Australian Stock Market Report - Morning 11/16/2011

MORNING REPORT (8am AEDT)

US retail sales grew by 0.5pct in October, above forecasts for a gain of 0.3pct. Excluding autos, sales were up 0.6pct. Producer prices fell 0.3pct in October while the core rate (excludes food and energy) was unchanged. Both results were weaker than forecasts. And the ´´Empire State´´ business index improved from minus 8.48 to +0.61 in November.

The 17-nation euro zone economy grew by 0.2pct in the September quarter, in line with forecasts. Germany grew by 0.5pct while France expanded by 0.4pct.

Designated Italian Prime Minister Mario Monti said he will meet with the President on Wednesday morning on efforts to form a government.

European shares were generally lower on Tuesday with investors focussed on the exposure of French banks to Italy. The FTSEurofirst index fell by 0.5pct with the French CAC down 1.9pct, the German Dax down 0.9pct while the UK FTSE was flat.

US sharemarkets fell in the morning session before lifting in afternoon trade as investors fully digested the positive economic data. The Dow Jones was lower by as much as 77pts in the morning and up as much as 86pts in the afternoon but weakened into the close to end up by 17pts or 0.1pct. The S&P 500 was up 0.5pct and the Nasdaq rose by 29pts or 1.1pct.

US treasuries were little changed on Tuesday. On the one hand, US sharemarkets were higher and US economic data was better-than-expected. On the other hand, investors remained concerned about the on-going European debt crisis with Italian 1-yr bond yields back above 7pct. US 2yr yields were flat at 0.24pct and US 10yr yields fell 1pt to 2.05pct.

Major currencies were mixed against the greenback In European and US trade on Tuesday as investors evaluated latest economic data. The Euro fell from highs near US$1.3620 to near US$1.3590 and was near US$1.3525 in late US trade. The Aussie dollar traded between US101.10c to US102.00c, and was near US101.75c in late US trade. And the Japanese yen traded between 76.85 yen per US dollar to JPY77.15, and was trading near JPY77.05 in late US trade.

Crude oil prices rose on Tuesday with investors encouraged by stronger-than-expected US retail sales data and firmer growth in German and French economies. The Nymex crude oil rose by US$1.23 or 1.3pct to US$99.37 a barrel and London Brent crude rose by US60c to US$112.49 a barrel.

Base metal prices fell between 1.0-2.3pct on the London Metal Exchange on Tuesday with investors still cautious on the outlook for the global economy. Lead, aluminium and zinc were the worst performers. But the gold price rose modestly in line with the oil price. The Comex December gold price rose by US$2.80 an ounce or 0.2pct to US$1,781.20.

Ahead: In Australia, the wage price index is released. In the US, data on industrial production, consumer prices and capital flows will be released.

Craig James, CommSec Chief Economist

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