Australian Stock Market Report – Midday 7/18/13

Mid Session Report
(12:30 AEST)

Local stocks were enjoying some modest gains at lunchtime on Thursday reflecting the response to the Bernanke testimony overnight. The fact that price moves in the aftermath have been modest, in the main, indicates that investors are getting comfortable with the US central bank and its perspectives on quantitative easing. The real test will come when the Fed finally reduces the size of its monthly asset purchases from the current levels of $85bln.

Most sectors measured by the ASX were higher although the Consumer Staples stocks were the noted under performers, led by Woolworths (WOW). Woolies shares fell after the group said it would book an operating loss at its home improvement business. The division will post a loss of $139 million in the year to June 30, 2013, compared with an earlier estimate of an $81 million loss. Elsewhere, Woolworths adjusted its overall annual earnings guidance to growth of between 5% and 6%, narrowing an earlier range of 4%-6%.

Energy stocks have been well supported. Oil prices have remained elevated in the last day, helped by a fall in US oil inventories in the last week. US crude oil inventories fell significantly from 23.6 to 22.9 days of supply last week, one day of supply higher than the six-year average. US crude oil inventories have plunged even as oil production has advanced, reflecting strong US oil demand. If US oil demand continues to grow, WTI oil prices will likely remain supported at current levels.

Woodside (WPL) recovered from initial weakness after the release of its production report. Production of 20mmboe for the 2nd quarter was down by almost 9%in the quarters due mainly to planned maintenance shutdowns at Pluto, The North West Shelf and an unplanned shutdown of Pluto due to issues with moisture in the gas stream. Revenue for the period was down almost 7% for the period due to lower production in addition to lower oil sales volumes.

According to the NAB survey, Business confidence fell to minus-1 in the June quarter after rising to plus-2 in the March quarter. Business conditions deteriorated to minus-4 after rising to minus-3 in the previous quarter. Business conditions weakened across all states in the period, with the exception of New South Wales. Weakness was particularly evident in the resource-rich state of Western Australia

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