Australian Stock Market Report – Midday 1/31/14

Mid Session Report
(12:00 AEDT)

The last 12 hours have seen volatility subside relative to the previous day. European and US stock indices finished higher and the atmosphere in currency markets, particularly for emerging markets was stabilising. Notwithstanding the improved general tone sellers has the edge at the open of the local session, although the losses were contained to a modest size.

Continued downward pressure on base metals in the face of the US dollar strengthening remains a feature of the current climate. The US Federal Reserve decision to slow its stimulus has reconfigured investor expectations. There is a growing belief that the Fed will continue to wind back support on an increasingly regular basis over the course of this year. Another factor working against metals has been the medium term outlook for Chinese growth after the larger than expected contraction in China's manufacturing sector in January

Department store Myer (MYR.AU) has confirmed an approach made to David Jones (DJS.AU) with the proposal of a merger. The exchange took place last October with a share-based merger being canvassed. The plan was rejected as being inadequate. The view being put by MYR suggests a merger would have created combined revenues of $5 billion in addition to synergistic savings of $85 million within three years. DJS shares are higher by 4 per cent whilst MYR shares are flat.

Financial stocks remained in negative territory overall despite an increase in private sector credit in December. The RBA's financial aggregates for December show total credit increased by 0.5 per cent. Credit has increased by 0.3 per cent each month since August last year. In the tear to December 2013, credit growth expanded by 3.9 per cent, compared to a 3.6 per cent rise the year prior. Personal credit rose by 0.2 per cent in December, whilst business credit increased 0.4 per cent. Demand for home loans remains saw housing credit grow by 0.6 per cent in December after a 0.5 per cent increase in November.

The CBA has adjusted its AUD forecast expecting the local unit to ease to 0.8400 by 2014 year end compared to an earlier estimate of 0.8900. In the context of the AUD's average annual trading range, analysts suggest it's conceivable the AUD trades sub 0.80 at some point in 2014, particularly if Australia's economic transition falters or emerging market fears escalate.

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