Australian Stock Market Report – Midday 5/21/14

A worker levels the iron ore in a freight train at a railway station at Chitradurga in the southern Indian state of Karnataka in this November 9, 2012 file photo. One of Indian prime ministerial hopeful Narendra Modi's main election planks is to crank up manufacturing to create millions of jobs by focusing on exporting steel, not iron ore. REUTERS/Danish Siddiqui/Files

MID-SESSION REPORT
(12.10pm AEST)

Concerns of the impact a weaker iron ore price could have on the economy is pushing the sharemarket lower for the second time this week. The All Ordinaries Index (XAO) is down 0.7 per cent, taking the losses over the past three days to 1.8 per cent. A triple digit loss for the Dow Jones Index is adding fuel to the fire.

The miners are the biggest losers, as the resource complex is slumping by 1.55 per cent at lunch. The iron ore price fell by 1 per cent to US$97.5/t which is important as the metal is Australia's biggest export. The lower the price slides, the bigger the impact on the miners and the Australian economy. Smaller to medium sized producers such as Atlas Iron, BC Iron and Gindalbie are amongst the worst hit as they are more sensitive to ore price moves. BHP Billiton (BHP) is down 1.5 per cent while RIO is down 1.8 per cent. FMG is down 3.2 per cent. It's estimated that Fortescue (FMG) has a breakeven cost for the production of ore around US$72/t (US$25-US$30 more than BHP and RIO).

The four major banks are all in the red by at least 0.25 per cent, with National Australia Bank (NAB) the worst performer as it slumps by 0.75 per cent.

The defensive telcos are the lone improvers. Telstra (TLS) is trading at a nine-year high of $5.34. Australia's biggest telecommunications company has been flirting with the $5.30 price point for the best part of five months and finally cracked through yesterday. TLS has a 5.3 per cent dividend yield; meaning investors holding the stock for a year are expected to receive that return in the form of annual dividends.

Treasury Wine Estates (TWE) is up 1.3 per cent, adding to Tuesday's 18 per cent surge after rejecting a $4.70/share, $3.05 billion takeover bid by a U.S. investment firm. TWE is the owner of brands such as Penfolds and Lindemans.

On the economic front, consumer confidence slid by 6.8 per cent in May according to a monthly survey. The survey was conducted a week after the Federal Budget. Discount retailer JB Hi-Fi (JBH) is down 2.1 per cent, Harvey Norman (HVN) is 0.8 per cent weaker. The quarterly Wage Price index rose by 0.7 per cent, continuing the weak improvements on wages in the past year.

At lunch, 815.2m shares have been traded worth $2.13bn. 280 stocks are higher, 480 are in the red and 336 are unchanged. The Australian dollar buys US92.3c and continues to be held back partly by China and iron ore concerns.

Looking ahead, the U.S. central bank's minutes from its latest meeting will be issued tonight. The Fed Chair Janet Yellen will be delivering a commencement address and two Federal Reserve officials will be delivering talks this evening. These events are important for the Australian dollar as comments on stimulus program changes could influence currencies.