Australian Stock Market Report – Afternoon 9/24/2012

MARKET CLOSE (4.30pm AEST)

The Australian sharemarket has kicked off the new trading week in the red, with the All Ordinaries Index falling by 0.5 pct or 21.6 pts to 4409.2. Last week was a relatively uneventful one on the economic front, with a lack of market moving information released; however the XAO rose by a modest 0.5 pct over the week. On Friday, U.S equities eased a touch by 0.1 pct.

The mining and energy sectors were the worst behaved today, with the S&P/ASX 200 Materials index dropping by 1.26 pct while the S&P/ASX 200 Energy index fell by 0.97 pct. Australia's second largest mining company, Rio Tinto (RIO) lost 2.41 pct or $1.36 to $54.97 while BHP Billiton (BHP) fell by 0.86 pct or 29 cents to $33.41.

The major banks ended mixed but mostly weaker today. National Australia Bank (NAB) was the exception after rising by just 0.39 pct or 10 cents to $25.50.

In recent weeks we've heard that some of the biggest miners in Australia will be scaling back some of their expansion projects. Well, this will have an impact on the whole industry, with mining services provider, NRW Holdings (NWH) slipping by 3.85 pct or 9 cents to $2.25 today. This was after it announced a slight pullback in the amount of work it will receive from a project in Port Hedland. NRW provides services in the form of concrete installation, earth moving and waste management to name just a few.

A number of companies went ex-dividend today, which means if you purchase shares in any of these businesses today onwards you will not be eligible to receive the next dividend payment. This includes Myer, Seven Group, Newcrest Mining, The Reject Shop and Cabcharge which combined make up around 1.5 pct of the Australian sharemarket.

On the interest rates front, NAB has brought forward its rate cut expectations to November. This is the same as CBA. Both ANZ and WBC expect a rate cut by the Reserve Bank next month.

With it being the start of a new trading week, it is probably worthwhile to take a quick trip down memory lane. Last week, the XAO rose by close to 0.5 pct. Investment company, Premier Investments (PMV) rose by 8.11 pct on Friday after it recorded a 68 pct rise in annual profit to $68.2 million. This was for the 12 months to July 28 this year. PMV is the company behind Jay Jays, Dotti, Portmans, Jacqui E, Peter Alexander, Just Jeans and Smiggle.

Another weak reading in China's Flash Manufacturing PMI reading put downward pressure on trade in the region, while surfwear retailer Billabong (BBG) fell by around 5.8 pct following the withdrawal of a takeover offer for the business. The Reserve Bank Board minutes were out earlier in the week, with the market expecting around a 50 pct chance of a rate cut in October. The Bank of Japan (the Japanese equivalent of Australia's Reserve Bank) announced further stimulus, adding to the recent announcements from both the U.S Federal Reserve and the European Central Bank (ECB).

David Jones last week recorded a close to 40 pct drop in full-year profit, with smaller margins (due to heavy discounting) hurting its bottom line. Iron ore miner, Fortescue Metals Group (FMG) came out of its two day trading halt last week and rose by around 20 pct last week after securing a credit facility last week.

On the economic front today, the Federal Government issued its latest budget numbers for the previous financial year. A deficit of $43.7 billion was recorded, which was around $700 million better than expected. The government's handouts to families earlier in the year, held back its progress towards a surplus.

CommSec's Chief Economist, Craig James said that "The good news is that the federal budget is headed back towards surplus, although this may not appear obvious from the latest figures. In the year to May, the federal budget was in deficit by $34.1 billion, having improved in eight of the previous nine months, and down from a record $63.3 billion deficit in the year to September 2010. But there was a hiccup in June as the government provided a number of handouts to Aussie consumers, the annual deficit coming in at just under $44 billion."

Mr James went on to say that "It may not appear obvious, but the goal of a budget surplus is still on track. And if spending remains restrained over the coming year while revenues continue to recover, then fiscal policy will be regarded as contractionary, thus keeping the door open for another rate cut."

The latest weekly average petrol price report was issued by the Australian Institute of Petroleum (AIP) today. The national average price of unleaded petrol rose by 1.8 cents per litre to 145.7 cents over the past week. Looking ahead, there should be some relief for motorists following Singapore gasoline prices easing over the week. CommSec expects a 2 cent per litre drop in pump prices over the next fortnight following last weeks' rise in prices at the bowser.

CommSec Economist, Savanth Sebastian said that "However the good news for motorists is that prices are likely to plateau around current levels, and then track lower from this point. Not only have global oil prices fallen dramatically in the past week but the Aussie dollar has held up relatively well - ensuring that most of the slide in regional oil prices should get passed through to the bowser within the next fortnight."

Mr Sebastian went on to comment about the potential moves in interest rates over the coming months and said that "Overall the Reserve Bank is unlikely to alter its view when it comes to interest rates. A low inflation environment and downside risks to the global economy will keep the door firmly open for further rate cuts. The lack of a significant improvement in retail spending will continue to dampen activity across the economy. The higher Australian dollar is making life difficult for a multitude of sectors and it is likely that policymakers may look to takeout an added level of insurance in coming months. CommSec believes the Reserve Bank could cut rates once again before the end of the year."

In Europe tonight, the results of a survey of 7000 German businesses will be out at 6pm. The questionnaire asks respondents to rate the relative level of both business conditions and their expectations for the next six months. It is a respected piece of economic data partly due to the large number of survey participants (sample size).

In the U.S, two regional reports will be issued while an official from the Federal Reserve will be delivering a talk later in the evening.

Volume of shares traded came in at 1.61 billion today, worth $4.02 billion. 400 shares were up, 556 were weaker and 316 ended unchanged.

At 4.30pm (AEST) on the Sydney Futures Exchange, the ASX24 futures contract is up just 0.02 pct or 1 pt to 4399.

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) has lost ground against the greenback since last Friday. The AUD now buys US104.1 cents, is trading at £64.1 pence and €80.4 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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