading at £65.8 pence and €83.7 cents. The AUD broke through US103 cents for the first time in a few weeks earlier in the session.

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]