Australian Stock Market Report – Afternoon 7/31/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket edged higher today for the fourth straight session, following strong gains in European markets overnight. The All Ordinaries Index (XAO) rose by 0.5 pct or 22.5 pts to 4289.4.

If there was an Olympic event for sharemarkets however, Australia wouldn't even make it on the podium. Since the start of January this year, local shares are up around 4.5 pct. The American markets have gained by around 7 pct, while German equities (shares) are 14 pct higher.

Today was the last trading session of July, and the XAO gained by 3.72 pct, making it its best month since January this year.

The energy and mining sectors were the best of the day today, with the S&P/ASX 200 Energy index up 1.45 pct. Australia's second largest oil and gas producer, Woodside Petroleum (WPL) rose 1.63 pct or 54 cents to $33.75 while the smaller Santos (STO) jumped 0.94 pct or 10 cents to $10.75.

Grocery wholesaler, Metcash (MTS) bought up the remainder of hardware company, Mitre 10 today for $46.5 million. MTS shares jumped by 1.79 pct or 6 cents to $3.41.

Power company, Origin Energy (ORG) announced a 10 pct fall in production and a slight drop in revenue over the previous quarter. Revenue over the past 12 months is still modestly higher and ORG shares gained 2.07 pct or 24 cents to $11.81. ORG is an energy company mainly focused on Australia and New Zealand. Many people might have only heard of ORG as an energy retailer; however it is also an explorer, producer and generator of energy.

Telstra (TLS) continues to improve and gained 0.5 pct or 2 cents to $4.00. TLS is up 20 pct this year and closed above $4.00 for the first time since December 2008. Hutchison, the part owner of Vodafone Australia last week said it lost 178,000 customers over the past six months. In stark contrast, TLS added around 950,000 mobile customers between July and December last year.

Education services provider, Navitas (NVT) announced a 5 pct fall in its full-year profit to $73.1 million. Its share price slumped by 6.5 pct. The company conducts language training, workforce education and pathway programs.

The world's biggest miner, BHP Billiton (BHP) rose 0.95 pct or 30 cents to $31.93 while the smaller Rio Tinto (RIO) jumped 1.72 pct or 90 cents to $53.20. The country's largest gold producer, Newcrest Mining (NCM) also rose by 0.99 pct or 23 cents to $23.50.

On the economic front, the latest report on building approvals was issued today and fell by a less than expected 2.5 pct. The market was expecting a close to 15 pct slump following the 27.3 pct rise in approvals in May.

CommSec Economist, Savanth Sebastian said that "Building approvals is a leading indicator for the housing sector and looking forward sustained back to back monthly gains will be required to claim a revival in home building. It is important to realise that the strength of the housing sector plays a vital role in supporting activity across an array of sectors. And at present it is clear that the housing sector has a fair way to go before providing a boost to economic momentum. Importantly the fundamentals for housing remain solid. Strong population growth, low unemployment, tight rental markets and a lower interest rate environment are likely to support the sector over the coming year. Looking forward the multiple rate cuts that have taken place should support the industry and the likelihood of further interest rate cuts should allow the housing sector to shake off the prolonged period of weakness."

A report today showed that Australian businesses and consumers picked up their borrowing by 0.3 pct in June, adding to a modest 0.5 pct rise in May.

Mr Sebastian said that "The private sector credit data tends to be a good forward looking indicator on activity. If borrowings pick up, spending should follow suit over the next few months. In that context the modest improvement in business borrowing is encouraging. Business credit has recorded healthy back to back gains rising by 0.5 per cent in June to be up 4.4 per cent over the year - the best annual growth rate in over three years."

In the region today, most markets did well with the South Korean market the best performer after gaining 2.07 pct or 38.2 pts to 1881. Japan's unemployment rate eased from 4.4 pct to 4.3 pct. The Reserve Bank of India also decided to keep interest rates on hold at 8 pct. Market expectations are for interest rates to fall by between 50 bps to 75 bps by year-end (0.5 pct to 0.75 pct).

In Europe tonight, we'll find out if the unemployment rate improves. The market is expecting a 0.1 pct rise in the jobless rate to 11.2 pct. This will be announced at 7pm (AEST).

In the U.S, the U.S central bank will kick off its two day interest rate meeting tonight. Investors will be looking for hints of further stimulus. The latest consumer confidence report, American home prices and personal income data will also be issued.

Volume of shares traded came in at 1.69 billion today, worth just $4.34 billion. 500 shares were up, 419 were weaker and 343 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is down 0.14 pct or 6 pts to 4221.

Due to daylight savings, most major European markets are now trading between 5pm (AEST) and 1.30am (AEST). Futures are currently pointing to a stronger start to trade.

U.S futures are pointing to a better start to trade tonight. Due to daylight savings taking place in the second week of March in North America and the end of daylight savings in Australia, U.S markets will now be trading between 11.30pm (AEST) and 6am (AEST).

Turning to currencies, the Australian dollar (AUD) has strengthened and has gained by US8 cents over the past two months against the greenback. The AUD buys US105 cents, is trading at £66.9 pence and €85.6 cents.

Australia is a commodity based economy, with commodities in general account 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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