Australian Stock Market Report – Midday 7/17/13

Mid Session Report
(12:30 AEST)

Regional markets have started Wednesday's session in cautious fashion as investors wait for US Federal Reserve Chairman Bernanke's semi-annual testimony to the US Congress. The Bernanke testimony is split into 2 parts: Prepared remarks are released at 10:30pm AEST; and the committee hearing, which includes the Q & A session commences at midnight AEST. The prepared remarks will likely reflect the views of the FOMC as a group. To this end Mr Bernanke is likely to reiterate the perspective that the central bank is "somewhat optimistic" about the prospects for the US economy and that any changes to the Fed's stance on Quantitative Easing will remain data dependent.

The Q&A session has scope to create market volatility. If questions regarding the tapering of asset purchases or the outlook for Fed policy are expanded upon, markets could become flighty. It's reasonable to suggest Mr Bernanke will continue to focus on the difference between a gradual reduction in asset purchases and the current US economic performance which suggests the continuing need for accommodative policy.

The potential for Bernanke to visit volatility on the markets remains fresh in the mind of investors and explains the modest volumes seen at lunchtime.

Materials stocks were amongst the best improvers in the face of strong production reports from BHP and RIO in the last day. Earlier this morning BHP revealed strong quarterly production numbers. Iron ore output was better than expected. Shipments of 54.0Mt in the quarter from the Pilbara were a new record and 14% higher than the previous record which was set in the December quarter of 2012. Coal sales from Queensland were equally strong resulting in the best quarter since 2010 with 8.7Mt shipped. Petroleum production was weaker than expected reflecting delays in Gulf of Mexico although this was marginally offset by better US shale production

Billabong (BBG) shares were up more than 40% on news that it had secured a US$294mln short term finance facility. Elsewhere, Insurance Australia Group rose more than 1% after upgrading its insurance margin expectations for the full year to a range of 16.8% - 17.2% for FY 2013 from 12.5%-14.5% previously.

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