Australian Stock Market Report – Afternoon 9/18/2012

MARKET CLOSE
(4.30pm AEST)

Following a weaker start to the day, the Australian sharemarket managed to gradually improve as the day progressed to end 0.1 pct or 4 pts higher to 4417.8. The miners, energy players and financials all lost ground today after leading the broader market higher yesterday.

Local shares were down by as much as 0.35 pct in the first hour of trade this morning, managed to improve throughout the day; rose by as much as 0.1 pct late in trade and eased a touch at the close.

Despite the modest pullback, the Australian sharemarket is still trading at around a 4.5 month high. Global markets lost a little ground overnight, however the Dow is still at almost a five year high, while shares in Germany are trading at an 11-month high and markets in both France and Italy are close to six month highs.

The major miners were mostly weaker, with BHP Billiton (BHP) down 0.56 pct or 19 cents to $33.96, Rio Tinto (RIO) eased by 0.43 pct or 25 cents to $57.25 and gold producer Newcrest Mining (NCM) lost 0.24 pct or 7 cents to $29.05.

Iron ore miner Fortescue Metals (FMG) was one of the big winners today, after coming out of a trading halt and securing a US$4.5 billion credit facility. FMG shares jumped by 17.06 pct or 51 cents to $3.50 but are still down by 18 pct since the start of this calendar year. FMG has lost ground for five straight weeks and slumped by 34 pct in 2011.

The major banks were mixed, with National Australia Bank (NAB) gaining 0.31 pct or 8 cents to $25.56, Westpac (WBC) dropped by 0.29 pct or 7 cents to $24.35 and both Commonwealth Bank (CBA) and ANZ Banking Group (ANZ) finishing the day flat.

On the economic front today, the Reserve Bank of Australia (RBA) released the board minutes from this month's interest rate meeting. On Tuesday 4 September, the RBA decided to keep rates on hold at 3.5 pct for the third straight month. The minutes revealed that its decision a fortnight ago to remain on the interest rate cutting sidelines was a more finely balanced affair than many expected.

The RBA currently has no shortage of reasons to cut rates at some point this year, with the Australian dollar remaining a little too strong which hurts our exporters; the jobs market showing signs of slowing, with the number of jobs advertised by Australian businesses falling for five straight months; the housing market remaining subdued; global economies remaining fragile and uncertain (in particular the Eurozone); and inflation under control locally.

CommSec expects a rate cut in November as a possibility while the broader market is currently factoring in a 53 pct chance of a cut as early as next month.

CommSec Economist Savanth Sebastian said that "Interestingly the adverse effects of the higher Aussie dollar were discussed by Board members. At present the higher currency continues to have a significant impact on array of sectors, including manufacturing, retail, tourism and general exports. To a large degree the dollar strength has played a significant part in the multispeed nature of the domestic economy. In fact the patchiness of the recovery will ensure that the Reserve Bank will maintain an easing bias; however a commitment to further rate cuts would more than likely be as a result of global factors."

Tomorrow, the Reserve Bank's Assistant Governor of Economics, Christopher Kent will be delivering a speech. David Jones (DJS) is scheduled to release its full-year profit results.

One of Australia's biggest petroleum conferences has kicked off in the Northern Territory today. The South East Australia Offshore Conference will be held for the next three days.

Most markets lost a little ground in the region today, with the exception of shares in South Korea which edged higher by a few points. Japan's Nikkei 225 Index fell by 0.09 pct or 8.5 pts to 9150.89, China's Shanghai Composite dropped 0.81 pct or 16.9 pts to 2061.59 and Hong Kong's Hang Seng eased by 0.07 pct or 13.52 pts to 20644.59.

A report in China today showed that property prices rose in 35 of the 70 cities that the world's second largest government tracks each month. This was less than in the month of July and reduces the need for tightening measures by Chinese authorities. Keep in mind that the market does consider some manipulation of the figures as a possibility by local Chinese governments. The federal government cut rates twice in both June and July to stimulate growth.

In Europe tonight, the German ZEW Economic Sentiment report will be issued at 7pm (AEST). This report is compiled by conducting a survey of around 350 German institutional investors and analysts and asks questions relating to the expected health of Germany's economy six months down the track. In the U.K, the yearly Consumer Price Index (CPI) will be issued. This shows the change in prices that consumers are paying for goods.

In the U.S tonight, the June quarter's (April to June) current account will be released. This is the broadest measure of trade accounts in the United States. It measures the difference in dollar value between exported and imported goods in addition to the flow of cash.

Volume of shares traded came in at 1.66 billion today, worth $4.2 billion. 429 shares were up, 507 were weaker and 55 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.07 pct or 3 pts to 4386.

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 largely flat 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) remains strong but has lost a bit of ground against the greenback. In fact the AUD now buys US104.2 cents, is trading at £64.2 pence and €79.7 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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