Australian Stock Market Report – Midday 7/22/13

Midday Market Report
12:30 AEST

Buyers have returned from the weekend with renewed vigour. Every sector measured by the ASX is higher at lunch time and a generally constructive note is in place throughout the region. This is somewhat at odds with the way regional markets finished last week.

The interest rate sensitive sectors were all well supported as investors continue to look towards the release of quarterly inflation data on Wednesday which could potentially be skewed towards the lower side of expectations. Consumer related stocks were decidedly mixed at the end of last week, although that tone had shifted somewhat on Monday. Woolworths (WOW) shares had recovered from Friday's weakness after the group downgraded expectations around the performance of its Masters hardware business. Financial stocks were benefitting from their US counterparts delivering good profit results in recent days, Macquarie Group (MQG) shares were up by almost 3%

The opposite applied to explosive maker Orica which downgraded profit expectations at the end of last week. The shares were down more than 3% in response to a number of broker downgrades.

One of the factors that has helped improved the regional atmospherics has been the PBoC. At the end of last week the Chinese central bank announced further interest rate liberalisation. The PBoC said it will remove both the upper limit and the lower limit on the benchmark lending rate. The move is a step towards greater interest rate flexibility which will help lower company funding costs and boost financial institutions' pricing capabilities.

Japanese politics have been another significant factor driving prices regionally. Monday´s improvement in Australian shares came alongside an early jump for Japanese stocks in the wake of the ruling Liberal Democratic Party´s (LDP) resounding Upper House election triumph on Sunday. The win gives the LDP and coalition partners majority control over both houses of the Diet, and consolidates Prime Minister Shinzo Abe´s hold on power. One of the upshots being that the Japanese government has greater scope to enact its stimulative policies which would ultimately be seen as a positive for stocks particularly resource oriented ones

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