Australian Stock Market Report – Afternoon 1/21/2013

Afternoon Market Report
17:00 AEDT

With no near term catalysts emerging from the northern hemisphere since weeks end, Consolidation was the main theme for local stocks as the new trading week got underway.

The ASX 200 continues to trade in a constructive fashion, remaining within easy reach of the highs made last week. The risk premia that were such a significant part of market pricing at the end of last year have continued to be unwound in the first month of the New Year. Since last November the ASX 200 has rallied by 10% having hit a 20 month high last Thursday, trading as high as 4787.

At the close on Monday, the ASX 200 rose 0.1% to 4777 points after having traded in a narrow range over the course of the session. The All Ordinaries index finished the day at 4802.2 up 7.5 points or 0.15%.

Healthcare, energy and consumer staples ended lower. The better improvers were the Industrial, consumer discretionary and financial sectors. On several occasions in recent weeks volumes have been surprisingly good despite the holiday period. Today's volume came in at $3.34 billion which is on the lighter side, although reasonable given the time of year.

News today tended to turn around company specific news rather than broader thematics.

Engineering firm Worley Parsons announced that it had been awarded a three-year contract to provide support services to the new Basrah Gas Company (BGC) in Iraq. The BGC group is a joint venture between Shell, Mitsubishi and the state-run gas Company. Worley was awarded its contract by Shell to provide project management support and services for the rehabilitation of gas facilities and infrastructure at BGC. BCG was set up to capture, treat and monetise associated gas being flared from three Iraqi oilfields, wasting more than $9.56 million a day .continued to be unwound in recent weeks. Worley shares closed at $24.23 up 23 cents or 0.96%.

Sims Metal said that a discrepancy in the inventory value of its recycling business in the UK had been materially overstated forcing a write-down of close to $60 million. Sims management said it had established a special committee of directors who will work closely with external auditor PricewaterhouseCoopers and lawyers Baker & McKenzie as it examines the matter. Sims shares closed at $9.48 down 50 cents or 5%.

Elsewhere, as a group financials finished higher in the face of mixed performances. The NAB was the best improver amongst the big four. NAB. The stock closed higher by 1.9% at $26.85 after press reports suggested Spanish bank, Banco Santander could bid for its U.K. business. The NAB shelved plans to sell 337 Clydesdale and Yorkshire bank branches last April because of a dearth of bidders. Recent valuations suggest that the U.K. business could be valued at around $3 billion.

Local economic news this week is light although the QIV CPI reading which will be released on Wednesday will be important in determining the outlook for interest rates in the first half of 2013. CommSec expects the fourth quarter headline CPI to rise by 0.4% in the quarter. Annual growth should stand at 2.4%, around the mid point of the RBA's 2 3% target range. The underlying inflation rate should print a little higher - at 0.7% in the quarter or 2.5%pa. Inflation readings near the middle of the target range won´t stand in the way of another cut in the cash rate. An outcome in line with our forecasts would confirm that inflation had passed the low point for this part of the cycle which would put a question mark over the scope for further rate cuts.

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