Australian Stock Market Report – Afternoon 8/1/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket lost some ground for the first time in five trading sessions today. The All Ordinaries Index (XAO) eased by 0.2 pct or 6.7 pts to 4282.7. Two worse than expected economic reports issued in China kept the market in negative ground for much of the day.

At 11am (AEST), the official government report on the health of China's manufacturing sector showed that the industry is still expanding, but at a slower pace than forecast. China's Manufacturing PMI (Purchasing Managers' Index) eased from 50.2 to 50.1. A reading above 50.0 indicates that the industry is still expanding however. This particular report is one of the most influential on sharemarkets across Asia-Pacific and measures the health of state-owned and large business within the sector.

At 12.30pm (AEST), HSBC released its Final Manufacturing PMI, which recorded a drop from 49.5 to 49.3. This is a survey of around 400 small to medium sized businesses in China. It asks questions on the relative level of business conditions relating to employment, production, new orders and inventories and is a broad measure of the health of these businesses.

With both of the above reports disappointing, the mining sector ended the day in the red. China is Australia's largest trading partner, buying around a quarter of all our goods. As a nation, Australian exported around 48 pct more to China than to Japan (our second largest trading partner) over the past 12 months.

BHP Billiton (BHP) slumped by 0.72 pct or 23 cents to $31.70, while gold producer, Newcrest Mining (NCM) rose by 0.62 pct or 33 cents to $53.53. Rio Tinto (RIO), which makes around half of its profits from iron ore mining, rose 0.62 pct or 33 cents to $53.53.

The major banks ended mixed, with National Bank (NAB) the best of the big four. NAB shares rose by 0.52 pct or 13 cents to $25.11, while Westpac (WBC) also edged higher by 0.22 pct or 5 cents to $23.25.

Clothing retailer, Country Road (CTY) said it would buy fashion label Witchery for $172 million.

Singapore Telecom (SGT), the owner of Optus slumped 3.28 pct or 9 cents to $2.65 after going ex-dividend today. The company will be paying out a 6.9 cent a share dividend on August 24. This essentially means that shareholders buying its shares today onwards will not be eligible to receive the next dividend. The company also announced that it will offer 4G by around the end of this year.

Telstra (TLS) continues to outperform the market, with its shares up 1 pct or 4 cents to $4.04. Its shares have improved for 14 of the past 20 trading sessions and are up by more than 21 pct this year. TLS will be announcing its profit results for the full-year on August 9, with the market expecting around a $3.5 billion profit.

On the economic front, a report has shown that home prices rose for the second straight month in July across the country. The RP Data/Rismark Home Value Index gained by 0.6 pct last month, however house prices are still down by around 2.6 pct on a year ago.

CommSec Economist, Savanth Sebastian said that "The back to back lift in house prices is encouraging. Across Australia house prices have risen by 1.6 per cent over the past two months and while that may not sound all that exciting, it is the biggest two-monthly increase in property prices in 28 months and a welcome turn from a period of sustained weakness. The result also highlights the underlying strength in residential property."

Australia's manufacturing industry continues to contract, with a report today showing five straight months of falls within the sector. The Performance of Manufacturing index fell by 6.9 pts to 40.3 in July.

Mr Sebastian said that "The manufacturing sector continues to contract at a faster pace. The sector has been decidedly weak for the past year with the index now holding at a three year low - highlighting the fact that businesses continue to struggle. Consumers are reluctant to spend, forcing businesses to reduce prices and margins in order to move stock. At the same time the on-going strength of the Aussie dollar is making it tough for all manner of businesses."

Tomorrow will be one of the busier days of the week for economic news, with the latest international trade and retail trade reports due for releas. A largely flat result is expected on the international trade front (either a small surplus or deficit) while Australians are expected to have picked up their spending by around 0.9 pct in June.

Most markets around the region lost a little ground today, however Chinese shares rose most significantly by close to 1 pct. Japan's Nikkei 225 index was one of the worst, after slumping by 0.6 pct. The Nikkei started being calculated in 1950 and is one of the world's most quoted indices.

Tonight in Europe will be all about manufacturing. The latest manufacturing readings will be issued in Spain, Italy, the U.K and the broader Eurozone. Industries in all these economies are likely to continue to contract.

Last night, the Eurozone's jobless rate rose from 11.1 pct to 11.2 pct, making it its worse level since the creation of the Euro Area. Just 12 months ago, the regions unemployment rate was 9.9 pct.

It starts getting busy in the U.S tonight, with a plethora of economic news due for release. The most highly anticipated event will be the Federal Open Market Committee's (FOMC) statement, due for release at 4.15am. The FOMC is part of the U.S Federal Reserve (the American equivalent of Australia's Reserve Bank). The market is hoping for some signs of further stimulus to be announced by the Fed. Tonight is day two of the central bank's two day meeting on rates and monetary policy.

In addition to this, the latest ADP non-farm employment report will be issued at 10.15pm (AEST) tonight and is likely to record a 122,000 rise in the number of private sector jobs created last month. The more important government jobs report will be out tomorrow night and tends to have a bigger impact on sharemarkets.

Volume of shares traded came in at 1.53 billion today, worth just $3.35 billion. 363 shares were up, 495 were weaker and 366 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is flat.

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 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 strengthened against the greenback. The AUD buys US105 cents, is trading at £67 pence and €85.3 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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