Australian Stock Market Report – Afternoon 9/28/2012

MARKET CLOSE
(4.30pm AEST)

After a slow start to trade this morning, the Australian sharemarket managed to edge higher by the close of business. The All Ordinaries Index (XAO) rose by just 0.1 pct or 3.5 pts to 4406.3; however still finished the week lower by around 0.5 pct. This makes it the first weekly loss for the Australian sharemarket in four weeks. Volume was also higher than usual due to equity option expiry yesterday.

The mining and energy sectors were amongst the better performers despite inconsistency across both industries. Australia's largest gold producer, Newcrest Mining (NCM) rose by 3.33 pct, partly due to a strong gold price and currency. BHP Billiton (BHP) edged higher by just 0.06 pct or 2 cents to $33.04 while the smaller Rio Tinto (RIO) eased by 0.43 pct or 23 cents to $53.36.

The big banks ended mostly higher, with three of the big four rising by as much as 0.32 pct. Commonwealth Bank of Australia (CBA) eased by just 0.11 pct or 6 cents to $55.77.

Australia's largest supermarket chain, Woolworths (WOW) ended in the red for the second straight day, with its shares down 0.86 pct or 25 cents to $28.76.Yesterday, private equity firm Anchorage Capital bought 325 Dick Smith stores from Woolworths for just $20 million (around $61,000 for each store). A private equity firm often purchases a business which is undervalued, fixes and improves the business and then exits (sells the business). Anchorage has a 3.5 year plan to turnaround the Dick Smith and boost its margins.

Wesfarmers (WES), the owner of Coles Supermarkets also fell 0.93 pct or 32 cents to $34.26 today. The company's Chief Executive, Ian McLeod is Australia's highest paid executive however has seen his pay ease slightly to $14.8 million for the year.

Next week, the Australian sharemarket will be open as per usual on Monday despite a public holiday. Monday through to Friday, people in China will enjoy their National holiday week off, while a number of holidays will be had in South Korea and Hong Kong also.

Today was the busiest day of the month for economic news in Japan. Industrial production disappointed and fell by a more than expected 1.3 pct last month. The fact that Europe still remains fragile while China is sluggish; the Japanese economy is finding it difficult to expand. Japan's manufacturing sector improved modestly but is still contracting; the unemployment fell from 4.3 pct to 4.2 pct while inflation is still non-existent.

Tomorrow, the HSBC Manufacturing reading will be released while the official government release will be issued on Monday in China.

On the economic front today, the latest private sector credit numbers were issued for the month of August. Lending continues to disappoint with only a modest and lower than expected rise of 0.2 pct last month. This measures the change in the level of borrowing by Australian businesses and consumers over any given month.

CommSec Economist, Savanth Sebastian said that "The private sector credit data tends to be a good forward looking indicator on activity. If borrowings pick up, spending should follow suit over the next few months. In that context the lack of a significant improvement in overall borrowings is disappointing. But lending barely budged in July and the annual growth rate backed away from three year highs. At the same time, housing lending is growing at the slowest pace since records were first maintained in the mid-1970s. And personal credit is still going backwards."

Over the week, economic news was thin until Thursday when a number of reports were issued. Financial accounts, job vacancies and a population report were all released to the market.

The financial accounts are out once each three months and offer a detailed break-up of financial wealth and asset ownership.
According to the financial accounts, foreigners are currently holding close to half of Australia's total listed shares (i.e 47.3 pct). This is the highest level of foreign ownership in 20 years. Foreign holdings of Australian government bonds currently stands at 78.2 pct. Households are still remaining conservative and hold around 23.7 pct of their funds in cash and deposits, which is close to a 22-year high. The net wealth of Australians has fallen by 2.1 pct over the past year; however is still up a staggering 87 pct over the decade.

CommSec's Chief Economist, Craig James said that ´´Australians are continuing their love affair with defensive assets such as cash and bank deposits. And it's not just Aussie consumers, but companies and even superannuation funds. Pension or superannuation funds have more than 15 per cent of funds in cash and deposits - the highest proportion on record."

Australia's population grew by 111,142 between January and March this year and stands at 22,596,482. Our population is currently growing at 1.49 pct, which is the fastest rate of growth in around two years.

There were close to 200,000 people who called Australia home (migrated to Australia) over the first three months of this year.
Mr James said that "The latest population figures are encouraging. Population growth is again rising, underpinned by migration. And if more people are coming to Australia that means greater demand for houses, cars and retail items. Clearly faster population growth is good news for builders and retailers. Some people aren't convinced that faster population growth is a good thing. It is all about striking the right balance. If we need more workers and we can't get them locally, it makes sense that we bring them in from abroad. It is vital that supply and demand for workers is brought into balance."

On Wednesday, the Australian Bureau of Statistics (ABS) issued its Social Trends publication. This included data on how Australians are faring on health issues compared to other countries. According to the ABS website, the report is aiming to use statistics to paint a picture of Australian society.

Topics such as population; family and community; health; education and training; work; economic resources; housing; crime and justice in addition to culture and leisure were all covered in the report. This 27 page report is publicly available on the ABS website for those interested in more information.

According to the document, NSW currently has the highest consumption of energy, which is no big surprise while the Northern Territory consumes the least. People in the ACT currently spend the most on their energy bills, followed by Tasmania, Victoria, the Northern Territory and then New South Wales. The lowest energy bills are currently found in Queensland. On average, Australians are spending around $32 per week on electricity, gas, heating oil and wood.

The report stated that "Increases in retail electricity prices varied across the capital cities. Between June 2007 and June 2012, the largest increase in the retail price of electricity was in Melbourne (84%), followed by Sydney (79%). Darwin and Canberra had the smallest increases in retail electricity prices, with 42% and 45% respectively. Between June 2007 and June 2012, the retail price of gas and other household fuels also rose across the capital cities. The largest increase was in Perth, where prices rose by 88%, followed by Canberra (48%). The smallest increases were in Darwin and Hobart, with 21% and 20% respectively."

In relation to education, back in 1970 only three out of every 100 Australians had some type of higher education qualification. This number has now jumped to 25. There are also more women on an annual basis graduating with bachelor degrees than men.

Looking ahead, it's expected to be relatively quiet in Europe tonight with a report on retail sales in Germany and a French consumer spending document both due for release.

It will be even quieter in the U.S, with a personal income report for August issued. Incomes are expected to have edged higher by a modest 0.2 pct while spending could have jumped by a more significant 0.5 pct.

Volume of shares traded came in at 2.09 billion today, worth $6.27 billion. 522 shares were up, 416 were weaker and 357 ended unchanged.

At 4.30pm (AEST) on the Sydney Futures Exchange, the ASX24 futures contract is down by 0.14 pct or 6 pts to 4378.

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 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) has continued to improve against the greenback, following the Chinese central bank's cash injection yesterday and a tough budget handed down in Spain. The AUD now buys US104.6 cents, is trading at £64.3 pence and €80.9 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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