Australian Stock Market Report – Afternoon 7/9/2012

MARKET CLOSE
(4.30pm AEST)

It was a less than ideal start to the new trading week, with shares losing ground for the third consecutive session. The All Ordinaries Index (XAO) fell 0.9 pct or 39.2 pts to 4159.8. Today was also around 20 pct quieter than last Monday. It is important to note that last week was one of the quietest so far in 2012.

Today's weakness did not come as a surprise however, with global markets falling by between 1 pct and 2 pct on Friday night. The latest U.S jobs report disappointed the market, with around 10,000 to 20,000 fewer jobs created last month than most expectations. Interestingly, the unemployment rate in the U.S sits at 8.2 pct, however the jobless rate for Americans who are degree qualified is just 4.1 pct.

Strangely enough, the American statistics actually separates unemployment by gender and also background. Asian Americans currently have the lowest jobless rate as a group at just 6.3 pct. This is almost a full 2 pct lower than the broader U.S population.

The energy and mining sectors were the biggest drag on trade today, with falls of between 2 pct and 2.6 for both regions of the market. Australia's largest miner, BHP Billiton (BHP) fell 1.9 pct or 61 cents to $31.48 while the smaller Rio Tinto (RIO) dropped 2.18 pct or $1.26 to $56.54. Gold producer, Newcrest Mining (NCM) lost 2.86 pct or 69 cents to $23.44 while oil and gas company, Woodside Petroleum (WPL) slumped by 2.5 pct or 79 cents to $30.82.

Mineral sands miner, Iluka Resources (ILU) slumped by 24.1 pct after announcing a big downgrade to its sales expectations for 2012. ILU is the world's largest zircon producer, which is used in ceramics and is also used for the production of surgical appliances.

Fortescue Metals (FMG) says it is pleased with the Queensland government's decision to challenge the mining tax (MRRT) in high court. This is on constitutional grounds that the tax gives preference to one state over another and is unfair to mining states such as Western Australia and QLD. FMG shares ended 1.02 pct or 5 cents lower to $4.83.

Property ground, Lend Lease (LLC) announced it has secured $2 billion of commitments for both the funding and development of two commercial towers at Barangaroo South (near Darling Harbour in Sydney). Westpac is expected to lease out around 70 pct of the floor space in the first tower. LLC and KPMG are likely to occupy the majority of the second tower.

The big four banks all lost ground today by around 0.5 pct. Westpac (WBC) was the worst of the majors and fell by 0.64 pct or 14 cents to $21.60.

On the economic front, a report showed that the number of jobs advertised by businesses in newspapers and on websites slid for the third straight month. The ANZ job advertisement index fell by 1.2 pct in June, with newspaper jobs ads dropping by a more significant 3.3 pct. This is further proof that businesses are remaining cautious to take on additional staff.

Commsec Economist, Savanth Sebastian said that "The combined number of internet and newspaper job advertisements, as tracked by ANZ, fell by 1.2 per cent in June. It was the third consecutive monthly fall in job ads - totalling 4.7 per cent. Newspaper job ads fell by 3.3 per cent with internet job ads down by 1.1 per cent. Job advertisements are down 8.9 per cent on a year ago."

The weekly report on petrol prices showed that the average price of unleaded petrol slid for the eighth straight week across the country. Petrol prices slid to an 18-month low of 133.9 cents a litre. The bad news for motorists is that pump prices are likely to rise over the next 7-10 days.

Mr Sebastian said that "Tensions in the Middle East, an oil strike in Norway and a modest improvement in risk appetite were the drivers behind the increase in global oil prices. And already the wholesale (terminal gate) price has reacted rebounding from the 19-month lows, up 3 cents over the past week. CommSec believes that this price rise will filter through to domestic pump prices in the coming week. Petrol prices are expected to rise by 2 cents a litre in the next fortnight."

In the region today, economic news out of China showed that its Consumer Inflation Index (CPI) has eased to a 29-month low. This gives Premier Wen Jiabao a bit more wiggle room to stimulate the Chinese economy, which has slowed for six consecutive quarters. Last week, China's central bank cut interest rates for the second time in around a month.

Mr Sebastian said that "The latest inflation data confirms that China's policymakers can put inflation concerns to rest and squarely focus on ensuring a sustainable expansion. Especially given that not only is the annual inflation rate at a 29-month low, but the environment has been deflationary for the past three months. Even business inflation is going backwards at a rate of knots, now holding at a 32-month. It's a good sign, if businesses are not incurring significant costs increases they are unlikely to increase prices to the end consumer over the next few months."

In Japan, machinery orders slumped by 14.8 pct in May. This is the biggest monthly slide in 11 years. The report measures the change in the dollar value of orders place with manufacturers of machinery. This is important because it tends to be a good indicator of just how active businesses could be down the track (the more machinery purchased, the more production expected).

In Europe tonight, we will find out Germany's latest trade balance and the latest European investor confidence report will be out at 6pm (AEST). The European Central Bank's (ECB) President, Mario Draghi will be speaking at 10.30pm (AEST), while an official from the Bank of England is also scheduled to deliver a talk.

It will be a quiet evening of trade in the U.S, with only the latest consumer credit report out for the month of May. Borrowings by consumers are expected to have risen a touch to US$8.5 billion. A member from the U.S Federal Reserve will be speaking at 1.55am (AEST).

Looking ahead, this week will be the busiest of the month for economic news in China. We will find out the latest growth, investment, production and retail sales numbers over the coming days (Friday will be the busiest). In Australia, Thursday will be the most important day of the week with the release of the monthly jobs report the main highlight. In Europe, European Finance Ministers from the 27 member states of the EU will be meeting in Brussels. In the U.S, keep an eye on the Federal Reserve meeting minutes out on Wednesday. Investors will be hoping for further information regarding stimulus and operation twist.

Volume of shares traded came in at 1.08 billion today, worth just $2.76 billion. 298 shares were up, 600 were weaker and 319 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.85 pct or 35 pts to 4090.

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) is a little weaker now than on last Friday. The AUD buys US101.9 cents, is trading at £65.7 pence and €82.8 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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