Australian Stock Market Report - Morning 12/08/2011

MORNING REPORT (8.00am AEDT)

US consumer credit grew sharply for the second straight month, rising by $7.65 billion in October. German industrial production jumped by 0.8pct in October to be 4.1pct higher than a year ago. In contrast Italian Industrial production fell by 0.9pct with UK industrial production down by 0.7pct in October.

The ECB announced that 34 banks had accessed its latest 3-month USD liquidity tender with take up of $50.7 billion at a rate of 0.59pct. The take-up in the previous 3-month USD offering on November 9th was just $0.4 billion. Reports suggest that the European Central Bank may tomorrow announce the provision of longer term loans of 2 years to banks as well as easing collateral rules so that institutions have greater access to ECB cash. The measures, if delivered, are designed to facilitate greater credit provisions to the wider economy.

European shares eased on Wednesday with investors still concerned that the upcoming EU summit will not provide a comprehensive solution to the debt crisis. French officials said German and French leaders will not leave the weekend summit until a ´´powerful´´ deal was reached. The FTSEurofirst index fell by 0.1pct while the UK FTSE was down 0.4pct and the German Dax lost 0.6pct.

US blue-chip shares were modestly higher in choppy trade on Wednesday. Volumes were light as investors were in wait and see mode ahead of the EU summit. At the close of trade, the Dow Jones was higher by 47 points or 0.4pct after being down almost 90 points at one stage. The S&P 500 rose by 0.2pct, but the Nasdaq was flat.

US treasuries rallied on Wednesday (yields lower) as investors shored up safe-haven assets in case European leaders fail to reach a deal at the upcoming summit. US 2yr yields fell 2pts to 0.238pct and US 10yr yields fell by 6pts to 2.033pct.

The Euro eased modestly against the greenback in overnight trade. The Euro fell from highs near US$1.3450 to around US$1.3350 and was near US$1.3405 in late US trade. The Aussie dollar fell from highs around US102.95c to US102.30c, and was near US102.80c in late US trade. And the Japanese yen held between 77.60 yen per US dollar and JPY77.80, and was near JPY77.65 in late US trade.

World crude oil prices recovered much of the early losses in late trade on Wednesday. News that top world oil exporter Saudi Arabia had raised its output - a week before a meeting of OPEC nations - pressured prices. Nymex crude oil fell by US79c to US$100.49 a barrel and London Brent crude fell by US$1.28 to US$109.53 a barrel.

Base metal prices were mixed on the London Metal Exchange on Wednesday. Aluminium, copper, zinc and nickel fell between 0.2-2.1pct but lead managed to gain 1.1pct. And the gold price rose with the Comex February gold price up by US$13 an ounce or 0.8pct to US$1,744.80.

Ahead: In Australia, labour market data is released. RBA Governor Stevens delivers a speech. In the US, wholesale inventories are released.

Craig James, Commsec Chief Economist

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