Australian Stock Market Report – Afternoon 8/30/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket had its worst day in a month, with the All Ordinaries Index (XAO) losing 0.9 pct or 41.3 pts to 4340.2. The defensive healthcare and telco sectors recorded some modest improvements; however all other industries ended in the red. Disappointing economic news added to the weakness earlier in the session.

Commodity prices slumped overnight, with the price of iron ore falling 5 pct. The recent slide in iron ore has been partly due to shrinking demand from Chinese steel mills and significant stockpiles in China. Iron ore focused miners such as Rio Tinto (RIO) and Fortescue Metals (FMG) have been struggling this month. RIO fell by 3.78 pct or $1.91 to $48.63 today, taking the losses for August to 8.6 pct. FMG lost 1.64 pct or 6 cents to $3.59 today and has fallen by 12 pct this month. Iron ore accounted for 92 pct of RIO's total profit last year and the commodity makes up around 20 pct of Australia's total exports.

The banks were mixed but mostly weaker, while National Australia Bank (NAB) managed to edge higher by 0.44 pct or 11 cents to $25.20. Commonwealth Bank of Australia (CBA) dropped by 0.61 pct or 33 cents to $53.98, while Westpac (WBC) and ANZ Banking Group (ANZ) both lost around 0.5 pct.

Global markets have been treading water ahead of the Federal Reserve's Jackson Hole Symposium which will be held later this week. Investors in North America are at their quietest levels of the year. Ben Bernanke's speech (the Fed Chairman) is due to be delivered tomorrow night. Some are hoping for hints of further stimulus; however many aren't holding their breath for a big announcement. The European Central Bank's (ECB) President, Mario Draghi said he won't be presenting at Jackson Hole due to a heavy workload.

On the profit reporting front, property group Lend Lease (LLC) rose by 2.56 pct or 21 cents to $8.40 today following a 2 pct rise in its Full-Year (July 2011 to June 2012) profit to $501.4 million. Its Chief Executive said the business is well placed to see its earnings grow. The property group is currently building the Barrangaroo development near Darling Harbour (right at the end of King Street Wharf). LLC also built the Athlete's Village for the London Olympics.

Defensive telco, Telstra (TLS) did well with its shares improving by 0.79 pct or 3 cents to $3.85.

Economic news disappointed today, with building approvals slumping significantly while business investment continues to not impress. The number of building approvals granted by councils to developers last month fell by 17.3 pct in July, making it the third fall in four months. Approvals fell in all states.

CommSec's Chief Economist, Craig James said that "Dwelling approvals fell in all the six states in July. Victoria led the falls with approvals down by 29.4 per cent followed by Queensland (down 19.7 per cent), NSW (down 9.4 per cent), Western Australia (down 4.8 per cent), Tasmania (down 4.5 per cent) and South Australia (down 1.4 per cent)."

Business investment rose by 3.4 pct in the June quarter (April to June), as expected. However, the investment plans for businesses are at their weakest levels in 19 years. The mining states continue to do well while the non-mining focused are struggling.

Mr James said that "The Reserve Bank certainly has some work on its hands to disentangle the various parts of the economy. Mining states remain in strong shape, but non-mining states aren't investing or building new homes. Clearly the Reserve Bank needs to keep rate cuts on the agenda. Cracks are starting to appear in the investment outlook. Usually investment plans lift by around 11 per cent at this time of the year. But the upgrade was only 4.7 per cent - the weakest upgrade in almost 20 years. The resource boom may not be ending, but more businesses are re-assessing spending plans."

No major economic news was issued in the region today and almost all markets in Asia-Pacific ended the day in the red. Shares in New Zealand managed to edge higher by a (very) modest 1.1 pts or 0.03 pct. Shares in South Korea and Hong Kong were the biggest losers; falling by more than 1 pct.

Tomorrow will be one of the busiest days for economic news in Japan.

Tonight, Italy will be holding a 10-year bond auction while Germany will be releasing its latest unemployment statistics, which isn't expected to show much change in its jobs story.

In the U.S, weekly unemployment claims data will be issued which measures the number of Americans who filed for jobless benefits in the previous week.

Volume of shares traded came in at 1.85 billion today, worth $5.02 billion. 320 shares were up, 642 were weaker and 359 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 also pointing to a weaker 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 lower against the greenback. The AUD buys US103.3 cents, is trading at £65.2 pence and €82.3 cents. The Australian dollar is at its weakest level against the greenback (U.S dollar) since mid-July.

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.

[Kick off your trading day with our newsletter]