Australian Stock Market Report – Midday 6/1/2012

MIDDAY REPORT
(12.10pm AEST)

The Australian share market has started the new trading month on a similarly disappointing note as May, following falls on US and European markets overnight. Concerns about the health of the Spanish financial system saw most European markets ease overnight, while weaker than expected GDP or economic growth figures out of the US saw Wall Street slump modestly. The Australian share market shed 7.5pct in the month of May making truth of the adage "Sell in May and Go Away". In early trade the Australian share market is down 0.8pct, with the All Ordinaries Index (XAO) lower by 31.7pts to 4102.

Material stocks are under the most pressure with base metals prices falling significantly on the London Metals exchange overnight. Shares in Bluescope Stel (BSL) have fallen almost 6pct to $0.325 with the company facing a hefty tax bill over a dispute with the Australian Tax Office over a deal struck in 2007.

Meanwhile, more weak economic data released today has increased the likelihood of a rate cut in June. A private measure of Australian manufacturing fell to its weakest level in eight months in May, following on from sluggish retail sales released earlier this week. CommSec now believes the RBA should cut interest rates by at least 25 basis points next week. We are also maintaining our rate call of 25 basis points for August.

The Australian dollar remains softer against the greenback and at 12.10pm AEST is worth US96.76c, £0.6294 and €78.38c.

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