Australian Stock Market Report – Afternoon 9/6/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket improved for the second time this week, with the All Ordinaries Index (XAO) jumping by 0.8 pct or 33.9 pts to 4331.6. Healthcare stocks lost modest ground while all other sectors ended the day higher. The consumer discretionary, mining and energy sectors were the best performers.

Last night, global markets treaded water ahead of an important monthly meeting of the European Central Bank (ECB) tonight and a jobs report out tomorrow in the U.S. Shares in the U.S gained 0.1 pct, the German market rose by 0.5 pct, shares in France edged higher by 0.2 pct while the Italian market eased by 0.62 pct.

Qantas Airways (QAN) was one of the better performing equities today, with its shares rising by 6.67 pct or 7.5 cents to $1.20. This followed the announcement of a 10-year partnership with Emirates, which is expected to begin by April next year (assuming the competition watchdog gives it the Ok).

Emirates is the world's largest airline and the alliance should allow some cost savings to take place. It will allow QAN to have access to more than 70 Emirates destinations across Europe, Africa and the Middle East. Both airlines will be coordinating on some of their services and an integration of frequent flyer programs are expected to take place.

In the mining space, the S&P/ASX 200 Materials index rose by 1.62 pct today, with Rio Tinto (RIO) rising 1.66 pct or 82 cents to $50.16 while the larger BHP Billiton (BHP) gained by 0.93 pct or 29 cents to $31.34. Iron ore miner Fortescue Metals (FMG) however continued its descent, with its shares slumping by 4.81 pct or 15 cents to $2.97. This takes the miner's losses to 16.5 pct this month.

The big banks ended mostly stronger with the exception of Westpac (WBC), which fell 0.21 pct or 5 cents to $23.90. National Australia Bank (NAB) rose by 0.56 pct or 14 cents to $25.11, Commonwealth Bank (CBA) gained by 0.31 pct or 17 cents to $54.72 and ANZ Banking Group (ANZ) rose by 0.17 pct or 4 cents to $24.21.

On the economic front today, the latest monthly jobs report was released at 11.30am (AEST). There were 8,800 jobs lost in August while the unemployment rate improved from 5.2 pct to 5.1 pct. The market was expecting the creation of around 11,000 jobs. The reason the jobless rate improved despite a loss in jobs was a fall in the participation rate. This essentially means that the number of people looking for work and in the workforce shrank, effectively resulting in a drop in unemployment. The job losses were all from part-time positions, whereas there were 600 full-time jobs created last month.

CommSec's Chief Economist, Craig James said that "There is something for everyone in the latest jobs data. The optimists could focus on the lower jobless rate and conclude all is fine. The pessimists would look at the fall in jobs, the participation rate and hours worked and conclude something more sinister." He also went on to say that "The unemployment rate is down because more people gave up the search for work than those who lost jobs in the month. And that is the main area of concern in the latest jobs report. A smaller proportion of people are in the workforce - people in jobs or are looking for work - with the participation rate at 6-year lows. Reasons for this trend must be identified and corrected."

Taking a look at the different states, NSW was one of the biggest improvers with the unemployment rate falling from 5.2 pct in July to 4.8 pct in August. Western Australia's jobless rate worsened from 3.7 pct to 3.9 pct, however it still has one of the lowest unemployment rates in the country. The ACT currently has the best jobless rate of 3.6 pct.

No major economic news was issued across Asia Pacific today, however most markets improved. Shares in Shanghai jumped by 0.7 pct, while stocks in the Philippines, Hong Kong, South Korea and Japan all ended a touch higher. Shares in Taiwan closed around 0.5 pct lower.

In Europe tonight, the European Central Bank (ECB) will be meeting to make a decision on interest rates at 9.45pm (AEST). The market is expecting rates to be cut from 0.75 pct to 0.5 pct. This meeting has the potential to disappoint investors because expectations are high of a significant announcement to be delivered. Last week, the ECB's President Mario Draghi decided not to attend the Jackson Hole Symposium in the U.S due to "...a heavy workload foreseen in the next few days." The central bank could also downgrade its 2012 and 2013 growth projections.

In the U.K tonight, the Bank of England (BoE) will make its interest rate decision at 9pm (AEST). No change is expected and this is likely to be a non-event. The effects of both the London Olympics and the Queen's Jubilee celebrations render recent economic data volatile and hard to read.

In the U.S tonight, the latest ADP employment report is scheduled for release in the U.S. This is a measure of the number of jobs either created or lost in the private sector last month. Economists tip the creation of around 150,000 jobs. The more important official government jobs report will be issued tomorrow night, with the unemployment rate expected to dip slightly to 8.2 pct (from 8.3 pct). Around 128,000 are expected to have been created last month.

Volume of shares traded came in at 1.98 billion today, worth $5.28 billion. 519 shares were up, 403 were weaker and 343 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.21 pct or 9 pts to 4326.

Due to daylight savings, most major European markets are now trading between 5pm (AEST) and 1.30am (AEST). Futures are currently pointing to a 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) improved today following the jobs report at 11.30am (AEST). The AUD buys US102.3 cents, is trading at £64.3 pence and €81.1 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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