Australian Stock Market Report – Afternoon December 23, 2014

Stock market yawning investor — An investor yawns in front of an electronic board showing stock information at a brokerage house in Hangzhou, Zhejiang province June 19, 2014. China shares had their biggest daily losses in more than seven weeks on Thursday, as the diversion of a sizable amount of capital for initial public offerings continued to weigh on markets. REUTERS/Stringer

Market extends early losses

 Local shares continued to lose ground over the course of Tuesday afternoon. The four preceding sessions saw the ASX 200 rise by 290 points or 5.5%. Local participants shrugged off the positive tone that featured in US and European trade overnight, to the extent that the market ended at the lows of the day.

 The steep decline in oil prices defined the weakness on the ASX 200 over the day, with the Energy sector one of the worst performers. Overnight, natural-gas prices dropped by 9%, the largest decline since February due to warmer temperatures and a US government report which revealed gas stockpiles rose above year-ago levels for the first time in 2014. Woodside Petroleum (WPL) fell 1.9% to $37.97, while Santos (STO) lost 1.3% to $8.39.

 Consumer related stocks remained under pressure, although the losses were smaller than the majority of ASX sectors. While it's clear the fall in petrol prices will provide a clear boost to household spending, investors are wary of pre-empting any re-rating for Consumer Discretionary stocks. Data compiled by CommSec reveals that in the week to December 21 2014, the average household spent an estimated $154.08 on petrol (monthly basis). As a result, the average family is spending around $32 a month less on petrol this Christmas, compared with a year ago. A saving of $32 a month is equivalent to a quarter per cent rate cut on a $200,000 mortgage. Analysts have likened the fall in the petrol price to either a rate cut or a tax cut. It is probably more like a tax cut. Retail spending in Australia is $23.7 billion a month (October 2014). If the savings were all spent, the fall in the petrol price would serve to boost Australian retail spending by 1.2 per cent over a year or around $3.4 billion. Myer (MYR) shares closed down 2.5% to $1.37.

 Insurance Australia Group (IAG) indicated that final claim costs for the New Zealand earthquakes that centred on Christchurch would rise by between $698.23 million and $930.97 million. The revised figures follow an increase in forecast repair and rebuild costs. IAG confirmed it was on track to deliver its full year insurance margin guidance of between 13.5% and 15.5%. IAG shares slipped 1.1% to $6.28.

 In company news, Telstra (TLS) announced the purchase of Pacnet, the largest private owner of submarine cables in Asia. The telco said it will pay $697 million for the group, which also provides data-centre services to carriers, government and multinationals in the Asia-Pacific region. Telstra CEO David Thodey said "Asia is an important part of our growth strategy. We believe this acquisition will help us become a leading provider of enterprise services to multinational companies and carriers in the region." Pacnet reported revenue in the year to December of $472 million and earnings before interest, tax, depreciation and amortization of $111 million. TLS shares closed 0.7% weaker at $5.96.

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