Australian Stock Market Report

MIDDAY REPORT
(12.30pm AEST)

The Australian sharemarket is losing ground for the second time this week and for the sixth time in eight sessions. Global markets ended in the red, with particular weakness flowing through to European equities (shares). Shares in Germany dropped by 1.2 pct and Moody's, one of the big three ratings agencies put the European Union's Aaa credit rating on negative watch. The All Ordinaries Index (XAO) is down 0.9 pct or 41 pts to 4284.6.

The biggest drag on trade is the mining sector; particularly iron ore producer Fortescue Metals Group (FMG) which is down 9.38 pct or 32 cents to $3.08, to (more than) a three year low. Overnight, the spot iron ore price fell by 2.4 pct to US$86.90 a dry tonne. Over the last two months the price has slumped by around 36 pct making it harder for the smaller iron ore firms to return solid profits. Yesterday, Fortescue announced that it was cutting back on its expansion plans due to the fall in prices, cost pressures and the higher Australian dollar. Atlas Iron Limited (AGO) is down 3.37 pct or 4.25 cents to $1.21, while Sundance Resources Limited (SDL), the African based iron ore miner is falling by 8.2% at lunch.

FMG has announced the sale of the power station at its Solomon iron ore mine in the Pilbara region of Western Australia. This is expected to be sold to Canada's largest publicly listed power generator, Transalta for US$300 million. FMG has entered into a long-term contract with the firm to supply power to its Solomon mine for at least 16 years. FMG has also received a broker downgrade today and has now slumped by 37 pct over the past two months (largely in-line with the slump in iron ore prices).

Despite the recent pullback, keep in mind that FMG has been riding the mining boom wave for a number of years. In 2003 alone, its share price skyrocketed by over 1400 pct. An initial $10,000 investment at the start of 2003 would have been worth around $150,000 by the end of 2007. This year however; FMG shares are down 27 pct, adding to last year's 34 pct slump.

The major banks are all trading in the red, with Westpac (WBC) down 1.56 pct or 38 cents to $23.94. National Australia Bank (NAB) is down 0.92 pct or 23.5 cents to $24.87, ANZ Banking Group (ANZ) is down 0.62 pct or 15 cents to $24.19 and Commonwealth Bank of Australia (CBA) is down 0.44 pct or 24 cents to $54.39.

Oil refiner, Caltex (CTX) has raised $550 million from the market for assistance in the restructure of part of its business. CTX shares are down 1.78 pct or 28 cents to $15.41. CTX has a market capitalisation of $4.16 billion and was first listed on the ASX back in June 1981.

It isn't all bad news however; with some defensive companies managing to record some improvements. Biopharmaceutical company, CSL limited (CSL) is one of the better performers and is gaining by 3.41 pct or $1.51 to $45.81. The company has been on the most impressive improvers this year, with its shares up 43.1 pct since the start of 2012 (January this year).

Property group Westfield (WDC) has been making up for last year's disappointing performance, with its shares up 2.04 pct or 20.5 cents to $10.27 today. This takes the gains for this year to 31.5 pct.

On the economic front, the latest quarterly (April to June) GDP report was released and came in lower than expected. The Australian economy expanded by 0.6 pct over the quarter and 3.7 pct for the year. Despite the worse than forecast numbers, keep in mind that the nation has now expanded for 21 consecutive years despite the fragility of the global economy. Last time Australia was in recession was back in 1991.

CommSec's Chief Economist, Craig James said that "We expect another year when economic growth is more likely to be in line with longer-term averages or slightly above, rather than something approaching the below-average outcomes from 2009-2011. Growth around 3.5 per cent is expected in 2012/13. Business investment in resource sectors should again be the mainstay of growth, but dwelling construction is expected to lift from depressed levels and household spending should continue to grow in line with longer-term averages."

Following the end of daylight savings, major Asian markets will be trading between the hours mentioned below until October this year.

The Hong Kong sharemarket trades in two sessions each day and will now open for trade between 11.30am (AEST) and 2pm (AEST) while the second session is between 3.30pm (AEST) and 6pm (AEST).

Out of Japan, the first session will be between 11am (AEST) and 1pm (AEST) while the second session is between 2.30pm (AEST) and 5pm (AEST).

The Singapore exchange will be open for trade between 11am and 2.30pm (AEST) for the first session and then between 4pm and 7pm (AEST) for the second.

U.S futures are currently pointing to a slightly weaker start to trade tonight. Dow futures are up 14 pts. The U.S market trades between 11.30pm (AEST) and 7am (AEST).

So far in trade at lunch, 809 million shares have been traded worth $2.26 billion. 235 shares are up, 542 are lower and 295 are currently unchanged.

The Australian dollar (AUD) continues to lose ground and buys just US102 cents, €81.4 cents and £64.3 pence.

The AUD is the world's fifth most traded currency behind the U.S dollar, the Euro, Japanese Yen and British Pound. The AUD accounts for around 7 pct of all foreign exchange trades.

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