Australian Stock Market Report

LUNCHTIME REPORT
(12.45pm AEST)

The Australian market closed stronger on Friday helped by the news out just before the close that China has approved 60 new infrastructure projects valued at $157 billion. In response to this new project news iron ore price jumped 2.2% back to US$89/a dry tonne, gold surged over US$34 an ounce and metal prices rallied on the London metals exchange (LME). European market moved higher still excited by the new European Central Bank (ECB) bond buying program, designed to restrain borrowing costs for embattled nations. But by the close of the European session shares lost ground as the US non-farm payrolls report was released showing only 96,000 jobs were created in August when the market was looking for over 120,000 jobs. Wall Street did finish in positive territory but the NASDAQ was only up 1point.

On Sunday the official Chinese economic data for August was released showing that industrial production grew by 8.9pct in the year to August, this was the slowest pace 3years. The Chinese retail sales numbers were still strong above 13% coming in in-line with market expectations at 13.2% in August. Inflation did increase but only slightly up to 2% in August off a 30 year low of 1.8% in July.

Chinese President Hu Jintao at this weekend's Asia-Pacific Economic Cooperation (APEC) CEO 2012 summit said that "China's economic growth is facing notable downward pressure ... exporters are facing more difficulties". But Jintao did pledge to boost domestic demand and promote more balanced growth. Our view is all the positives out of China will offset the negatives from the data.

At the start of trade today the All Ordinaries Index(XAO) opened higher, up 11points, as mining stock rallied by weakness hit banks and property firms. A number of key companies went ex-dividend today taking cash out of the value of the stocks market and share prices and into the pockets of investors.
By lunch time the gains had fallen back with the All Ords up only 2.4 points. The gains in commodity prices boosted the materials and energy sectors this morning as we had expected. But the market was more concerned about the August numbers out from China than we had expected and this saw selling pressure in the banking and property sectors.

The weaker than expected Japan 2nd quarter growth numbers (GDP) up only 0.2%, when the market expected greater than 0.3% also took its toll. In Japan domestic demand especially post-tsunami rebuild growth came in weaker than expected. Exports were also hit by lower demand for products sales to Europe. The Nikkei fell over 15 points or 0.24%

The iron ore price rose along with a basket of other commodities rose on Friday night and this helped the materials sector in morning trade. S&P/ASX 200 Materials sector rallied 2.3%. Shares in Fortescue Metals Group (FMG) shares were hit hard last week off 6.5% in morning trade the share price gained 3.6% to $3.43 while its larger rivals BHP Billiton Limited (BHP) added 1.9 % to $32.59 and Rio Tinto Limited (RIO) lifted another 4.2% to $54.59. Small iron ore miners also received a boost after the spot iron ore price climbed back above US$89 a dry tonne. Atlas Iron Limited (AGO) lifted by 4.05% to $1.42 and Sundance Resources Limited (SUN) made back another 3.45% to $0.30. The gold price lifted over US$34 an ounce to $1,740 an ounce and this helped our largest listed gold miner Newcrest Mining Limited (NCM) add 3.8% to $26.83 and Alacer Gold Corporation (AQG) up 3.4% and Kingsgate Consolidated Limited (KCN) added over 5% to $4.73.

The S&P/ASX 200 Energy sector lifted by 0.2%, with money going into small petroleum stocks but weakness in service providers and coal firms. Whitehaven Coal Limited (WHC) off 0.6% while Beach Energy Limited (BPT) added 3% to $1.29 and Karoon Gas Australia Limited (KAR) up 3.6%. Woodside Petroleum Limited (WPL) added 0.78% to $35.07 and Santos Limited (STO) off 0.9%. The market also reaction to the news that Xstrata, one of the world's largest miners, has announced plans to cut staff at its Aussie coal mines. Most of these jobs will be through its contractors and not Xstrata staff but it will also be cutting staff at it Melbourne headquarters because lower coal prices and the higher Australian dollar hitting profits.

S&P/ASX 200 Financials off 0.5% as the big 4 banks fell into the red and insurance and large property stocks lower. Commonwealth Bank of Australia (CBA) lost over 0.2% to $54.45 and Westpac Banking Corporation (WBC) off 0.4%. Macquarie Group (MQG) up 0.58% to $27.97 and Westfield Group (WDC) off 1.6% to $10.13.

Qantas (QAN) was one of the best performers, on Friday and the stock price also climbed in morning trade today. Late on Friday Qanta's credit rating was cut by the rating's agency Standard and Poors (S&P) after the firm re-evaluated its current strategy.

Qantas was downgraded from BBB/Watch Negative to BBB-. S&P said "Qantas´ business risk profile weakened because of the structural changes affecting the airline´s international business over the past few years" but also added "Qantas outlook is now stable, reflecting "the strength of Qantas´ domestic operations and our expectation that Qantas will maintain its strong liquidity position". QAN share price was firmer by 2.75% to $1.28.75c in early trade.

New Zealand based appliance firm, Fisher & Paykel Appliances Holdings Limited (FPA) told the market this morning that one of its largest investors, the Chinese based, Haier was looking at a possible takeover for the remainder of the firm. No set price details have been released but it is expected to be at a premium to Friday's closing price this morning in Aussie trading the FPA share price lifted by over 29% to $0.75c.

Lend Lease Group (LLC) share price fell over 4% in early trade on the news that its Abigroup construction division has asked senior official within the business to stand aside for now while investigations discrepancies in profit reporting. Lend Lease, has confirmed to the market that the errors were "to do with misreporting of profits and costs of two Abigroup projects would not impact its financial position or its outlook."

At lunchtime in the East the AUS is worth US103.85c and €81.17c.

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