Australia Market Report of August 14: Jobs Market and International Trade Pessimistic

The Australian share market closed lower on Wednesday, largely attributable to volatility returning to the US financial sector and weaker resource stocks.

The benchmark S&P/ASX200 index dropped 102 points to 4951.6, while the broader All Ordinaries fell 94.4 points to 4995.9.

At 6.17am the Sydney Futures Exchange's September share price index futures contract was just four points down at 4910.

Crude oil futures rose more than $2 a barrel after a US Energy Department report showed a bigger-than-forecast decline in inventories of gasoline as refiners shut units and imports fell. On the New York Mercantile Exchange, September crude settled up $2.86, or 2.53 percent, at $115.96 a barrel.

Today the Australian dollar has opened firmer for the first time in more than two weeks, with an improvement in key commodity prices ending an eleven-day losing streak. At 0700 AEST, the Australian dollar was trading at $US0.8742/47, up from yesterday's close of 0.8698/01.

Key Economic Facts and Figures

Data by Reserve Bank of Australia yesterday showed the wage price index grew by 4.2 per cent over the year to June, with the private sector component rising by 4.3 per cent. The wage inflation has touched its highest level in 11 years. The RBA will hope that pressure is eased by a worsening jobs market.

The RBA's concerns about the global outlook worsened yesterday with Japan -- the world's second biggest economy -- moving to the brink of a recession. Economists warn this could have a negative impact on the economy as Japan is one of Australia's biggest trading partners.

After the Commonwealth Bank (ASX:CBA) posted a near A$4.8 billion profit yesterday, Commonwealth Bank boss Ralph Norris yesterday gave the clearest indication yet that the bank would not pass on any rate cut by the RBA, despite posting the huge profit. The RBA and Treasury are today set to demand major lenders join the move to cut interest rates.

The Australian Bureau of Statistics releases average weekly earnings data for the May quarter, and Westpac and the Melbourne Institute release their index of consumer inflation expectations.

M&A News

Commonwealth Bank abandoned its planned acquisition of ABN AMRO's business in Australia after a provision by National Australia Bank (ASX:NAB). NAB announced on July 25 an additional provision of A$830 million against a portfolio of collateralised debt obligations, or securities backed by risky US housing loans.

Orica (ASX:ORI) will acquire its partner's 48.6 per cent interest in the Samex joint venture in Peru for $US58.2 million. The company now has 99 per cent of the venture and the A$66.5 million purchase is expected to be complete by the end of October.

BG Group (LSE:BG) may have to raise its US$12 billion hostile bid for Origin Energy (ASX:ORG) by 10 percent as Origin attempts to push up the value of its coal-seam gas assets, which have become highly attractive as energy prices soar. Origin's stock has consistently traded above BG's offer price of 15.50 Australian dollars a share, and peaked at 16.42 dollars in June, implying that investors are holding out for a higher offer.

Important Corporate News

Upmarket retailer David Jones Ltd (ASX:DJS) has upgraded its full year profit guidance after increasing its annual sales by 5.8 per cent. It now expects a net profit between A$135 million and A$137 million for fiscal 2008, reflecting growth of 23 per cent to 25 per cent on the previous year. David Jones had previously forecast a profit between A$130.5 million and A$132.5 million.

Tutt Bryant Group Ltd (ASX:TBG) says first quarter net profit rose 17 per cent, in line with expectations and says it expects to achieve a strong full year result. The company's net profit for the three months ended June rose to A$6 million, on earnings before interest and tax (EBIT) off A$9.8 million and revenue of A$87 million.

Printing firm PMP Ltd (ASX:PMP) expects pressure on its volumes in the current year after booking a 70.2 per cent improvement in its net profit for 2007/08. Its net profit grew from A$46.4 million in the 2006/07 year to A$78.9 million in the 2007/08 year. Along with its results, PMP has announced plans to buy back up to five per cent of its issued shares.


Copyright (C) 2008 ABN Newswire. All rights reserved.

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