Australian Stock Market Report - Morning 11/02/2011

MORNING REPORT (7am AEDT)

US ICSC chain store sales rose 0.7pct last week to be up 3pct on a year ago. ICSC research expects sales to rise 4.5pct in October. US construction spending rose 0.2pct in September to be down 1.3pct on a year ago. US ISM-Manufacturing activity eased from 51.6 to 50.8 in October. However in a positive sign the key sub-index of new orders rose above the 50 level for the first time in four months, while the price paid index fell to the lowest level since April 2009.

European shares recorded their biggest one day loss in over a month on Tuesday, following news that Greece´s Prime Minister Papandreou was planning a referendum to vote on the second bailout package. The news sent shockwaves through European markets catching even European politicians off-guard. Investors made their feelings abundantly clear with a sharp sell-off in equities. Banking stocks were hit particularly hard with the euro zone banking index down 9.3pct. The FTSEurofirst index fell by 3.5pct with the UK FTSE lower by 2.2pct while the German Dax fell by 5.0pct.

US sharemarkets fell sharply on Tuesday, driven by the concerns about the Greek political situation. News flow dominated market volatility. The Greek government now faces a confidence vote on Friday with news that Greek lawmakers are opposed to the referendum. However the VIX or ´´fear gauge´´ rose 18.6pct. The Dow Jones fell by 297pts or 2.5pct with the S&P 500 down 2.8pct while the Nasdaq lost 77pts or 2.9pct.

US treasuries rose again on Tuesday (yields lower) as investors head back to the safety of US bonds on renewed concerns about European sovereign debt. US 2yr yields fell by 1pt to 0.238pct and US 10yr yields fell by 16pts to 1.956pct.

Major currencies fell against the US dollar in overnight trade as the threat of a referendum in Greece over the bailout package resulted in risk being taken of the table. The Euro eased from levels near US$1.3820 to US$1.3615 and ended US trade near US$1.3675. The Aussie dollar fell from highs around US104.55c to US102.70c, but ended US trade near US103.15c. And the Japanese yen weakened from 78.00 yen per US dollar to JPY78.45, ending US trade near JPY78.35.

Crude oil prices fell for the third straight session on Tuesday after the surprise proposal for a Greek referendum vote heightened investor concerns. Nymex crude oil fell by US$1 or 1.1pct to US$92.19 a barrel and London Brent crude fell by US2c to US$109.54 a barrel.

Base metal prices were weaker on the London Metals Exchange on Tuesday. The Chinese manufacturing data confirmed the recent slowdown, running at the slowest pace since early 2009. Metals fell between 1.0-5.0pct. And the Comex December gold price finished down by US$13.40 an ounce to US$1,711.80.

Ahead: In Australia, building approvals data is released. In the US, the FOMC rate decision is expected.

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