Australian Stock Market Report – Afternoon 9/25/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket lost ground for the second straight day, with the All Ordinaries Index (XAO) slipping by 0.3 pct or 13.7 pts to 4395.5. This was expected, due to a lack of market moving events locally and offshore between Monday and Wednesday this week in addition to weakness in global markets overnight. The volume and value of shares that exchanged hands today was extremely light once again.

Thursday and Friday should see a number of reports issued which could influence the direction of sharemarkets. On Thursday night, the Spanish parliament will be announcing its new budget, with a number of reforms to boot. Spain currently has an unemployment rate of 25 pct, which is around five times higher than Australia's. On Friday, our two largest trading partners; China and Japan will be issuing a number of reports which investors in our region of the world will be keeping an eye on.

The miners were once again the biggest losers, with the S&P/ASX 200 Materials index falling by 0.98 pct or 97.5 pts to 9888.6. Last night, commodity prices continued to fall, with iron ore losing 2.6 pct while both gold and oil dropped by around 1 pct. Rio Tinto (RIO) fell by 1.82 pct or $1.00 to $53.97, Fortescue Metals (FMG) slumped by 2.22 pct, gold producer Newcrest Mining (NCM) fell by 1.31 pct while the larger BHP Billiton (BHP) eased by 0.48 pct or 16 cents to $33.25.

The banks finished mixed, with Commonwealth Bank (CBA) and National Australia Bank (NAB) ending the day higher while ANZ Banking Group (ANZ) and Westpac (WBC) finished in the red. ANZ fell 0.57 pct while WBC slipped by 0.16 pct. CBA was the best of the majors today after rising by 0.42 pct while NAB also ended higher by 0.31 pct.

The retailers finished mixed today, with department store owner Myer (MYR) falling by 3.35 pct or 6 cents to $1.73 a day after going ex-dividend. Interest seemed to flow to its competitor, David Jones (DJS) today around a week ahead of its ex-dividend date. DJS rose by 2.54 pct or 6 cents to $2.42.

Fitch, one of the big three rating agencies maintained a positive outlook on Australia's eighth largest listed company, Wesfarmers (WES). WES is the owner of Coles supermarkets, the country's second largest supermarket chain.

On the economic front today, the Reserve Bank of Australia (RBA) released its half-yearly assessment of Australia's financial health. The RBA said that our banking system remains in a relatively strong position but has warned the banks against the temptation of loosening lending standards too much.

The central bank also highlighted some of the positives of a conservative consumer. Around 15 pct of borrowers are now ahead in their repayments by two years or more, which is slightly higher than in recent history. Australians on average are saving around 9.5 pct of their disposable incomes, which is close to the highest levels since the mid-1980s. Only around 8.5 pct of Australian families are now in the sharemarket (not including superannuation). This is around half as much as just five years ago.

CommSec's Chief Economist, Craig James said that "The Financial Stability Review usually is a straight-forward document with few controversial issues raised. But in the latest report the Reserve Bank has been uncharacteristically forthright, warning banks against the temptation of easing lending standards too far. The RBA notes that profit growth has slowed, credit growth is lower and there are higher funding costs. In this environment a financial intermediary may be tempted to ease lending standards to boost lending and profit growth. The RBA notes that there will be challenges in the months ahead to resist the temptation to ease lending standards too far "in the pursuit of unrealistic profit expectations." A number of businesses will be disappointed by the RBA warning to banks. Small businesses, and especially borrowers in the real estate segment, believe that banks are being too conservative in lending practices. The challenge for banks is to achieve an appropriate balance between risk and return that pleases the regulators and the general public."

No major economic news was issued in the region today; however most markets were influenced by the slightly negative leads from most global exchanges overnight. Shares in South Korea, Taiwan and China ended as much as 0.6 pct in the red. Shares in New Zealand, Japan and Hong Kong managed to end the session a little higher however.

Friday will be the busiest session for economic news in Asia Pacific, with a large number or reports scheduled for release in Japan. This will include the latest jobs report, manufacturing data, retail sales and housing data. In China, the latest HSBC Manufacturing PMI (a reading of the health of China's manufacturing sector) will be issued at around lunchtime, Friday.

In Europe tonight, the European Central Bank (EBC) President Mario Draghi will be delivering a speech at 11pm (AEST) in Germany. He will be speaking at the annual event called "Day of the German Industries", which is organised by the Federal of German Industries in Berlin. The latest German consumer climate report was issued at 4pm (AEST) today and came in at a slightly lower than the expected reading of 5.9.

In the U.S today, a consumer confidence report will be released for the month of September, with a slight improvement expected. The latest home price numbers will be announced for the month of July also, with analysts hopeful that prices could have risen by 0.8 pct in July adding to 0.9 pct gain in June.

Volume of shares traded came in at 1.43 billion today, worth $3.59 billion. 394 shares were up, 526 were weaker and 344 ended unchanged.

At 4.30pm (AEST) on the Sydney Futures Exchange, the ASX24 futures contract is up just 0.05 pct or 2 pts to 4387.

Due to daylight savings, most major European markets are now trading between 5pm (AEST) and 1.30am (AEST). Futures are currently pointing to a slightly better 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) is a little stronger against the greenback but is treading water ahead of the Reserve Bank's interest rate decision next week. The market is currently factoring in around a 67 pct chance of a rate cut next week, while two of the big four banks are also expecting rates to drop next Tuesday. The AUD now buys US104.3 cents, is trading at £64.1 pence and €80.8 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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