Australian Stock Market Report – Afternoon 2/12/2013

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Afternoon Market Report (17:00 AEDT)

Day 2 of the year of the year of the snake. With most regional indices offline to celebrate the Lunar New Year activity was stilted for much of the day, although volumes improved over the course of the afternoon.

The overall note in the market remains positive although the 5000 mark for the index continues to cast a long shadow. The feature of afternoon trade came when news agencies reported that the US Geological Survey had detected seismic activity in the area where North Korea´s had previously tested nuclear devices. Consequently regional stock indices weakened and currencies dipped although within a short space of time each market had found its composure. This offers some insight into the character of markets in general at present. Several months ago an unfriendly headline had the capacity to change the atmosphere significantly for a length of time. This afternoon's price action pointed to the willingness of market participants to support prices in the event of weakness.

At the close of trade the ASX200 had eased by 0.01% to 4,959 points, at the same time the All Ordinaries was firmer by a similar margin gaining 0.02% to 4,981.5. The balancing act came in the form of Industrial and Consumer Staples on the plus side whilst Financials and Materials were in the red.

Leading the news flow for miners was Whitehaven Coal. After the market closed on Monday federal Environment Minister Tony Burke granted conditional approval for the Maules Creek and nearby Boggabri mine proposals in northwest NSW. Days earlier the Ministers office had delayed a decision on environmental approval until April 30, which saw the shares selloff sharply. The approval is contingent on strict conditions being met including the creation of wildlife corridors, limits on the clearance of native vegetation and a $2.5 million investment in rehabilitation research for threatened species. The Maules Creek asset is expected to produce 10.8 million tonnes of a coal a year (Mtpa) of thermal and coking coal. Whitehaven shares ended at $3.19 up 23 cents or 7.7%. Elsewhere amongst the sector BHP ended at $37.59 a loss of 12 cents or 0.32%, RIO closed at $69.03 weaker by 42 cents or 0.60%, Fortescue settled at $4.99 a deficit of 1cent or 0.20%.

Recent months have seen examples of heavily shorted stocks rallying aggressively in the face of thawing negativity. JB Hifi and Fortescue Metal have been recent examples of this behaviour. Engineering group, Bradken which supplies steel products and related maintenance and refurbishment services, has been a favourite with short sellers. Today Bradken surprised the market with a better than expected result and the claim that the worst was over for the resources sector. Bradken reported a net profit of $46.7 million in the six months to the end of December,up from $43 million in the same period in the previous year. Cost cutting and margin improvements in most areas were features of the result in a period when commodity prices were under significant pressure and the major theme amongst miners was the cancellation or hibernation of projects. Bradken shares settled at $6.77 a gain of 67 cents or almost 11%. Related stocks benefited from the atmosphere around Bradken. Monadelphous closed at $27.04,a gain of 93 cents or 3.5%, United Group ended at $11.07,up 1 cent or 0.09%. Elsewhere,Downer EDI closed at $4.84, up 19 cents or 4.09%, Worley Parsons, which reports on Wednesday, finished at $25.37, a loss of 8 cents or 0.31%.

Financial stocks under performed on the session. NAB closed at $28.93 down 16 cents or 0.55%,CBA settled at $65.52,a gain of 40 cents or 0.61%, Westpac ended at $27.75, a loss of 21.0 cents or 0.75%}, ANZ ended Tuesday at $27.56,weaker by 21 cents or 0.76%. Regional lenders were firmer.Bank of Queensland settled at $8.73 up 2 cents or 0.23%, Bendigo Bank finished at $9.66 up 7 cents or 0.73%.

The only data release on Tuesday was the January NAB business survey. Headline conditions and confidence measures showed a small improvement from last month. Although considerable weakness remains in the employment and price sub indices. Readings like this are one of the reasons that markets continue to expect rate cuts in the medium term. Business investment numbers (capex figures) which will be released late this month are still being viewed as a trigger for an RBA move. A weaker reading will indicate that the slowdown in the mining sector has created more room for rate cuts.

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