Australian Stock Market Report – Afternoon 7/4/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket gained for the fifth time in six days today and is trading around two month highs. The All Ordinaries Index (XAO) rose by 1.1 pct or 47.4 pts to 4213.8. Despite the gains, investors still stayed away from the market today due to a U.S public holiday tonight (American markets closed tonight).

Companies involved with commodities led the charge higher, partly thanks to expectations that the European Central Bank (ECB) will announce further stimulus measures. The world's largest miner, BHP Billiton (BHP) gained 2.11 pct or 67 cents to $32.47 while the smaller Rio Tinto (RIO) jumped by 2.7 pct or $1.55 to $58.97. Iron ore miner Fortescue Metals (FMG) improved by 3.7 pct or 18 cents to $5.05. The company was founded by Andrew Forrest, one of Australia's richest people.

Energy company, Origin (ORG) was one of the stronger performers on news that its Queensland Liquefied Natural Gas (LNG) joint venture has received expansion approval. Total costs are estimated to be around $23 billion. ORG rose 3.41 pct or 42 cents to $12.75 today but is still down 4.5 pct this year. One of the advantages of LNG is in its transportation. LNG takes up little space to transport and is also an alternative if travelling really long distances (where pipelines are not a viable option).

The airlines ended largely unchanged today, with Qantas (QAN) up 0.46 pct or 0.5 cent to $1.10 while Virgin Australia (VAH) finished flat at 37.5 cents. VAH released its preliminary traffic numbers today and carried more passengers domestically than QAN over the 12 months to May 2012. VAH shares are up 31 pct since the start of 2012, while QAN is down almost 25 pct.

On the economic front in Australia today, a report showed that Australians spent around twice as much as the market expected in May. Retail sales rose by 0.5 pct last month and this certainly gave an initial boost to both the sharemarket and the Australian dollar. This is the third straight rise in spending in NSW, while people in Western Australia continue to spend more than in other regions of the country.

Following the report, the Australian dollar hit a high of around US103.2 cents, a two month high at one point before falling back a touch this afternoon. The good news for travellers is that on every $3000 of spending money, you are around US$230 better off now than back in October last year when the Aussie hit a low against the greenback. For those heading over to Europe, to watch 'Le Tour de France' you could buy yourself an extra miniature Eiffel Tower or two, because you're around €300 better off.

Despite the solid numbers, the market still is factoring in around a 53 pct chance of a rate cut next month. CommSec sees a rate cut (the third in four months) a real possibility.

CommSec Economist, Savanth Sebastian said that "Despite criticism in some quarters, the government handouts have paid dividends. Retailers enjoyed a much needed boost to sales in May with sales up 0.5 per cent. And more importantly the $2.3 billion that the Federal Government distributed in May and June, coupled with tax cuts to low and middle income earners, will support a further improvement in activity in coming months. The windfall one-off assistants payments allowed consumers to accelerate planned purchases that they would have been saving for, and electrical, computer and technology stores were the lucky recipients. Spending at electrical retailers rose by a healthy 1.8 per cent - marking the second best result since December 2010. In addition department stores, cafes & restaurants and even newsagents and bookstores recorded a healthy increase in activity."

Most markets across Asia Pacific improved, with stocks in New Zealand up 1.1 pct, shares in Japan and South Korea (two of Australia biggest trading partners) up around 0.3 pct, while shares in China and Hong Kong eased by approximately 0.1 pct. Toshiba, the Japanese electronics maker has been fined $87 million for allegedly fixing prices of LCD panels in the U.S. It was also accused of holding meetings with other makers of LCDs to try and keep prices high and boost profits.

Last night, European shares hit two-month highs led higher by the miners. Tonight, the latest retail sales and final growth (GDP) reports will both be released. Over the March quarter (January to March) the European economy is expected to have not grown or contracted (flat) while retail spending is likely to have only edged higher by a modest 0.2 pct in May.

All American markets will be closed tonight and no economic news is scheduled for released due the Independence Day public holiday. This commemorates the adoption of the Declaration of Independence back in 1776 (independence from Great Britain).

Volume of shares traded came in at 1.39 billion today, worth just $3.5 billion. 679 shares were up, 229 were weaker and 325 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.14 pct or 6 pts to 4136.

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 lower start to trade 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 this afternoon only to ease in the latter part of trade. The AUD buys US102.8 cents, is trading at £65.7 pence and €81.6 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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