Australian Stock Market Report
Friday 3, February 2012

SummaryCloseMovement% Change
All Ordinaries4320.10-13.10-0.30
All Industrials4251.20-16.60-0.40
50 Leaders4251.90-18.70-0.40

Market Turnover
 		$A 4,226,394,351.00

Commentary

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MARKET CLOSE
(4.30pm AEDT)

The Australian sharemarket lost ground for the fourth time in five days today with the All Ordinaries index (XAO) easing by 0.3 pct or 13.1 pts to 4320.1. This was the first week of losses so far in 2012. On a positive note, Australian shares have gained by around 5 pct over the past five weeks.

We did not receive much of a lead from either the U.S or European markets overnight, hence the choppy session of trade today. Shares were down by as much as 0.35 pct at one point today and gained by as much 0.16 pct earlier in the session.

Almost all sectors ended the day lower with the S&P/ASX 200 Financials index falling 0.45 pct or 18.3 pts to 4009.6. ANZ Banking Group (ANZ) slumped by 1.17 pct or 25 cents to $21.11 and was the worst of the big four today. Westpac (WBC) lost 0.62 pct or 13 cents to $20.79, National Australia Bank (NAB) eased by 0.59 pct or 14 cents to $23.75, while Commonwealth Bank (CBA) fell 0.18 pct or 9 cents to $50.57.

Commodity prices fell overnight and our largest miners followed suite. The S&P/ASX 200 Materials index dropped 0.17 pct or 19.8 pts to 11629.6, with RIO Tinto (RIO) losing 0.31 pct or 22 cents to $70.50 while the larger BHP Billiton (BHP) ended only 0.05 pct or 2 cents lower to $37.60.

A Qantas Airways (QAN) plane carrying 74 passengers to Canberra was forced to make a priority landing today due to some engine trouble. The airline has also increased fuel surcharges on ticket prices to offset the higher cost of petrol. QAN shares rose 0.63 pct or 1 cent to $1.61.

On the economic front today, the Federal Chamber of Automotive Industries reported that 76,783 cars were sold last month which was a 4.3 pct improvement on a year ago. 4-wheel drives continue to remain extremely popular with Australians and have experienced a 29.9 pct increase in sales over the past 12 months.

Commsec Economist, Savanth Sebastian said that “The latest set of data is heartening and may be the clearest indication yet that last year’s rate cuts are starting to take effect. Car sales recorded the best January result in four years and in annual terms sales are up just shy of 5 per cent on a year ago. In addition the services sector recorded its first expansion in four months. With the key, forward looking, new orders index expanding at the fastest pace in 26 months. Granted the improvement is at the margin and comes after a considerable period of weakness but the data is the timeliest data we have had on activity in the New Year.”

Cars are currently at their most affordable levels in around 40 years. Mr Sebastian said that “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.”

A report on the state of the services industry called the Performance of Services gauge was released today and showed that the services sector has improved for the first time in four months. Mr Sebastian warned however that “The improvement in the services sector is just one month and further gains would be needed to claim a turnaround in the sector. Unfortunately there are an array of headwinds for the sector including the strength of the Australian dollar and the lack of consumer activity. However the pickup in new orders and likelihood of further rate cuts should support activity levels in coming months.”

In the Asian region today, there was no major economic data released. Singapore Airlines however announced a 53 pct fall in profit in the third quarter due to persistently high fuel prices. Net profit between October and December last year fell to US$100 million. Revenue rose by 1 pct while expenses rose by a much more considerable 12 pct.

Out of Europe last night, the latest reading on the British and European construction sector showed that the industry is still remaining weak.

Tonight, the latest European retail sales report will be released at 9pm (AEDT) for the month of December. The market is expecting a rise of 0.4 pct at the retail level.

The complex situation in Greece and the broader Eurozone will continue to remain in focus also. One of the issues the Germans and other larger European nations have with Greece is the fact that they struggle with revenue (tax) collection. At the moment, it seems that there are currently two major potential paths that the Europeans could follow. The first is that the more troubled nations within the Eurozone carry out huge reforms, effectively changing their cultures and the way their people live. This would make the lives of these struggling nations significantly tougher and different than in the past however would be the ideal scenario for the other European nations.

Another option is for a fiscal union to take shape. In a fiscal union, the collection of taxes and expenditure are carried out by a central organisation and shared by participating governments. With this option, the larger nations would have more power (as they would contribute a bigger portion of the income to be distributed). This would be an easier option for nations such as Greece. Having said this, you also have to remember that Greece, Spain, Portugal, Ireland and the weaker nations would potentially lose power to an extent. Another option for the Europeans would be a breakup of the Eurozone.

So far this week, the U.S markets have remained largely unchanged and have been waiting for the all-important monthly employment report which will be issued tonight at 12.30am (AEDT). The market is expecting an additional 150,000 to 185,000 jobs to have been created in the U.S and for the unemployment rate to remain at around 8.5 pct in January. Should the result surprise the market in any way, you would expect investors to react on sharemarkets in the U.S and Europe tonight. The report will be out around one hour prior to the open of the U.S markets.

Next week, the Reserve Bank of Australia (RBA) is expected to cut interest rates for the first time this year (first interest rate meeting of 2012).

The volume of shares traded came in at 1.89 billion today, worth $4.22 billion. 533 shares were up, 470 finished weaker and 374 ended unchanged.

At 4.30pm AEDT on the Sydney Futures Exchange, the ASX24 futures contract is up 0.12 pct or 5 pts to 4227.

Due to daylight savings, most major European markets are now trading between 7pm (AEDT) and 3.30am (AEDT). Futures in Europe are pointing to a slightly weaker start to trade tonight.

Dow Futures are currently lower; indicating that U.S stocks could open a touch weaker tonight. American markets open at 1.30am (AEDT). Due to the Americans going back an hour on November 5 last year, U.S markets will be trading between 1.30am (AEDT) and 8am (AEDT).

Turning to currencies, the Australian dollar (AUD) buys US106.9 cents and €81.36 cents. The AUD is currently trading at £67.6 pence.

I hope the weather treats you well this weekend.

Steven Daghlian
Commsec Market Analyst

MIDDAY REPORT
(12pm AEDT)

The Australian sharemarket is completely flat at lunch with the All Ordinaries index (XAO) sitting at 4333.2 pts. Most sectors are currently pulling back, however the mining sector (the market’s second largest sector behind the financials) is a touch higher while the energy sector and industrials are also slightly higher.

We did not receive much in the way of a lead from Wall Street last night with the Dow Jones Industrials index (a measure of 30 of the largest American companies) falling 0.1 pct while the S&P500 index (a measure of the 500 largest U.S companies) rose by 0.1 pct.

Fairfax Media (FXJ) is down 1.59 pct or 1.25 cents to 77.25 cents which is adding to the 3.7 pct pullback recorded yesterday. Keep in mind that FXJ shares rose by more than 10 pct on Wednesday following the acquisition of a large stake in the media giant by mining billionaire, Gina Rinehart.

Australia’s largest miner, BHP Billiton (BHP) is up 0.03 pct or 1 cent to $37.63 while the smaller RIO Tinto (RIO) is down 0.65 pct or 48 cents to $70.23.

The major banks were mostly stronger for much of the morning, however are now mostly weaker. Commonwealth Bank (CBA) is up 0.04 pct or 2 cents to $50.68 while the other three majors are all in the red. ANZ Banking Group (ANZ) is currently the worst performer, down 0.66 pct or 14 cents to $21.22, Westpac (WBC) is 0.24 pct or 5 cents lower to $20.87 and National Australia Bank (NAB) is easing by 0.13 pct or 3 cents to $23.86.

Construction company, Leighton Holdings (LEI) is up 1.19 pct or 28 cents to $23.82. LEI announced the appointment of Mr Dharma Chandran as its Chief Human Resource Office today. LEI’s Chief Executive, Mr Hamish Tyrwhitt said that “Dharma is a very experienced and capable human resources executive and his performance over the last 3 months led me to make him an offer to join the Leighton Group on a permanent basis which he has accepted. Dharma has been acting in the temporary role of Executive General Manager, Human Resources since 17 October 2011 reporting to Craig van der Laan, our Chief Risk Officer and Group General Counsel.”

Following the start of daylight savings at the start of October, major Asian markets will be trading between the hours mentioned below until April next year (note that over the next month, some of the times might be slightly off due to several countries in the region changing their clocks at differing periods).

The Hong Kong sharemarket trades in two sessions each day and will now open for trade between 1pm (AEDT) and 3.30pm (AEDT) while the second session is between 5.30pm (AEDT) and 7pm (AEDT).

Out of Japan, the first session will be between 11am (AEDT) and 1pm (AEDT) while the second session is between 2.30pm (AEDT) and 5pm (AEDT).

The Singapore exchange will be open for trade between 12pm (AEDT) and 3.30pm (AEDT) for the first session and then between 5pm (AEDT) and 8pm (AEDT) for the second.

Markets in the region are mostly lower, with Japan’s Nikkei 225 index down 0.23 pct or 20.39 pts to 8856.43 while South Korea’s KOSPI index is down 0.43 pct or 8.46 pts to 1975.84.

So far in trade at lunch, 855 million shares have been traded worth $1.57 billion. 449 shares are up, 373 are lower and 336 are currently unchanged. Activity remains extremely light at lunch.

The Australian dollar (AUD) is buying US106.8 cents, €81.4 cents and £67.6 pence.

The AUD is the world’s fifth most traded currency behind the U.S dollar, the Euro, Japanese Yen and British Pound. The AUD accounts for around 7 pct of all foreign exchange trades.

Have a great afternoon.

Steven Daghlian
Commsec Market Analyst

MORNING REPORT
(8am AEDT)

US Chain store sales rose by a healthy 4.8 in January compared with a year ago. US jobless claims fell by 12,000 to 367,000 last week. The number of people still receiving unemployment benefits fell by 130,000 to 3.4 million - the lowest since September 2008.

US non-farm productivity rose by 0.7pct over 2011 - marking the slowest rate since 2008. Unit labour costs rose at a 1.2pct rate in the fourth quarter against expectations of 0.8pct. The increase in wages pointed to moderate inflationary pressures.

European shares lifted to fresh six-month highs on Thursday in response to encouraging economic data in the US. Gains were capped as the FTSEEurofirst index failed to break a major resistance level on the back of no resolution to the Greek private debt swap. French and Spanish bond auctions were met with healthy demand. Spain sold €4.56 billion of 2015, 2016 and 2017 bonds. Yields were significantly lower than in late 2011. The FTSEurofirst index rose by 0.2pct, with the UK FTSE up 1pct and the German Dax lifted by 0.6pct.

US sharemarkets mixed on Thursday as investors awaited the employment data released tonight. Technology shares outperformed the broader market after Qualcomm (up 2.2pct) reported higher than expected profits and its shares hit a 12-year high. At the close of trade, the Dow Jones was lower by 10pts or 0.1pct. The S&P 500 was up 0.1pct while the Nasdaq rose by 11pts or 0.4pct.

US long dated treasuries erased most of the earlier losses on Thursday (yields lower) as investors focused on the highly anticipated jobs reports that is expected to show employers added 150,000 jobs in January. US 2yr yields were flat at 0.226pct and US 10yr yields fell by 1pt to 1.823pct.

The Euro surrendered early gains against the US dollar given the lack of a resolution on the Greek sovereign debt crisis. The Euro fell from highs near US$1.3190 to US$1.3100, and was near US$1.3145 in late US trade. The Aussie dollar rose from lows around US106.90c to US107.40c, and was near US107.05c in late US trade. And the Japanese yen traded in a tight range between 75.95 yen per US dollar to JPY76.20 and was near JPY76.15 in late US trade.

US crude oil prices fell on Thursday as the previous day´s data showing a build in oil inventories continued to drive prices lower. Nymex oil fell by US$1.25 or 1.3pct to US$96.36 a barrel but London Brent crude rose by US51c to US$112.07 a barrel.

Base metal prices were generally weaker on the London Metals Exchange on Thursday in response to continued sluggish demand from top buyer China. Metals fell 0.5-3.3pct with the exception of Tin which was flat. And the gold price rose modestly with Comex April gold up US$9.80 or 0.6pct to US$1,759.30 an ounce.

Ahead: In Australia, the Performance of Services index is released. In the US, non-farm payrolls and factory orders are released.

Craig James
Commsec Chief Economist

This commentary is a general account of the day's trading and is not intended to be taken as a recommendation to buy, hold or sell any particular stock.