Australian Stock Market Report

MIDDAY REPORT
(1pm AEDT)

The Australian share market lost ground from the open of trade today, in line with falls on the U.S. markets overnight. All Ordinaries Index (XAO) is down 1.5 pct or 64.4pts to 4263 at lunchtime. All market sectors were in the red with the biggest slides occurring in the S&P/ASX 200 Materials sector off 2.17 pct and the best performing sector of the day being the S&P/ASX 200 Telecom Services sector helped by market heavy weight, Telstra Corporation Limited (TLS) up $0.02 to $3.43 cents a share and iiNet Limited also doing well.

Base metal prices moved slightly higher overnight on the London Metals Exchange and the price of gold up over US$10 to US$1,717.70 an ounce and the oil price climbed to US$102 a barrel as supply fears from the Middle East outweighed the ongoing Euro debt concerns. But these moves have not helped our lead miners today. The world's largest miner, BHP Billiton (BHP) off 2.16 pct or 78 cents to $35.32 while RIO Tinto Limited (RIO) down 2.24 pct or $1.54 cents to $67.33 and Fortescue Metals Group (FMG) falling another 3.16 pct in early trade.

The big four banks are in the red reversing yesterday's gains, with Commonwealth Bank Limited (CBA) the best of the big four off 0.46 pct or 23 cents to $50.00, National Australia Bank (NAB) edged off 1.5 pct to $22.77 and ANZ Banking Group (ANZ) off 1.3 pct, Westpac Banking Corporation (WBC) off 3.77 pct or 79 cents to $20.17, Westpac Australia's fourth largest bank, released its first quarter trading update this morning. The bank released unaudited cash earnings of $1.5billion for the 3 months to the end of December 2011. Overall business lending increased but only by 1% over the period, and the bank has also been working hard on improving the quality of the assets on its books. Today Westpac showed a fall in its stresses asset quality ratio to 2.33% from 2.48% in the September quarter. Westpac said its New Zealand business continues to show signs of improvement. The bank did say that overall operating conditions did deteriorate in the December quarter, impacted by slowing global growth and the European debt crisis.

AMP Limited (AMP) realised its full year results this morning the headline result was just below market expectations, with Net Profit of $688million, down 11.2 pct but the market was disappointed by the lower than expected dividend payout of $0.14 cents a share, and the fact AMP has lowered its expected dividend payout ratio in the future. AMP said the integration of AXA into its main business is ahead of schedule. CEO Craig Dunn said "challenging market conditions continued to impact the business, but AMP was well-positioned to continue delivering on its growth strategy, while maintaining disciplined capital and cost management." AMP shares off 1.82 pct to $4.31. ASX Limited (ASX), the operator of Australia´s main share market posted a $175.6 million profit in 1H12 (July to December 2011). This was largely in-line with market expectations. ASX shares up 0.66 pct to $30.53.

Westfield (WDC), one of the world's largest owners of shopping malls delivered a full year net profit (Jan to Dec 2011) of $1.53 billion yesterday. Today, the shares have fallen over 2 pct in early trade to $8.83. Industrial property and development management firm, Goodman Group (GMG) today reported a slide in half year profit to the end of December 2011 off 11 pct; the company said it was happy with continued high occupancy rates across the groups assets of 96 pct. Goodman shares are up 1.9 pct.

Billabong International Limited (BBG) shares have been placed in a trading halt today, as the company told the market that this is related to a pending announcement on its strategic capital structure review. Rumours have been circulating over a possible take-over bid by a private equity firm, all should be revealed by Friday when Billabong is due to report its first-half results. BBG shares last traded at $1.79 a share.

Qantas Airways Limited (QAN) today surprised the market with a better than expected half year result. Qantas reported profit before tax of $202 million down 52% but above market expectations and the company's own guidance, of between $140 to $190 million. The cost incurred by the grounding of its fleet in the half and industrial action was in line with expectations of $194 million (pre-tax) and fuel costs over the half were also in line at $2.2 billion up $450 million over the period.
Qantas expects a better second half this financial year; now that the industrial action has settled. Qantas management said that it has seen strong booking growth and it expects to reduce costs in the next year by retiring old planes earlier than expected. Qantas plans to consolidate its 3 main maintenance facilities into one, which will lead to more job losses. Qantas would not put a firm number on the losses but the market is expecting 500 jobs to be cut. No full year guidance was given today. Qantas shares up 5.77 pct to $1.65 a share at a month high.

On the economic front, Australian Bureau of Statistics labour force data for January was released.
The data showed that 46,300 jobs were created in the month of January, pushing the January unemployment rate down to 5.1pct from 5.2pct. This result surprised the market and pushed the Aussie dollar higher as economists had expected a 10,000 lift in jobs. For the month of January part-time jobs rose by 34,000 after falling by 59,700 in December and Full-time jobs up by 12,400 after rising by 24,000 in December.

The Australian dollar is buying US107.05c, £0.6816 and €82.13c.

Craig James, CommSec Market Chief Economist

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