Australian Stock Market Report – Afternoon 9/12/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket improved for the second time this week today and ended close to the daily highs. The All Ordinaries Index (XAO) rose 0.8 pct or 34.8 pts to 4383.1, with almost all sectors closing in the black.

The mining sector was the day's best, with the S&P/ASX 200 Materials index rising by 1.11 pct or 107.2pts to 9755.4. The country's second largest resource company, Rio Tinto (RIO) jumped by 1.03 pct or 56 cents to $55.09 while the larger BHP Billiton (BHP) rose by 0.83 pct or 27 cents to $32.85.

BHP's Chairman Jac Nasser expressed his discontent with the Queensland government's decision to increase coal mining royalties from 10 pct to 12.5 pct. He said that the increase in royalties is "...like shooting an elite athlete in the left foot."

The major banks also contributed to the gains, with both Commonwealth Bank (CBA) and Westpac (WBC) the strongest performers after lifting by 1.6 pct. National Australia Bank (NAB) improved by 1.28 pct or 32 cents to $25.40 and ANZ Banking Group (ANZ) edged higher by 0.41 pct or 10 cents to $24.20. The big four banks make up around 25 pct of the Aussie market on their own.

Discount retail The Reject Shop (TRS) has finalised a $27.4 million insurance claim from last year's Queensland floods. A final payment of around $7.6 million is expected. TRS shares rose by around 0.4 pct today.

The consumer staple sector was the biggest drag on trade with Wesfarmers (WES) losing 1.03 pct or 36 cents to $34.44. WES is the owner of Coles Supermarkets and the eighth biggest company on the ASX. Australia's largest supermarket chain, Woolworths (WOW) ended flat with a 0.03 pct slide in its share price. WOW is Australia's seventh largest company.

There were three reports out on the economic front today, including credit and debit card lending numbers; dwelling starts and a monthly consumer sentiment report.

According to the consumer sentiment survey, Australians are 1.6 pct more confident about the state of their finances and the economy than this time last month. The index rose to 98.2 pts, which is still a negative reading. Any number below 100.0 indicates pessimism, which has been the case for seven straight months now. The younger generation were more downbeat than usual with confidence slumping by 12.9 pct in September for those aged between 18 and 24 years of age.

CommSec Economist, Savanth Sebastian also asked the question why "...Generation Y [is] so glum? In the space of a month, sentiment in the 18-24 age grouping slumped by almost 13 per cent while sentiment was flat or a little bit more upbeat across other age groupings. There is no seasonality in the result to suggest that any one reason was responsible for the more downbeat view. But it may be the ongoing sluggishness in the job market is making it more difficult to find part-time or full-time work. But a large portion of the 18-24 age group attend universities and other education centres, so it is difficult to get a handle on the pessimistic result, however it will be interesting to see if the view is portrayed in coming months."

Keep in mind that confidence has been weak over the past few years, partly due to people spending more on what they don't particularly want to spend money on such as bills, rent and petrol. This leaves them less in the back pocket to splurge on more desirable retail products.

The latest dwelling starts rose by 4.6 pct in the June quarter (April to June). This measures the number of new residential properties that started construction over the quarter. The result was around 2 pct better than market expectations. Keep in mind that starts fell by 7.8 pct between January and March. Over the year there were 138,500 newly built residential buildings that started being built. This was a 2.7 pct fall on the corresponding period last year.

The latest credit card data today showed that there was the biggest fall in credit card debt in 18 years in July. The average credit card balance fell by $69 or 2 pct to $3,299.10 over the month.

CommSec's Chief Economist, Craig James said that "Aussie consumers pat yourselves on the back - you've mastered the plastic fantastic. People are using their credit and debit cards as much as they ever did, but smartly. Aussies are using their credit cards, but paying off the debt by the due date. And we are also smarter with our use of debit cards. Rather than getting cash out at the ATM, we are taking cash out when we go shopping for other things. Withdrawals at ATM are lower than a year ago while cash-out only debit card transactions are up almost 33 per cent on a year ago."

It was relatively quiet on the economic front in the region today, with core machinery order numbers out of Japan the only highlight. This report measures the change in the total dollar value of new private-sector orders placed with manufacturers for machinery. There was a 4.6 pct rise in orders in July which was 2.9 pct better than market expectations.

Shares in most markets in the region ended higher, with the Japanese market rising by 1.73 pct, while South Korean equities jumped by 1.56 pct. Shares in Taiwan gained 1.14 pct, there was a 0.94 pct improvement in Hong Kong and a 1.2 pct jump in New Zealand.

The European session tonight is going to be crucial, with Germany's Constitutional Court deciding on the future of the European Stability Mechanism (ESM). This is essentially the Eurozone's new bailout fund. The market is expecting the court to deem the ESM as legal with potentially a few conditions attached.

Also in Europe tonight, the Netherlands will be holding its parliamentary elections. There is a possibility that a coalition of at least four parties might need to be formed.

The latest unemployment rate is scheduled for release in the U.K tonight. The market is expecting the jobless rate to remain steady at 8 pct.

In the U.S, the Federal Open Market Committee (FOMC) will kick off its two day meeting on monetary policy. The market is hoping for the Fed (the U.S equivalent of Australia's Reserve Bank) to announce another round of stimulus. This would hopefully be supportive to global markets.

The Federal Open Market Committee (FOMC) is the section of the central bank which makes monthly decisions on interest rates.

Volume of shares traded came in at 1.81 billion today, worth $4.27 billion. 557 shares were up, 324 were weaker and 377 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.09 pct or 4 pts to 4360.

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) continued to improve today and is around US1 cent stronger against the greenback than this time yesterday. The AUD buys US104.6 cents, is trading at £65 pence and €81.3 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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