Australian Stock Market Report – Afternoon 9/27/2012

MARKET CLOSE
(4.30pm AEST)

The Australian sharemarket ended a little higher for the first time in four days, with the All Ordinaries Index (XAO) edging higher by 0.5 pct or 20.3 pts to 4402.8. Despite today's improvement, markets have been treading water ahead of the Spanish Parliament's release of the 2013 budget (first draft). The borrowing costs for the Spanish government are currently sitting at 6 pct, which is around twice as high as funding costs for our government.

One of the big catalysts for the gains today was the Chinese Central Bank making the biggest weekly cash injection into its banking system on record. The People's Bank of China increased liquidity by around $44.2 billion. In general, stimulatory measures out of China tend to have a positive impact on the Australian sharemarket.

Almost all sectors finished the session higher today, with the miners the standouts. The S&P/ASX 200 Materials index rose by 1.07 pct or 104.2 pts to 9886.4, with Rio Tinto (RIO) up by 1.32 pct or 70 cents to $53.59. BHP Billiton (BHP) gained by 0.64 pct or 21 cents to $33.02, while Newcrest Mining (NCM) rose by 1.81 pct or 50 cents to $28.20.

The Australian sharemarket's largest sector, the financials ended close to 0.5 pct higher today. The big four banks rose by as much as 1.14 pct, with Westpac (WBC) the best performer amongst the majors. Commonwealth Bank of Australia (CBA) gained by 0.83 pct, ANZ Banking Group (ANZ) rose by 0.69 pct and NAB finished flat.

Australia's largest supermarket chain, Woolworths (WOW) fell by 0.92 pct or 27 cents to $29.01 despite selling its Dick Smith Electronics chain for $20 million to Anchorage Capital. There are 325 Dick Smith stores, which employ around 4500 people.

Anchorage said it has the intention to continue with the business and potentially add additional stores in the future. WOW shares are up by 15.5 pct since the start of this calendar year (since January 2012).

Today was the busiest day of the week for economic news, with the June quarter financial accounts issued, along with population data and a report on job vacancies. The financial accounts are out once each three months and offer a detailed break-up of financial wealth and asset ownership. These figures amongst other things show which assets Australians are choosing to hold in addition to the percentage of assets held by foreigners. The population report is also released once a quarter and is important because population is a key driver of economic activity. Generally speaking, when the population is growing, this gives the economy a boost. When people settle in a country, they tend to need a place to stay, furniture, appliances and clothes etc.

According to the financial accounts, foreigners are currently holding close to half of Australia's total listed shares (i.e 47.3 pct). This is the highest level of foreign ownership in 20 years. Foreign holdings of Australian government bonds currently stands at 78.2 pct. Households are still remaining conservative and hold around 23.7 pct of their funds in cash and deposits, which is close to a 22-year high. The net wealth of Australians has fallen by 2.1 pct over the past year; however is still up a staggering 87 pct over the decade.

CommSec's Chief Economist, Craig James said that ´´Australians are continuing their love affair with defensive assets such as cash and bank deposits. And it's not just Aussie consumers, but companies and even superannuation funds. Pension or superannuation funds have more than 15 per cent of funds in cash and deposits - the highest proportion on record."

Australia's population currently stands at 22,596,482 and has increased by 111,142 over the March quarter (January to March). Our population is currently growing at 1.49 pct, which is the fastest rate of growth in around two years.

There were close to 200,000 people who called Australia home (migrated to Australia) over the first three months of this year. Mr James said that "The latest population figures are encouraging. Population growth is again rising, underpinned by migration. And if more people are coming to Australia that means greater demand for houses, cars and retail items. Clearly faster population growth is good news for builders and retailers. Some people aren't convinced that faster population growth is a good thing. It is all about striking the right balance. If we need more workers and we can't get them locally, it makes sense that we bring them in from abroad. It is vital that supply and demand for workers is brought into balance."

The number of job vacancies in Australia between June and August this year rose by 4.2 pct, making up for the 5.4 pct slide between March and May.

In the region today, no major data was issued however the People's Bank of China (the Chinese equivalent of Australia's Reserve Bank) pumped a record amount of money into its banking system. This helped the Chinese sharemarket rise by 2.6 pct, shares in Hong Kong jumped by 1.06 pct, the South Korean and Japanese markets also edged higher by around 0.5 pct.

In Europe tonight, the latest economic growth (GDP) report will be issued in the U.K, a 10-year bond auction will be held in Italy and the latest change in Germany's unemployment will be issued at 5.55pm (AEST) in the Eurozone's largest economy.

In the U.S, one of the highlights will be the September quarter's economic growth report. Quarterly growth of around 1.7 pct is expected out of North America. The number of pending home sales for August will also be announced tonight and a small decline of around 0.7 pct is expected by the market. This measures the change in the number of homes under contract to be sold but still awaiting settlement. The weekly report on the number of Americans filing to receive unemployment benefits for the first time last week will be out at 10.30pm (AEST).

Volume of shares traded came in at 1.72 billion today, worth $4.33 billion. 447 shares were up, 446 were weaker and 359 ended unchanged.

At 4.30pm (AEST) on the Sydney Futures Exchange, the ASX24 futures contract is down by 0.23 pct or 10 pts to 4376.

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

U.S futures are also 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 improved by around US0.5 cents against the greenback following the significant cash injection by the People's Bank of China today. The AUD now buys US104 cents, is trading at £64.2 pence and €80.75 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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