Australian Stock Market Report – Midday July 3, 2014

A broker monitors the market from his booth during a trading session at Karachi Stock Exchange Reuters

MID-SESSION REPORT
(1215pm AEST)

The Australian sharemarket is having its best week in two months with shares rising for the second day. The All Ordinaries Index (XAO) is up 0.7 per cent or 37pts to 5477.8. U.S markets ended modestly higher overnight with a better than expected report on private sector employment in North America helping.

All sectors are improving locally at lunch with the exception of the defensive utilities. Commodity prices finished mostly higher overnight which is helping lift the mining industry. Australia's third largest iron ore producer Fortescue Metals (FMG) is up 4.77 per cent while the largest BHP Billiton (BHP) is 0.8 per cent firmer and Rio Tinto (RIO) is up 0.55 per cent.

The country's second largest airline, Virgin Australia (VAH) is adding to yesterday's losses as domestic passenger numbers come under pressure. An update from the firm yesterday highlighted a sluggish 2.5 per cent rise in passenger numbers travelling locally. VAH blamed the result on weaker consumer confidence.

The major banks are all higher, with Westpac (WBC) the standout as it surges by 1 per cent at lunch. WBC is up 5.6 per cent this calendar year and jumped by 25 per cent in 2013.

Today is the busiest session of the week for economic news. A speech by Reserve Bank Governor Glenn Stevens this morning has pushed the Australian dollar lower. The Governor expressed his concern about the strength of the Australian currency, saying that it's "...overvalued, and not by just a few cents". This keeps the door open for a potentially lengthier period of interest rate stability. Although a rate cut can't be completely ruled out, it does still seem a touch unlikely at this stage. Governor Stevens would be fully aware that a rate rise could damage Australia's economic recovery and push the dollar even higher.

Retail spending fell by 0.5 per cent in May according to monthly data released today. This marks the second month of weakness in economy wide retail spending. Note that this weakness is coming off the back of 11 consecutive months of improvement. Building approvals jumped by a better than expected 9.9 per cent in May.

At lunch, 1 billion shares have changed hands worth $2.12 billion. 588 stocks are higher, 259 are lower and 274 are unchanged.

Looking ahead, the June report on employment in North America will be a highlight tonight. The market expects the creation of 213,000 jobs and no change to the unemployment rate at 6.3 per cent.