Australian Stock Market Report – Midday 9/30/13

Mid Session Market Update
(12:30 AEST)

It's been a predictable start to the week for local stocks. Sellers have made an impression by taking the index lower as investors weigh the debt ceiling on one hand and the implications for the Fed's tapering calendar on the other. The US Congress has not yet passed a "continuing resolution" to fund the US government beyond Monday 30 September which is the end of the US fiscal year.

If a continuing resolution cannot be passed by Congress by the end of Monday US time (2pm Tuesday Sydney time), non-essential parts of the US Federal government will be progressively shut-down. A government shutdown has the potential to increase volatility and lead to safe-haven flows. Estimates suggest that a partial shutdown of the US government for several weeks would cut up to 1.5% off US growth in the final quarter of 2013.

An important point worth reflecting on is the level of participation. Volumes on Monday have been quite low. This is at odds with the market dynamic in recent days. The market has been supported at higher levels on improving volumes, indicating a level of comfort on the part of investors with the ASX200 at or around 5 year highs. A worst case scenario for the US debt ceiling debate would see the positive undercurrent shaken and equity markets come under sustained pressure.

The main data result of the morning session was the release of the HSBC Purchasing Managers' Index. The report revealed that output across the Chinese manufacturing sector expanded for the second successive month in September, although the rate of growth slowed compared to a month ago. Additionally, growth of new work was unchanged from the previous month and only slight. Nonetheless, new business from overseas increased for the first time in six months (albeit marginally), with businesses citing stronger demand from client bases in Europe and the US. The conclusion points to a continued improvement for the world's second biggest economy. The impact on the market was insignificant. Having seen the market improve by around 11% this quarter, investors saw little value in pushing the market higher on Monday morning.

In company news Copper miner OZ Minerals (OZL) said it had not received a takeover bid from mining giant Glencore Xstrata. News reports in the UK have indicated that the Swiss-based mining and commodities company had increased its stake in OZ Minerals, which operates a mine and conducts exploration activities in South Australia. The report also said that Glencore Xstrata was considering making a bid for OZ Minerals. OZL said that the company advises it has not received a substantial shareholder notice from Glencore nor has OZ Minerals been approached by Glencore in regard to any proposal. The speculation has caused OZ Minerals shares to rise in early trade, gaining as much as six per cent.

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