Australian Stock Market Report – Afternoon 8/2/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket edged higher today for the fifth time in six sessions. The All Ordinaries Index (XAO) rose by just 0.2 pct or 7.4 pts to 4290.1, receiving a boost by some better than expected economic news earlier in the day. Despite the gains, investors still seemed cautious to overcommit to markets ahead of the all-important European Central Bank (ECB) meeting tonight. ECB President, Mario Draghi last week hinted at stimulus and now has much to live up to.

Today's improvement was a good result considering that global markets ended mostly weaker overnight, following disappointment that the U.S Federal Reserve did not offer new stimulus and remained tight lipped about the future. On a positive note, a report showed that there were 163,000 jobs created in the private sector last month, around 40,000 more than expected. The more important official government employment report will be out on Friday night at 10.30pm (AEST).

Most sectors ended in the red today, however strong gains from the mining and energy industries (which make up around 25 pct of the Australian market), helped lift the XAO higher. BHP Billiton (BHP) rose 1.01 pct or 32 cents to $32.02, while the smaller Rio Tinto (RIO) gained 1.64 pct or 88 cents to $54.41. Iron ore miner, Fortescue Metals Group (FMG) jumped 5.3 pct or 22 cents to $4.37.

The financial sector ended a touch higher, with the S&P/ASX 200 Financials index gaining by just 0.02 pct or 0.9 pts to 4420. Westpac (WBC) was the best of the big four, after rising 1.2 pct or 28 cents to $23.53. National Australia Bank (NAB) rose by 0.16 pct or 4 cents to $25.15. ANZ Banking Group (ANZ) couldn't hold onto modest gains and eased by 0.09 pct or 2 cents to $23.50 while Commonwealth Bank (CBA) slumped by 1.19 pct or 68 cents to $56.59. So far this calendar year, WBC has gained most significantly amongst the majors and is up 17.57 pct since January 2012.

Darrell Lea's administrators said 32 stores will be closed and 198 jobs are likely to be cut, to make the business more attractive to potential buyers. This leaves the 85 year old business with 480 employees and 34 remaining stores, which are expected to continue operating as per normal.

The ACCC (the competition watchdog) said it would not oppose Newscorp's (NWS) acquisition of Consolidated Media (CMJ). CMJ has a 50 pct stake in Fox Sports, which owns half of Foxtel. NWS shares are up 0.23 pct today and 22 pct higher this year. CMJ shares edged higher by 0.29 pct today and 32 pct in 2012.

Property group, Lend Lease (LLC) said it signed a deal with Crown to build a large world class international hotel resort at Barangaroo South, which is near Sydney's Darling Harbour (next door to King Street wharf). LLC rose 1.11 pct or 9 cents to $8.20 today.

On the economic front today, two better than expected reports were released. The first showed that Australian consumers picked up their spending in June by 0.9 pct, adding to the 0.8 pct jump in May. The market was expecting a modest improvement of just 0.6 pct.

CommSec's Chief Economist, Craig James asked, "...Is it all a mirage? We'll find out in the next few months. But the recovery in spending seems to be reading like a well scripted play. Retailers have enjoyed a much needed boost to sales over the past two months, all thanks to an array of stimulatory measures. Sizeable rate cuts, Federal government handouts, tax changes and lower petrol prices, have provided consumers with a perfect storm of positive drivers, while also alleviating pressures on household budgets. Add in lower prices and why wouldn't consumers be spending? The $64 question is what happens when the effects of the stimulus wear off. Hopefully, consumers are now seeing the glass as half-full, not half-empty. But the risk is that spending has merely been brought forward. More positively, prices fell in eight of 15 categories in the June quarter. And if deflation continues, Aussies will keep spending."

Australia also recorded a better than forecast trade surplus in June. This makes it the first surplus since December last year. The market was expecting a trade deficit of around $360 million. A $9 million surplus was recorded thanks in large part to a 1.6 pct fall in imports and only a slight easing in exports by 0.4 pct.

Mr James said that "Australia recorded a small trade surplus in June but there are few people that would rejoice or bemoan the result. Simply, the trade figures have few implications nowadays. Looking forward, trade surpluses are still likely although the vagaries of the commodity cycle, strength in the Australian dollar, and growth in consumption and investment goods are likely to depress the magnitude of any surpluses. Over the longer term the strength of the Asian region will play a key part on Australia's trade position. The recent rate cuts and further additional stimulus by Chinese authorities should ensure that volumes of coal and iron ore exports will increase over time and support the shift back to surplus."

In Asia today, most markets ended in the red, with the exception of the Japanese and New Zealand markets. No major economic news was issued to drive trade in the region.

The market will be focused on Europe tonight, with both the ECB and the Bank of England (BoE) meeting later this evening. The market is expecting the ECB to keep rates on hold at 0.75 pct and for the BoE to keep its rates at just 0.5 pct. Investors are keen for Mario Draghi (ECB President) to announce some form of stimulus. A press conference will be held by the central bank at 10.30pm (AEST) and could move markets. The latest change in Spain's unemployment will also be issued at 5pm (AEST).

In the U.S tonight, a report on factory orders will be out at 12am (AEST). This measures the change in the total value of new purchase orders placed with manufacturers. A weekly report on unemployment claims will be issued at 10.30pm (AEST) and is likely to rise to around 375,000.

Volume of shares traded came in at 1.5 billion today, worth just $4.01 billion. 433 shares were up, 403 were weaker and 368 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.17 pct or 7 pts to 4233.

Due to daylight savings, most major European markets are now trading between 5pm (AEST) and 1.30am (AEST). Futures are currently pointing to a mixed 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 fallen slightly against the greenback. The AUD buys US104.7cents, is trading at £67.3 pence and €85.5 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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