Australian Stock Market Report – Midday September 15, 2014

Chinese data goads sellers

 The Australian share market remained under the control of the selling fraternity on Monday morning. The weakness in Europe and the US continues to cast a pall over the local picture. US stocks ended last week under pressure, leading the S&P 500 to shed just over 1 per cent over the course of the week. Similarly the ASX 200 lost 1.2 per cent during the same period.

 One of the factors goading the market lower was Chinese economic data for August. The data released at the weekend was well below market expectations. Industrial production growth slowed to 6.9 per cent over the last year, the weakest rate of annual growth since December 2008 and well below market expectations for 8.8 per cent growth, and a sharp step down from 9 per cent growth in July. Another closely watched barometer of activity, urban fixed asset investment, slowed from a 17 per cent rate of growth so far this year to a 16.5% rate in August; once again below consensus expectations of 16.9 per cent growth. Finally, lending data revealed that new Yuan loans for August were in line with expectations at RMB702b, but new total social financing of RMB957b in August comfortably missed market expectations for RMB1,135b. The figures in general highlight the impact of the slowdown in the property sector in addition to the moderation for the broader Chinese economy.

 The sub-par Chinese data created headwinds for mining and energy stocks although heavily discounted stocks attracted some support. An example being Fortescue Metals group (FMG) whose shares rose by 2 per cent having lost as much as 20 since August. BHP Billiton (BHP) and Rio Tinto (RIO) by comparison have lost in the range of 7 percent over the same period. Steel maker and iron ore miner Arrium (ARI) started the week in a trading halt. The group announced a $754 million equity capital raising to pay down debt after iron ore prices plunged 35 per cent this year.

 In general terms financial stocks led the market lower in the first half of the day. However, Macquarie Group (MQG) stood out with a gain of more than 1.5 per cent. The investment bank announced that it expects its full-year profit in the 2015 financial year to be modestly ahead of its 2014 result, thanks to improved fees from its funds management division. Whilst MQG sees the first-half result for 2015 being as much as 30 per cent better than the same time last year, it expects the result to be slightly lower than the second half of 2014. MQG shares have risen 1.1 per cent this month, although they are down a similar amount for the quarter.

 The Aussie dollar is trading at a 6-month low thanks to a firmer USD, falling iron ore prices & softer Chinese data. Tuesday's release of the RBA minutes will confirm the neutral stance on interest rates.This should bode well for the AUD although may struggle against the USD if the Fed changes its forward guidance.

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