MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket had a dramatic trading Tuesday as stocks staged an amazing comeback with the ASX 200 index (XJO) up 1.2 pct or 48.7 pts to 4034.8 while the broader All Ordinaries index (XAO) rose 1 pct or 40 pts to 4096.7.

What makes today impressive is that U.S markets fell between 5.5 pct and 7 pct overnight, while the XAO was down by as much as 5.6 pct at around 11am (AEST) this morning. In fact, today was one of the biggest recoveries the Australian market has ever seen within one session. Shares locally improved by a touch over 7 pct from today's low point.

It seemed that bargain hunters took advantage of the weakness in domestic markets from lunch onwards. The Australian sharemarket had fallen for five straight sessions and dropped 9.2 pct over that period. Volatility remained present for the duration of the afternoon, with equities flirting with both negative and positive territory up until the close of business.

The S&P/ASX 200 Financials index ended 2.24 pct or 81.5 pts higher to 3720.2. Commonwealth Bank of Australia (CBA) was the best performer and ended 3.64 pct or $1.66 higher to $47.28 ahead of its profit result tomorrow. National Australia Bank (NAB) jumped 2.87 pct or 60 cents to $21.50, ANZ Banking Group (ANZ) improved by 2.76 pct or 51 cents to $19.01 and Westpac (WBC) gained 2.23 pct or 42 cents to $19.26.

The S&P/ASX 200 Materials index jumped 1.1 pct or 128.4 pts to 11823.1. The world's largest miner, BHP Billiton (BHP) ended 1.23 pct or 45 cents higher to $37.05 after being down by 6 pct at one point today. The country's second largest resource company, RIO Tinto (RIO) rose 1.62 pct or $1.11 to $69.74.

The gold price has been hitting new all-time highs consistently over the past few days and is currently buying US$1734 an ounce. Funds have been flowing into the safe haven precious metal off the back of continued global uncertainty.

This helped the smaller gold producers end higher today, with the likes of Perseus Mining (PRU) up 6.27 pct or 19 cents to $3.22 and Kingrose Mining (KRM) jumping by 8.79 pct or 10.5 cents to $1.30. Australia's largest gold producer, Newcrest Mining (NCM) could not replicate the improvements posted by its smaller counterparts. NCM shares fell 0.26 pct or 10 cents to $38.72.

The S&P/ASX 200 Energy index rose 1.8 pct or 229.4 pts to 12956.3. The price of oil dropped by close to 6.5 pct overnight and is sitting at its lowest level since November last year. Woodside Petroleum (WPL) rose 2.96 pct or $1.00 to $34.81 while Santos (STO) gained 1.33 pct or 15 cents to $11.45. Should oil prices remain at these levels for an extended period, petrol prices at the pump would likely fall substantially.

On the reporting front today, National Australia Bank (NAB), Coca-Cola Amatil (CCL), Bradken (BKN) and Cochlear (COH) posted their profit results.

NAB was down by as much as 6 pct today, only to recover with the other majors towards the close. Earlier in the day, NAB said that its third quarter cash profit (April to June) came in at $1.4 billion.

The bank did indicate that operating conditions remain tough, in part due to subdued credit growth, Australia's multi-speed economy and weak consumer confidence levels across the country. The company's bad and doubtful debts (BDD) came in a little lower than estimates. Commonwealth Bank of Australia (CBA) will post its results tomorrow while Westpac (WBC) and ANZ Banking Group (ANZ) will announce their numbers next week.

Cochlear (COH), the manufacturer or inner ear implants posted its full year results today with its annual earnings jumping 16 pct to $180.1 million. The company also said that its outlook remains positive. COH shares fell 1.56 pct or $1.03 to $65.00.

Australia's Housing Finance data

On the economic front, the Australian Bureau of Statistics (ABS) released the latest housing finance data for the month of June. The report showed that the change in the number of owner-occupier housing loans was unchanged in June. Commsec Economist, Savanth Sebastian said that "The latest housing data is in line with other readings that have shown a lack of activity across the sector. And while it is understandable that the owner-occupied housing market has been weak - especially given the lack of first home buyer interest and massive construction boom last year - the area that has been most disappointing has been investor housing. In fact investor finance is only crawling off a two-year low and is still down over 12 per cent on a year."

The monthly National Australia Bank business survey released today showed that confidence improved in July however business conditions had worsened in the first month of the new financial year. The NAB business confidence index gained from just +0.2 in June to +2.0 in July. The business conditions index fell from +2.1 to -1.3 over the month.

Mr Sebastian said that "Investors would not have been surprised by another weak survey on the business sector. But what is more concerning is that the latest survey was conducted in late July before a fresh set of problems hit the global economy. Since the survey was conducted, the European debt crisis escalated, the US sovereign credit rating was downgraded, while a rout has taken place on equity markets. If the current uncertainty and fear continues over the next few weeks it is likely to lead to a sharper slide in business activity and conditions."

It seems that Australia was the exception to the rule in the region, because almost all markets in Asia dropped significantly. South Korea's KOSPI index fell 3.64 pct or 68.1 pts to 1801.35 and has now dropped 16 pct over the past week alone. Japan's Nikkei 225 fell 1.68 pct or 153.08 pts to 8944.48, Hong Kong's Hang Seng has fallen 3.75 pct or 768.67 pts to 19721.9 while China's Shanghai Composite is flat.

China released its latest inflation numbers, which came in broadly in line with market forecasts however has delayed its retail sales release and a report on output produced by manufacturers. Consumer inflation has risen by 6.5 pct over the past 12 months.

Commsec's Chief Economist, Craig James said that "Some media outlets suggested that another lift in the inflation rate in China meant that the central bank had more work to do in tightening monetary policy. Hopefully they weren't serious. Inflation crept higher in July due to higher food prices - clearly outside central bank influence. But non-food prices edged up only 0.1 per cent in July after a flat reading in July. Clearly, in terms of price measures where the People's Bank does have an influence, the tightening measures are working."

European debt has also come into the spotlight, with a particular focus on both Italy and Spain this week. Italy is Europe's fourth largest economy followed by Spain. Over the past few days, the European Central Bank (ECB) said it would intervene to limit the effects of debt issues for both nations. This in effect could be considered a method for the ECB to minimise the loss of confidence in the broader European economy.

What to Expect, Overnight Trading: EU, US

In European trade tonight, Germany will release its latest trade balance numbers while the French government budget balance will be out in the early evening. This measures the difference between how much the federal government has spent and earned so far this calendar year. The U.K will also be announcing its trade balance (difference in dollar value between imported and exported goods) for the month of June.

Last night, U.S markets fell by 5.6 pct (DOW) and the S&P 500 index dropped 6.7 pct. Last week, it was the debt ceiling which was in focus. Over the weekend, one of the big three ratings agencies, Standard & Poors (S&P) downgraded the U.S debt rating to AA+ from AAA. An S&P official has also said that it is unlikely that North America will regain its AAA rating anytime soon. Historically speaking, the quickest a country has regained its AAA rating was nine years.

Fannie Mae and Freddie Mac were downgraded by S&P overnight also. Both companies were created to expand the secondary mortgage market, with Fannie Mae the older of the two. Two of the world's largest financial institutions were hit hard overnight with the likes of Bank of America (BAC;us) and Citigroup (C;us) down between 15 pct and 20 pct.

In the U.S tonight, the focus will turn to the Federal Reserve which will announce its monthly interest rate decision and release its accompanying statement. The Fed has no room to move on rates however those involved in markets will be listening closely to what the Fed's Chairman, Ben Bernanke has to say tonight.

In a recent prepared speech, he said that "On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might re-emerge, implying a need for additional policy support. Even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further."

The volume of shares traded came in at 4.28 billion today, worth $10.7 billion. 458 shares were up, 841 finished weaker and 302 ended unchanged. The dollar value of shares traded today was about twice as high as the average value seen over the past four Tuesdays.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 1 pct or 40 pts to 4041.

Most major European markets trade between 5pm (AEST) and 1.30am (AEST). Futures in Europe are pointing to a stronger start to trade.
Dow Jones futures are slightly higher, indicating that U.S shares could start a little stronger when American markets open at 11.30pm (AEST).

Turning to currencies, the Australian dollar buys US101.5 cents, JPY78.51 and EUR71.41 cents. The Australian dollar fell below parity for the first time since March this year earlier in the session, however recovered in the last few hours of the business day.

One of the best performing stocks on the market today was OceanaGold Corp (OGC), which rose 9.95 pct or 19 cents to $2.10. OGC is a gold producer, with the majority of its assets located in the Philippines and New Zealand.

(From Steven Daghlian, Commsec Market Analyst)