Australian Stock Market Report – Midday 7/17/2012

LUNCHTIME REPORT
(12.30pm AEST)

Yesterday the Australian share market improved for the second consecutive trading session and the market started off well this morning. The All Ordinaries Index (XAO) opened 20 points higher, helped by gains in banking and insurance stocks. The mining sector was a little mixed ahead of major quarterly production numbers over the next 2 days and transport stocks also lower.

Overnight European market closed largely unchanged as holiday mode took over from debt concern for European investors. The U.S. markets were held back by weaker than expected retail sales, down for the 3rd straight month, and caution as the stocks market awaits over 220 company's quarterly result in the next 2 days.

The International Monetary Fund (IMF) released its update to its global economic forecasts overnight. The market had already pre-empted the expected cuts in growth for 2013. In April the IMF forecast global growth to be 3.5% in 2012 and last night it left this unchanged while cutting its expectation for 2013 from 4.1% to 3.9%.

After the close of the U.S. markets this morning the rating's agency Moody's announced it had lowered ratings of 13 Italian banks. We had expected this would occur following Moody´s downgrade of Italy´s sovereign rating on Friday and do not expect it to have too much of an impact on European stocks tonight.

At lunchtime in the East, the All Ordinaries Index (XAO) had gained 28 points to 4,171.

The S&P/ASX 200 Financials sector rallied 1.3% higher helped by our big 4 banks all higher. Commonwealth Bank of Australia (CBA) up 1.7% to $55.01 and Australia and New Zealand Banking Group Limited (ANZ) added 1.7% to $22.86. In morning trade Westpac Banking Corporation (WBC) lifted by 1.3% to $22.46 while Macquarie Group Limited (MQG) was only slightly higher. The insurers also led the charge this morning, QBE Insurance Group Limited lifted 1.3% and Suncorp Group Limited (SUN) added 1.8% to $8.38 while Insurance Australia Group Limited (IAG) has missed out on large early gains only up 0.2% to $3.62.

The S&P/ASX 200 Materials sector gained around 0.5% by lunchtime. Fortescue Metals Group Limited (FMG) told the market the costs or its new mine expansion plans had come in higher than expected up $US600 million but the good news was its production numbers were strong and cost per tonne of iron ore fell over 12% in the last quarter. Fortescue share prices started off well before falling back now off 1% to $4.59.
The world's largest miner, BHP Billiton (BHP), was lower off 0.26% to $30.68 while Rio Tinto (RIO) gained 0.66% to $54.85. Later today RIO will release its quarterly production numbers the market is expecting to see second quarter production was strong. With the result to confirm robust performance in its iron ore division following after the typical cyclone impact hampered production in the last quarter. Copper production should continue to recover and we expect RIO's energy coal production to be relatively flat.

The gold sector moved higher in morning trade even with the gold price closing largely unchanged overnight. Newcrest Mining Limited (NCM) added 2.1% to $21.96, while Kingsgate Consolidated Limited (KCN) lifted 3.3% and Regis Resources Limited (RRL) added another 2.6% to $4.23.

The S&P/ASX 200 Energy sector was up over 1% by lunch. U.S. oil price gained over 1% in evening trade and has held on to the gains in Asian trade today. Shares in Woodside Petroleum Limited (WPL) were up 1% to $30.86, Santos Limited (STO) up 0.4% to $10.37 while Caltex Australia Limited (CTX) gained another 2.6% to $14.07.

Whitehaven Coal (WHC) still under the spotlight after Friday's takeover offer that is worth $5.3billion or $5.20 a share from the Tinkler Group. The offer was backed by conditional letters of support from major global banks. The share price jumped by 17.97% yesterday to $4.07 and this morning the shares have come off that high giving back over 12%, now at $2.95 a share.

Elsewhere, Wesfarmers Limited (WES) added 0.8% while rival Woolworths Limited (WOW) up only 0.4%. Department store owner Myer Holdings Limited (MYR) added 1.3% while its rival David Jones Limited gave back over 2% to $2.32.

The Australian dollar is now at US 102.99 after just toughing 103.04 and higher against the Euro at 0.8374.

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