Australian Stock Market Report – Morning 12/20/2012

MORNING REPORT
(8am AEDT)

US homebuilding permits increased by 3.6pct in November to a seasonally adjusted rate of 899,000 units - the highest level in nearly 4½-years. In contrast housing starts fell 3pct in November but followed three straight months of solid gains.

European shares rallied on Wednesday. Optimism that US congress would reach a deal to avert the ´´fiscal cliff´´ was the main driver. Financial stocks led the gains with the STOXX 600 banking index up 0.5pct and the insurance index up 1.1pct. Germany´s IFO business sentiment survey rose for the second straight month supporting equities. The benchmark FTSEurofirst 300 index and UK FTSE both rose 0.4pct and the German Dax gained 0.2pct. Miners were weaker on Wednesday with Rio Tinto down 1.7pct in London trade and BHP Billiton lower by 0.2up pct.

US sharemarkets fell to sessions lows as stalled ´´fiscal cliff´´ negotiations gave investors reason to pause after the recent rally. Republican Speaker Boehner said that the House of Representatives will pass a bill to prevent tax increases on all income below $1 million. President Obama has already said he will veto the bill in the senate, effectively creating a stalemate. At the close of trade the Dow Jones was down by 99pts or 0.7pct with the S&P 500 lower by 0.8pct and the Nasdaq fell 10pts or 0.3pct.

US treasuries rose on Wednesday (yields lower) but gains moderated after US treasury auctioned $29 billion in 7yr notes. US 2yr yields fell by 1pt to 0.278pct while US 10yr yields fell 2pts to 1.805pct.

The Euro rallied to a 8½-month high against the US dollar, bolstered by better than expected German business confidence data. The Euro lifted from US$1.3230 to US$1.3310, and held around US$1.3245 at the close of US trade. The Aussie dollar lifted eased from highs near US105.30c to US104.80c and held near US104.85c in late US trade. And the Japanese yen eased from 84.20 yen per US dollar to JPY84.60 and was near JPY84.40 at the close of US trade.

World crude oil prices rose on Wednesday after a fall in US crude oil inventories. US crude stockpiles fell by 964,000 barrels in the past week. Distillates which include heating oil fell by 1.1 million barrels against expectations of a build. Brent crude rose by US$1.25 or 1.2pct to US$110.09 and Nymex crude rose by US$1.58 or 1.8pct to US$89.51 a barrel.

Base metal prices were mixed on the London Metals Exchange on Wednesday. Copper slipped by 1.2pct on uncertainty over the outlook for demand after the weaker US housing construction data. The gold price fell for the second consecutive session Wednesday on reduced safe-haven appeal. Comex gold futures closed down $3 to US$1,667.70 per ounce. And the spot iron ore price rose by $3.30 to US$135.50 a tonne.

Ahead: In Australia, the Reserve Bank bulletin and financial accounts figures are released. In the US, existing home sales, Philadelphia Fed index, and the leading indicator series are released.

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