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Friday, January 04, 2013

4th January 2013

Sharemarkets

 

Global equity markets continued to rally in the first few weeks of December with sentiment boosted by solid Chinese and US economic data and the eventual confirmation of additional stimulatory measures by the US Federal Reserve.

 

European shares lifted to 18-month highs in early December, although the ongoing US budget discussions did temper gains towards the later part of the month.

 

On December 12 the US Federal Reserve extended previous stimulus measures, while vowing to keep interest rates near zero until the unemployment rate falls to 6.5 per cent, as long as inflation is projected to be no more than 2.5 per cent one or two years ahead with inflation expectations contained. The extension of purchases of “additional agency mortgage-backed securities at a pace of $40 billion per month” supported the bid for growth assets like equities and helped to offset the ongoing US budgetary concerns.

 

The Dow Jones gained over 300 points or 2.5 per cent from the start of December until December 18. Similarly the UK FTSE gained just over 1.5 per cent over the same period while the S&P ASX 200 rose almost 2 per cent.

The US economic data continued to be positive. US non-farm payrolls (employment) rose by 146,000 in November, well above expectations for a gain of 93,000. The unemployment rate fell from 7.9 per cent to 7.7 per cent. US existing home sales climbed by 5.9 per cent to the fastest pace in three years and suggested that the recovery in housing was advancing at a healthy pace.

 

In addition the Chinese economic data suggested that the China slowdown had bottomed out. Chinese production was up 10.1 per cent in the year to November with retail sales up 14.9 per cent (both ahead of forecasts). Investment rose 20.7 per cent in the first 11 months, just shy of 20.8 per cent forecasts. Chinese inflation also remained subdued.

 

For the month, the ASX 200 rose by 3.2 per cent, confirming the “Santa Claus” effect. The US Dow Jones rose by 0.6 per cent, in Europe the German Dax lifted 2.8 per cent and the London FTSE rose by 0.5 per cent. And in Asia the Japanese Nikkei rose by 10.0 per cent.

 

For the year, the ASX 200 index rose by 14.6 per cent and finished 34th of 73 global equity markets. The US Dow Jones lifted 7.3 per cent but the broader S&P 500 index gained 13.4 per cent with the Nasdaq up 15.9 per cent. In Europe the German Dax lifted 29.1 per cent and the London FTSE rose 5.8 per cent. And in Asia the Japanese Nikkei rose 22.9 per cent.

 

 

Australian Market

 

Onward & upward Australia

National accounts

  • Another quarter of growth: The record-breaking economic expansion has notched up another quarter of growth. The Australian economy grew by 0.5 per cent in the September quarter to stand 3.1 per cent higher than a year ago.
  • Contribution to growth: The biggest contributions to growth came from business equipment spending (+0.4 percentage points), followed by inventories (+0.3pp), household consumption (+0.2pp), and net exports (+0.2pp). The biggest drag on growth was by public investment (-0.4pp), the statistical discrepancy (-0.2pp) and government consumption (-0.1pp).
  • States & territories: The best description of the performance of States and Territory economies is state final demand plus net exports. The Northern Territory had the fastest annual growth in the September quarter (up a staggering 60.2 per cent), followed by Western Australia (up 10.3 per cent), ACT (up 5.6 per cent), NSW (up 3.8 per cent), Victoria (up 2.5 per cent), South Australia (up 1.5 per cent), Queensland (up 1.1 per cent) and Tasmania (down 5.3 per cent).
  • Industry sectors: Just seven of the 19 industry sectors contracted in the September quarter. Mining contributed 0.4 percentage points to economic growth with Manufacturing and Health care & social assistance both contributing 0.1pp. Biggest drags were by Agriculture, Transport and Professional services (each taking around 0.1pp from growth).
  • Productivity: Gross value added per hours worked in the market sector rose by 0.4 per cent in the September quarter. Annual productivity growth is a respectable 2.5 per cent.
  • Household spending: Eight of the 17 sectors recorded weaker spending in the quarter. Household spending rose 0.3 per cent in the September quarter.
  • Other measures: The Household saving ratio eased from 10.9 per cent to 10.6 per cent; a measure of inflation – the household spending implicit price deflator - rose by 2.3 per cent over the year; real unit labour costs fell by 0.6 per cent in the quarter.

 

Investors switch to property; Record car loans

Consumer confidence; Lending Finance; Resources forecasts

  • Consumer sentiment falls: The Westpac/Melbourne Institute index of consumer confidence fell from 19-month highs in December, down 4.3 points or 4.1 per cent to 100.0. The data is in line with yesterday’s weekly reading on consumer confidence by Roy Morgan.
  • Confidence was mixed across states: Consumer confidence rose sharply in Western Australia and South Australia, fell sharply in NSW and Victoria and was little changed in Queensland.
  • Property in vogue: The reading on whether it was a good time to buy a home lifted 11.5 per cent over the December quarter to a 3-year high of 142.2. And 24 per cent of people said real estate was the “wisest place for new savings”, up 4.1 per cent over the quarter and near the highest reading in seven years.
  • Lending lifts again. Total lending finance rose by 2.6 per cent in October after surging 5.8 per cent in October. Lending is still down 6.1 per cent on a year ago.
  • Record car loans: Loans to buy new or used cars hit a record $1.23 billion in October. And loans to buy blocks of land rose by 17.5 per cent over the past year – the strongest growth in three years.
  • Resources forecasts: Earnings from mining and energy products are tipped to fall 4 per cent this year from record highs after lifting 7.5 per cent the previous year.

 

Trade deficit widens as businesses ramp up imports

International Trade

  • Multiple trade deficits. Australia recorded a trade deficit of $2,088 million in October, following a downwardly revised $1,420 million (previously $1,456 million) deficit in September.
  • Businesses take advantage of the stronger Aussie: Imports of capital goods rose by 12.7 per cent in October - marking the strongest monthly growth in almost 5 years.
  • Imports outpace exports: Exports of goods rose by 0.4 per cent in October while imports of goods rose by 3 per cent.
  • The net services deficit narrowed by $8 million to $968 million in October.
  • Rural exports rose by 5.4 per cent in October while non-rural exports fell by 1 per cent.

 

Resilient Job Market

Labour force

  • Employment gains: Employment rose by 13,900 in November after a revised gain of 10,100 jobs in October (previously +10,700). Economists had expected a flat result.
  • Mixed job outcomes: In November, full-time jobs fell by 4,200 after rising by 17,600 in October. Part-time jobs rose by 18,100 after falling by 7,400 in October. Full-time jobs have only fallen once in the past five months.
  • Unemployment rate: The unemployment rate decreased from 5.4 per cent to 5.2 per cent in November. The participation rate fell from 65.2 per cent to 65.1 per cent – near six year lows.
  • More hours worked: The number of hours worked rose by 0.1 per cent in November after falling by 0.3 per cent in October and now stands 0.3 per cent higher than a year ago.
  • Unemployment across states and territories: NSW 5.1 per cent (5.2 per cent in October); Victoria 5.5 per cent (5.4 per cent); Queensland 6.0 per cent (6.1 per cent); South Australia 5.3 per cent (5.6 per cent); Western Australia 4.1 per cent (4.6 per cent); Tasmania 6.7 per cent (6.7 per cent); Northern Territory 3.8 per cent (3.9 per cent); ACT 4.1 per cent (4.0 per cent).

 

Chinese economy on recovery path

Chinese economic data

  • Monthly economic indicators. Retail sales in November were up 14.9 per cent on a year ago – the fastest rate in eight months (consensus 14.6 per cent); industrial production was up 10.1 per cent (consensus 9.8 per cent); and fixed asset investment over the first 11 months of 2012 was up by 20.7 per cent (consensus 20.8 per cent).
  • Inflation stabilises. China’s annual inflation rate lifted from a near 3-year low of 1.7 per cent in October to 2.0 per cent in November (forecast +2.1 per cent). Over the month inflation rose by 0.1 per cent. Food prices are 3.0 per cent higher than a year ago while non-food prices are up by 1.6 per cent.
  • Business deflation. Producer prices fell by 0.1pct in November after rising by 0.2 per cent in October. Producer prices are 2.2 per cent lower than a year ago (forecast, 2.0 per cent decline).
  • The data confirms that the Chinese economy is lifting from an engineered slowdown.

 

Source: CommSec Economic Insights

Market Snapshot

 

Major monthly movers in the S&P ASX 100

Top 5 Increases

Security

Description

Last Price

% Movement

AGO

Atlas Iron Limited

$1.86

39.37

FMG

Fortescue Metals Grp

$5.02

33.51

ARI

Arrium Ltd

$0.94

19.3

WHC

Whitehaven Coal

$3.56

17.5

RIO

Rio Tinto Ltd

$68.92

17.7

 

Top 5 Decreases

Security

Description

Last Price

% Movement

TWE

Treasury Wine Estate

$4.75

-6.86

NCM

Newcrest Mining

$23.64

-6.33

GMG

Goodman Group

$4.37

-4.8

DUE

Duet Group

$2.06

-3.95

PRU

Perseus Mining

$2.20

-3.07

 

 

Source: Iress Market Technology.

 

December Flashnotes

BHP Billiton Limited: BHP Billiton to Sell Interest in Browse JVs (BHP)

BHP Billiton advised that it has signed a definitive agreement with PetroChina International Investment (Australia) to sell its 8.33% interest in the East Browse JV and 20% interest in the West Browse JV, located offshore WA, for a cash consideration of US$1.63bn. The transaction is subject to regulatory approval and other customary conditions. Completion is expected in the first half of calendar year 2013. The Browse JV participants hold a right to offer to match the transaction with respect to the company's interests in the East and West Browse JVs and have a customary period to consider whether to make an offer to match.

 

Leighton Holdings Limited: Leighton Holdings Announces John Holland Awarded Two Major Contracts by Sydney Water (LEI)

Leighton Holdings reported John Holland has been awarded two contracts for water infrastructure services on behalf of Sydney Water. John Holland will provide the project management services associated with Sydney Water's Networks and Facilities Renewal Program, as part of a JV with Lend Lease. The Project Management Service Provider JV, will manage Sydney Water's projects through their lifecycle, from conception to commissioning and handover. John Holland was also awarded a third contract extension for the Priority Sewerage Program to deliver additional sewerage works to six communities in environmentally sensitive areas around Sydney.

 

Metcash Limited: Metcash Reports NPAT Down 13.1% to $82m for the Half Year to 31 October 2012 (MTS)

Metcash reported NPAT down 13.1% to $82.0m for the half-year ended 31 October 2012. Revenues from ordinary activities were $6.34bn, up 3.5% from the same period last year. EBITA lifted 1.2% from $203.7m for 1H12 to $206.2m for 1H13. Diluted EPS was 9.75 cents compared to 12.24 cents last year. Net operating cash flow was $144.7m compared to $252.4m last year. The interim dividend declared was 11.5 cents compared with 11.5 cents last year. The company reported that it has revised its full year underlying EPS guidance to -2% to -6%.

 

Rio Tinto Limited: Rio Tinto Agrees Sale of Shareholding in Palabora (RIO)

Rio Tinto advised that it has reached a binding agreement to sell its 57.7% effective interest in Palabora Mining Company for US$373m. The purchaser is a consortium comprising South African and Chinese entities led by the Industrial Development Corporation of South Africa and Hebei Iron & Steel Group, who are committed to the ongoing sustainable management of Palabora. The sale is subject to customary regulatory approvals in South Africa and China which are expected to take four to six months. The purchase price is subject to customary adjustments upon closing.

 

Woodside Petroleum Limited: Woodside Petroleum Enters Major Gas Discovery Offshore Israel (WPL)

Woodside Petroleum reported it has reached an agreement in principle to acquire a participating interest in one of the largest recent gas discoveries worldwide. The agreement involves an initial upfront payment of US$696m. The Leviathan JV participants, Noble Energy Mediterranean, Delek Drilling, Avner Oil and Ratio Oil, have reached agreement with Woodside on the key commercial terms under which Woodside will acquire a participating interest in each of the 349/Rachel and 350/Amit petroleum licences which contain the Leviathan field in Israel. Under the agreement the Company will acquire a 30% interest in the Leviathan field, which is estimated to contain about 17 trillion cubic feet of recoverable natural gas. The agreement will also allow Woodside to participate in further exploration opportunities in the Leviathan licences.

 

 

Source: Morningstar Research

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