Australian Stock Market Report – Midday 5/20/14

MID-SESSION REPORT
(12.10pm AEST)

The Australian sharemarket is slipping for the third straight session, with Chinese property market concerns keeping iron ore prices weak. The All Ordinaries Index (XAO) is down 0.2 per cent and remains below 5400pts, making it the worst start to a week in three and a half months.

The price of iron ore slumped by 2.2 per cent overnight to US$98.5/t; the weakest level in 20 months. This is hurting companies involved in ore production, particularly the smaller to medium sized players. Atlas Iron, BC Iron, Gindalbie and Western Areas for example have all slumped significantly since the start of this calendar year. BHP Billiton (BHP) and Rio Tinto (RIO) are both down 0.4 per cent. RIO is Australia's largest iron ore producer while BHP is the largest diversified miner.

The big four banks started firmer and are now all trading in the red. Macquarie (MQG) has managed to only lose a little ground over the past few days.

Treasury Wine Estates (TWE) is up 19.4 per cent after it rejected a $4.70 per share, $3 billion takeover from KKR. TWE owns brands such as Penfolds, Lindemans and Wolf Blass.

The defensive telcos and utilities are the lone improvers with Telstra (TLS) still flirting with the $5.30 level. Despite improving for the fourth consecutive year, TLS is still yielding around 5.4 per cent each year. This means that its return to shareholders is 5.4 per cent/year based on today's share price.

Agribusiness Ruralco (RHL) is down 1.4 per cent despite posting a 57 per cent rise in half year underlying profit to $8.5 million. Sales revenue rose by 13.7 per cent while its interim dividend was 20 per cent lower than last year's at 8 cents per share.

On the economic front, The RBA seems cautiously optimistic about the state of Australia's economy and seems to be in no hurry to raise rates according to the latest board minutes out today. Commonwealth Bank's Business Sales Indicator has improved for the 21st straight month, rising by 0.5 per cent in April. This makes it the longest winning streak since 2008. The retailers are improving at lunch.

The Australian dollar is slipping and buys US93c.