Australian Stock Market Report – Midday 1/23/14

MID-SESSION REPORT
(12pm AEDT)

The Australian sharemarket is slipping for the third time this week and for the 11th time in 15 sessions. The All Ordinaries Index (XAO) is down 0.1 per cent. China's HSBC Flash Manufacturing PMI will be issued at 12.45pm (AEDT) and measures the state of manufacturing activity in China. The market is expecting a slight rise from 50.5 to 50.6. A reading above 50.0 indicates manufacturing industry expansion. A surprise could move currencies.

The miners are once again in focus, with Newcrest Mining (NCM) issuing a second quarter update. As was announced last week, NCM has recorded a 5.9 per cent rise in gold production in the final three months of 2013. A major issue for gold miners is the weaker gold price and high production costs. The price of the precious metal is at around US$1236/ounce while costs are in the order of US$1000 an ounce. In 2011, NCM's share price was around 80 per cent higher than today, while the price of gold was 35 per cent firmer. Despite the 24 per cent gain in NCM's share price so far this calendar year, NCM still has a long way to go (NCM shares slumped by 64 per cent in 2013).

On Wednesday, BHP Billiton (BHP) delivered record iron ore production in Western Australia and healthy coal numbers in Queensland. However, a close to 5 per cent slump in the price of iron ore has been pushing most of the miners lower. Demand for ore from China tends to be light around the time of China's Lunar New Year celebrations. BHP is down 0.3 per cent, while Rio Tinto (RIO) and Fortescue (FMG) are edging higher after three days of losses.

The banks are mixed, with National Australia Bank (NAB) the only major which is improving. The energy sector, telcos and utilities are improving while all other sectors are modestly weaker.

Yesterday, higher than expected inflation pushed the Australian dollar higher. This essentially writes off almost any chance of an interest rate cut in the coming months. The Reserve Bank is likely to sit on its hands; not moving rates for the time being. The Australian dollar buys around US88.3 cents.

At lunch, 667 million shares have changed hands, worth $1.26 billion. 350 stocks are higher, 366 are in the red and 312 are unchanged.

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