Australian Stock Market Report – Afternoon 9/20/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket lost a little ground for the second time this week, with the All Ordinaries Index (XAO) slipping by 0.5 pct or 20.6 pts to 4419.8. The defensive healthcare and telco sectors ended higher, however all other regions of the market lost ground. Volume and value of shares traded was significantly higher than usual due to equity index expiry today.

The local market was treading water this morning ahead of an economic report issued in China at 12.30pm (AEST). The HSBC Flash Manufacturing PMI came in at 47.8, which indicates contraction within China's manufacturing sector. This is a measure of the health of China's manufacturing industry at any given point over the month. Any reading below 50.0 indicates a shrinking industry. China buys around a quarter of all Australia's exports each year. Shares in Shanghai slumped by 2.1 pct today and hit their lowest levels since early 2009.

Last night, major global markets ended modestly higher, with solid economic news on America's housing industry released.

The defensive healthcare and telco sectors improved today; however most other regions of the market ended in the red.

The energy sector was by far the worst performer today, with the S&P/ASX 200 Energy index falling by 2.04 pct or 262.7 pts to 12613.2. Oil prices fell by 3.5 pct last night and by 7 pct over the week. One of the drivers for the weaker oil price was a report in the U.S showing that oil inventories are higher than expected. North America is the world's third largest oil producer and by far the largest consumer and importer of the commodity. Secondly, speculation that Saudi Arabia is looking at ways to reduce oil prices has been adding additional downward pressure to oil. Saudi Arabia is the world's second largest exporter and producer of oil.

Woodside Petroleum (WPL) fell by 2.16 pct or 75 cents to $33.95 while Santos (STO) slumped by 3.22 pct or 38 cents to $11.43. If the price of oil remains at these levels for a sustained period of time, petrol prices at the pump should fall over the next 3-4 weeks.

Surfwear retailer Billabong (BBG) had its worst day in months today with its shares slipping by 7.27 pct or 10.5 cents to $1.34. Its most recent takeover offer, which was made on 6 September was withdrawn. The TPG International offer still stands, however BBG's share price has slumped by 4.8 pct this year and a staggering 87 pct over the past three years.

The miners also struggled with the S&P/ASX 200 Materials index dropping by 1.35 pct or 138.7 pts to 10139. BHP Billiton (BHP) fell by 1.52 pct or $33.70 while the smaller Rio Tinto (RIO) lost 2.11 pct or $1.22 to $56.58.

The major banks were mixed, with ANZ Banking Group (ANZ) rising 0.77 pct or 19 cents to $24.74, while National Australia Bank (NAB) ended flat. Commonwealth Bank of Australia (CBA) eased by 0.69 pct or 38 cents to $54.97 and Westpac (WBC) fell by 0.86 pct or 21 cents to $24.29.

No major economic news was issued in Australia today and tomorrow is likely to be another quiet session on this front.

In the region, New Zealand's economy grew at a faster than expected 0.6 pct over the past quarter, while Japan recorded a worse than forecast trade deficit (imports great than exports).

Looking ahead to tonight, European and U.S markets are likely to have weaker starts to trade.

In Europe, manufacturing data will be issued for France, Germany and the broader Eurozone. The Spanish government will be raising funds via a 10-year bond auction. At midnight (AEST), the latest consumer confidence report will be issued, which measures the confidence levels amongst European citizens. At 2am (AEST), the European Central Bank's (ECB) President Mario Draghi will be holding a press conference at the European Systemic Risk Board meeting. The heads of major central banks tend to draw significant media attention for insights into the health of their respective economies and potential interest rate moves.

In the U.S tonight, keep an eye on the weekly unemployment claims report, which measure the number of Americans filing to receive jobless benefits for the first time in the previous week.

Volume of shares traded came in at 2.11 billion today, worth $6.76 billion. 438 shares were up, 506 were weaker and 363 ended unchanged.

At 4.30pm (AEST) on the Sydney Futures Exchange, the ASX24 futures contract is down 0.23 pct or 10 pts to 4395.

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 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) has lost ground against the greenback, is a full cent lower than this time yesterday and almost US2c weaker than last Friday. In fact the AUD now buys US103.8 cents, is trading at £64.1 pence and €80.00 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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