Australian Stock Market Report – Afternoon 8/23/2012

MARKET CLOSE
(4.30pm AEST)

Following a slight pullback yesterday, the Australian sharemarket managed to improve for the second time this week. The All Ordinaries Index (XAO) rose by 0.2 pct or 8.5 pts to 4411.8. The index is one of the most popular ways to measure market performance on the local sharemarket.

The miners led the rest of the market higher today, with the S&P/ASX 200 Materials index rising 1.18 pct or 115 pts to 9856.5. Australia's largest listed company, BHP Billiton (BHP) rose by 0.75 pct or 25 cents to $33.41 while the smaller Rio Tinto (RIO) edged higher by just 0.15 pct to $54.18.

The banks ended mixed, with National Australia Bank (NAB) and ANZ Banking Group (ANZ) both rising by around 0.2 pct. Westpac (WBC) dropped by 0.48 pct or 12 cents to $24.77 while Commonwealth Bank of Australia (CBA) slipped by 0.36 pct or 20 cents to $55.14. CBA is currently the second biggest company on the Aussie market, with a market capitalisation (size on the market) of around $87 billion. This makes it around 25% smaller than BHP.

Today was the busiest single day of the profit reporting season, with over 30 large companies announcing their half-yearly or annual profit results.

Australia´s largest airline Qantas Airways (QAN), announced a slightly better than expected Underlying Profit Before Tax of $95m for the last fiscal year. According to QAN there were three main drags on profit; record high fuel costs of $4.3b; costs linked to industrial disputes of $194m & transformation costs (incl. $198m for redundancies & restructuring) of $376m as it strives to turn around its struggling QAN International business.

QAN has two main business units; its underperforming international business & its significantly stronger domestic operations. To put this into perspective, QAN recorded a profit of around $600m in its domestic operations (incl. Jetstar & Qantas Domestic) while it posted a $450m loss in its international unit. Looking ahead, QAN expects the first half of this year to remain challenging, however aims to maintain a 65% market share in the profitable domestic sector. The airline hasn´t paid out a dividend since April 2009. Its shares reacted well to the result, however are down 16% this year, adding to last year´s 42% slide.

Australia's third largest iron ore miner, Fortescue Metals Group (FMG) rose 2.17 pct or 9 cents to $4.24 after its net profit rose 53 pct to US$1.56 billion for the previous year. This was despite a fall in iron ore prices. It also announced a modest dividend of $0.04 a share.

Insurance company, Insurance Australia Group (IAG) rose 1.82 pct or 7 cents to $3.91 despite announcing a 17 pct drop in its Net Profit After Tax (NPAT) to $207 million. This was lower than what the market had hoped for and was partly due to large write-downs from its British business. On a positive note, premiums have continued to rise and the company expects a stronger performance in the next half.

There was no major economic news issued in Australia today, however tomorrow will be a touch busier on that front. On Friday; the Reserve Bank Governor, Glenn Stevens will be involved in his semi-annual testimony to the House Economics Committee. Governor Stevens will face a grilling by parliamentarians. He will almost undoubtedly be quizzed on the strength of the Australian dollar and its impact on the economy. The impact of currency accompanied by weaker metal prices will be another focal point.

In the region, the main piece of influential economic news was HSBC's Flash Manufacturing PMI which was issued at 12.30pm (AEST). This is a measure of the health of the smaller to medium sized manufacturing companies in China. The reading came in at 47.8, which is a 9-month low and markedly lower that last month's reading of 49.3. A number below 50.0 indicates a contracting manufacturing sector, while a reading above 50.0 points to an improving industry.

In response to concerns about the end of Australia's mining boom, CommSec's Chief Economist Craig James said that "There is a long way to go in China's industrialisation. Effectively China is at the same point that Japan was at in 1968 or at a similar point to where South Korea and Taiwan were at in their industrialisation journeys in the early 1970s. The key point is that China has 1.3 billion people that are being taken on the industrialisation journey. While the Chinese economy has slowed over the past year, low inflation leaves the door open for economic stimulus. Data out today showed the Chinese purchasing managers index at a 9-month low in August."

In Europe tonight, the latest report on the health of its manufacturing sectors will be issued. Later in the evening a consumer confidence report will be out at 12am (AEST) and is expected to remain steady.

In the U.S, a number of reports on the American housing market will be released in addition to the weekly unemployment claims report. A document on U.S home prices is scheduled for release at 12am (AEST) while at 10.30pm (AEST) we'll find out just how many Americans applied to receive unemployment benefits for the first time last week. The market is expecting a slight improvement to 365,000. This report can be seen as an important signal of economic health.

Volume of shares traded came in at 1.81 billion today, worth $4.4 billion. 529 shares were up, 432 were weaker and 317 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.07 pct or 3 pts to 4365.

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 also 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) is trading higher against the greenback, partly thanks to additional stimulus expectations out of the U.S. The AUD buys US104.9 cents, is trading at £66.05 pence and €83.68 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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