Australian Stock Market Report – Morning 10/17/2011

MORNING REPORT (7am AEDT)

US retail sales rose by 1.1pct in September - marking the fastest pace of growth in seven months. Sales for the prior two months was also revised higher. The upbeat sales figures resulted in a revision of third quarter growth estimates. US September quarter GDP is now expected to post between 2.3-2.7pct. US business inventories rose by 0.5pct in August.

The University of Michigan consumer sentiment survey fell from 59.4 to 57.5 in October. Consumers future outlook also deteriorated with a gauge of consumer expectations falling to 47 - its lowest level since May 1980. The decline in 1-year inflation expectations from 3.3pct to 3.2pct was a positive outcome.

European shares rose on Friday marking the third straight week of gains. Cyclical stocks led the rally although banking stocks lagged behind. The STOXX Europe Banking index fell 0.5pct. The FTSEurofirst index rose by 1pct, the UK FTSE gained 1.2pct and the German Dax rose 0.9pct.

US sharemarkets soared on Friday as strong earnings from Google, upbeat retail sales data and growing optimism for a solution to the euro zone debt crisis dominated sentiment. The Dow rose 166pts or 1.5pct, while the S&P 500 rose 1.7pct and the Nasdaq lifted by 48pts or 1.8pct. For the week the Dow rose 4.9pct, while the S&P 500 gained 6pct and the Nasdaq climbed 7.6pct - marking its best weekly gain since March 2009.

US long-dated treasuries fell on Friday (yields higher) as stronger-than-expected US retail sales figures improved investor risk appetite. US 2yr yields fell by 1pt to 0.269pct while US 10yr yields rose by 7pts to 2.251pct.

The Euro and commodity currencies rallied against the greenback on Friday on optimism that European leaders were close to a solution for the European debt crisis. The Euro rose from lows near US$1.3745 to lows near US$1.3890 before ending US trade near US$1.3875. The Aussie dollar rose from lows near US101.80c to US103.45c holding near US103.30c in late US trade. And the Japanese yen traded between 76.85 yen per US dollar and JPY77.45, ending US trade near JPY77.20.

Global crude oil prices were higher on Friday as the better than expected US retail sales data eased concerns about the US growth outlook. Nymex crude oil rose by US$2.57 or 3.1pct to US$86.80 a barrel and London Brent crude rose by US$3.03 to US$112..23 a barrel. For the week US crude gained 4.6pct.

Base metal prices were mostly higher on Friday after Chinese economic data suggested inflation is moderating. In addition growing optimism for a resolution to the European debt crisis supported buying. Copper was the standout gaining 3.3pct. The gold price managed healthy gains with the Comex December gold price higher by US$14.50 an ounce to US$1,683.

Ahead: In Australia, new car sales and lending finance figures are released. In the US, empire manufacturing and industrial production data is expected.

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