Australian Stock Market Report – Afternoon 5/15/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket received a negative lead from global markets last night, with the All Ordinaries Index (XAO) ending 0.8 pct or 35.6 pts lower to 4316.3. This was no major surprise as European shares hit a four-month low and dropped by around 2 pct last night. The situation in Greece continued to weigh heavily on investor confidence while Moody's (one of the major ratings agencies) downgraded 26 Italian banks last night by between one and four notches. This included Unicredit and Intesa Sanpaolo, which combined make up around a third of Italy's banking sector.

Riskier assets were out of favour today, with commodity prices falling heavily in overnight trade. The world's biggest miner, BHP Billiton (BHP) slumped by 1.74 pct or 60 cents to $33.86 and is trading around a one month low. Earlier in the session, BHP hit a low of $33.46, which was around its worst level since mid-2009. The country's third largest iron ore miner, Fortescue Metals Group (FMG) fell 4.49 pct or 24 cents to $5.10, however was down by as much as 6.5 pct at its low point.

The four major banks were between 0.3 pct and 0.77 pct weaker by market close.

The defensive healthcare and telco sectors managed to improve today, with Telstra (TLS) ending 1.92 pct or 7 cents higher to $3.71.

Coca-Cola Amatil (CCL) held its Annual General Meeting (AGM) today in Sydney and rose 1.1 pct or 14 cents to $12.87. The beverage supplier expects higher profit for this calendar year (around 4pct to 5pct growth). It has confirmed it will proceed with the acquisition of the Fiji Brewing Business for $62 million. The company distributes brands such as Coca-Cola, Fanta, Sprite, Powerade, Pump, Mount Franklin, and Deep Spring and distributes a number of premium beers and some spirits.

Tomorrow, Westfield Holdings (WDC) and manufacturing group, CSR Holdings (CSR) will be holding their AGMs with shareholders.

On the economic front today, the Reserve Bank of Australia (RBA) released the minutes from its May interest rate meeting and the Australian Bureau of Statistics (ABS) released the latest report on the number of new cars sold in April.

The RBA minutes provided little in the way of additional hints into expectations for rates in the future. With inflation under control and expected to remain within the 2 pct to 3 pct target range, interest rates are likely to be cut by 0.25 pct in August this year. This would take rates to 3.5 pct, its lowest level since November 2009.

Commsec Economist, Savanth Sebastian said that "Interestingly the Reserve Bank spent time discussing the weakness in housing activity. The Reserve Bank is well aware of the importance of home construction in driving domestic growth. And the lack of new building and ongoing decline in house prices is a clear dampener on overall activity. In addition while the Reserve Bank believed that the fundamentals for housing remains strong, the Minutes highlighted that there was "little prospect of an imminent recovery in housing construction". In effect providing the Reserve Bank with further validation to provide a deeper rate cut."

The Australian Bureau of Statistics (ABS) released its monthly report on car sales today. Motor vehicle sales fell by 0.7 pct in April, which was significantly worse than expected.

Mr Sebastian said that "The latest set of car sales data is not overly concerning. In March, car sales recorded the best monthly increase in eight months and managed to largely hold those gains in April. In fact sales are now up 7 per cent on a year ago. Clearly the improvement in car affordability is the clear driver. Car affordability is at the best levels since the 1970s, and coupled with the recent rate cuts it seems to have prompted consumers to update their rides. Interestingly the strength in vehicle sales is due to strong growth in sales of sports utility vehicles or 4WDs. In fact sales of 4WDs rose by almost 30 per cent in April compared with a year ago. It is clear that Australians have a love affair with 4WD vehicles with one in every three passenger vehicles sold in Australia a sports utility vehicle."

Tomorrow will be the busiest day of the week for economic news in Australia, with the latest consumer sentiment/confidence report out for May, in addition to lending numbers for March and a detailed quarterly report on wages. Wages are tipped to lift by 0.9 pct over the March quarter (January to March 2012).

The majority of markets were a little weaker in Asia today, with shares in Japan, South Korea, China and the Philippines all losing ground. Shares in Hong Kong and Taiwan managed to improve modestly. The latest household confidence index was issued in Japan (which measures confidence levels of Japanese consumers) and fell more than expected.

In Europe tonight, the latest growth (GDP) figures will be issued and will highlight which European markets are in recession. Italy has already had two consecutive quarters of contraction (a technical contraction), Germany contracted in the December quarter while France surprisingly expanded slightly.

The Greeks are running out of time to form an emergency government (with two days remaining). Greece needs to repay €436 million in debt tonight and are yet to decide if they will make the repayment or not. If Greece fails to make the payment, it is likely to be granted either a seven or 30 day grace period. There seems to be uncertainty surrounding the correct grace period due to a missing paragraph in a key legal document which covers defaults and extensions.

The French President, Francois Hollande will become the first Socialist leader of France in 17 years and will be sworn in tonight.

The European Finance Ministers are meeting tonight in Brussels. The Council is expected to agree on some amended capital requirement rules for European banks and investment firms. They will also be discussing the potential entry of some additional countries into the European Union, including Macedonia, Montenegro, Iceland, Serbia and Turkey.

In the U.S tonight, the latest consumer inflation reading will be issued for April (not expected to be a concern for markets) in addition to the latest retail sales report for last month. A slight improvement is forecast by the market in sales at the retail level.

Volume of shares traded came in at 2.12 billion today, worth $5.22 billion. 237 shares were up, 832 were weaker and 365 ended unchanged.

At 4.30pm AEST on the Sydney Futures Exchange, the ASX24 futures contract is up 0.14 pct or 6 pts to 4279.

Due to daylight savings, most major European markets are now trading between 5pm (AEST) and 1.30am (AEST). Stocks are expected to open in the black tonight.

Dow Futures are higher, indicating that U.S stocks could open stronger 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) was trading below parity for most of the day, only to return to parity late in the session and now sits at US99.99 cents. The dollar is still trading close to its lowest level since the middle of December last year. The AUD is currently trading at £62.2 pence and €77.82 cents. Many travellers are a little unhappy about the weaker currency; however the weakening of our currency must be put into perspective. You are only around $40 worse off on AU$1000 in spending money now, compared to a month ago.

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