Australian Stock Market Report – Midday August 28, 2014

Sellers keep a wary eye on the S&P 500

 Local sellers have been chastened by the performance of US stocks over the course of recent sessions. US indices may have been flat in overnight trade but the willingness of the S&P 500 to remain in the range of the 2000 mark has meant that domestic sellers have been wary of committing themselves wholeheartedly as the broader US market runs the risk of breaking higher through one of the more significant technical levels of recent history. Sellers pushed the ASX 200 down by 24 points in the opening hour oftrade, the lows in subsequent trade were unable to make new lows over the course of the morning although as lunchtime approached sellers made a lunge which pushed the market to a new loss of 26 points.

 One of the features of Thursday morning was full year results being announced for Qantas (QAN). Headlines screamed that the airline had has suffered a $2.8 billion annual loss in the year to June 30, compared to a $1 million profit a year ago. The result was marked by a $2.6 billion write down in the value of its ageing international fleet. Excluding the write down and other one-off costs, Qantas posted an underlying pre-tax loss of $646 million, compared to a $186 million profit a year ago. The underlying result was ahead of expectations which had turned around a predicted loss of $750 million. Whilst it appeared to be an ambitious target, the airline spoke of the plan to post an underlying profit before tax in the first half of the coming year. One of the factors propelling the shares higher in the aftermath of the results is the fact that QAN shares are amongst the most heavily shorted on the ASX. As lunch approached QAN shares were ahead by more than 6 per cent

 Sellers returned their focus to the mining sector today after Iron ore continued to decline in the last day, falling by 0.8% to $USD 88.20 per tonne on surplus concerns as Chinese steelmakers continue to draw down on iron ore inventories in preference to purchasing iron ore on the spot market as iron ore availability remains high. The lack of consolidation below the $90 per tonne mark continues to haunt the bulk miners. Fortescue Metals Group (FMG) led the declines for the group with a loss a loss of more than 2 per cent.

 Late in the morning the Aussie dollar spiked following better than expected numbers on business investment which rose by +1.1% in the June quarter. Additionally the upgrade in investment plans between March and June was +5.1% which was the best result in three years.

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