Australian Stock Market Report – Afternoon 1/3/2013

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket continues to rise, with the All Ordinaries Index (XAO) up by 0.8 per cent or 38.5 pts to 4761.4. This adds to yesterday's 1.25 per cent improvement while the ASX 200 has cracked through the 4700 point level for the first time since July 2011. Since hitting a low in June last year, the local market has improved by almost 18 per cent. Markets in both China and Japan were closed today.

The U.S budget legislation which was passed by the House of Representatives yesterday has boosted confidence and brought riskier assets back in fashion (at least for now). The agreement between the Democrats and Republicans has effectively prevented the imminent and undesirable journey over the fiscal cliff; the simultaneous rise in taxes and cuts in government spending which could have resulted in a U.S recession. Many see this as simply a temporary solution, with the debt ceiling and spending cuts still needing to be dealt with. Regardless, the Australian sharemarket has continued to record strong gains, adding to last year's 13.46 per cent improvement.

Craig James, CommSec's Chief Economist said that "The crisis hasn't been without its casualties though - the principal one being confidence. Consumers and businesses around the world have been cautious about investing, spending and employing until the crisis was resolved. Hopefully, now confidence can recover and some sense of normalcy can return. Of course the issue hasn't been totally resolved. US government debt is again bumping up against the ceiling. Unless the ceiling is lifted by the end of February then in theory the US could default on its obligations. And Congress also has largely delayed decisions on spending cuts for two months. It is hoped that resolutions to these issues aren't delayed until the 11th hour - yet again."

Commodity prices went through the roof last night thanks to optimism surrounding the mini fiscal cliff agreement. Oil prices rose by 1.4 per cent, hitting a 4-month high. The local market's biggest company, BHP Billiton (BHP) rose by 0.82 per cent or 31 cents to $38.15 while the smaller Rio Tinto (RIO) gained 2.41 per cent or $1.63 to $69.25. Both are trading at around their best levels since February 2012. Gold miner, Newcrest Mining (NCM) has been one of the best performers after having a horrid 2012. NCM rose 3.13 per cent or 72 cents to $23.70, however slumped by 25 per cent last year.

Telstra (TLS) is trading at a 4.5 year high and rose by 0.9 per cent or 4 cents to $4.48 today.

The banks are going from strength to strength, with Commowealth Bank of Australia (CBA) currently trading at an all-time high and takes the gains for the last year to 27 per cent. CBA, which is the second biggest company on the local market rose 0.82 per cent or 31 cents to $38.15. National Australia Bank (NAB) gained 0.6 per cent or 15 cents to $25.25 while the Westpac (WBC) and ANZ Banking Group (ANZ) both rose by 0.35 per cent.

No major economic news was issued in Australia or the region today. Looking ahead, in Europe, the change in both the Spanish and German unemployment numbers will be issued between 7pm (AEDT) and 8pm (AEDT). In the U.K, the latest construction PMI figures will be delivered at 8.30pm (AEDT), with another contraction expected. It will be one of the busier sessions in the U.S tonight, with ADP non-farm employment numbers, weekly unemployment claims, FOMC (Federal Open Market Committee) Meeting Minutes and total vehicle sales all expected to be released. At its December meeting, the Fed provided additional stimulus and will buy up to US$45 billion worth of U.S treasuries aimed at pushing down longer term interest rates. The FOMC is a committee within the Federal Reserve and is charged with making key decisions relating to interest rates and the supply of money.

Volume of shares traded came in at 1.46 billion today, worth just $3.06 billion. 621 shares were up, 305 were weaker and 333 ended unchanged.

At 4.30pm (AEDT) on the Sydney Futures Exchange, the ASX24 futures contract is down 0.02 per cent or 1 pt to 4715.

Due to the end of daylight savings in Europe, most major European markets are now trading between 7pm (AEDT) and 3.30am (AEDT). Futures are currently pointing to a mostly stronger start to trade tonight in Europe.

U.S futures are pointing to a slight fall on the open tonight. Due to the start of daylight savings in Australia and its end in the U.S, American markets will now be trading between 1.30am (AEDT) and 8am (AEDT).

Turning to currencies, the Australian dollar (AUD) gained some ground against a basket of currencies throughout the day. One AUD buys US104.8 cents, is trading at £64.7 pence and €79.9 cents.

Australia is a commodity based economy, with commodities in general accounting for almost 80 pct of all our exports over the past nine months. In essence, when the going gets tough globally, there is fear of less demand for our commodities, which tends to result in a weaker AUD.

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