Positive reports reverse early losses

THE sharemarket closed slightly higher yesterday, stabilising near the 4300-point level after a report showed business confidence surged last month, and after German economic activity grew more than expected.

By InvestSMART · 15 Aug 2012

By InvestSMART ·
15 Aug 2012

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The market lost ground in early trade due to negative leads from Wall Street (down 0.13 per cent) and London (down 0.26 per cent), with crude oil dipping US11? to $US92.76 a barrel.

But the benchmark S&P/ASX 200 Index rose 8.9 points, or 0.2 per cent, to 4292.2 as the profit reporting season rolled on.

Analysts said individual stocks, rather than sectors, were driving the market higher as investors focused on positive company earnings, and as fund managers began to rotate out of defensive yield plays.

"One of the interesting developments is that some of the market darlings of the last couple of months, such as Telstra and CSL, which have been sold off about 8 per cent [in recent weeks] . . . you're actually seeing a reasonable bounce in those," said Ord Minnett analyst Craig Turton.

"They're both up about 2 per cent. So I guess now you'll start to see other investors, particularly Telstra retail investors, start to buy a little bit of those now."

The latest National Australia Bank monthly business survey, released yesterday, showed business confidence surging higher in July, after falling over the previous two months.

NAB's business confidence index rose to 4 in July, from minus 3 in June, its biggest jump in 10 months. But business conditions deteriorated, easing slightly to minus 3 last month from minus 1 in June.

"It appears recent talks in Europe have provided some relief to financial markets, which is resonating through to an improved outlook for global demand," said NAB chief economist Alan Oster. "Sentiment is also likely to have picked up given [the] carbon tax 'hurdle' has been passed."

Late in the day's trade, economic data from Europe showed German gross domestic product growing slightly better than expected, rising 0.3 per cent from the second quarter. Economists had predicted an increase of 0.2 per cent.

NAB fell 35? to $24.70, despite reporting a $1.2 billion profit in the three months to June.

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Frequently Asked Questions about this Article…

How did the Australian sharemarket close yesterday and what happened to the S&P/ASX 200?

The market closed slightly higher, stabilising near the 4,300-point level. The benchmark S&P/ASX 200 Index rose 8.9 points, or 0.2%, to 4,292.2 as the profit reporting season continued.

Why did the market lose ground in early trade before recovering?

Early losses were driven by negative leads from overseas — Wall Street was down about 0.13% and London about 0.26% — and a dip in crude oil prices, with oil trading around US$92.76 a barrel. Later positive company earnings helped reverse the early weakness.

Are individual stocks or sectors driving the market higher right now?

Analysts say individual stocks are driving the market rather than whole sectors. Investors are focusing on positive company earnings and fund managers are beginning to rotate out of defensive yield plays into specific stock opportunities.

What’s happening with big names like Telstra and CSL during this reporting season?

Both Telstra and CSL had been sold off by roughly 8% in recent weeks, but they showed a reasonable bounce and were trading about 2% higher as some investors started to buy back into those names.

What did the NAB monthly business survey reveal and why does it matter for investors?

The National Australia Bank monthly business survey showed business confidence jumped to 4 in July from minus 3 in June — its biggest rise in ten months. Although business conditions eased slightly to minus 3, the lift in confidence suggests sentiment may be improving, which can support markets as reporting season unfolds.

Did international economic data influence local markets?

Yes. Late trading was supported after German gross domestic product grew 0.3% in the second quarter — slightly above the 0.2% economists had expected — which provided some relief to financial markets and improved the outlook for global demand.

Why did NAB’s share price move despite the bank reporting a profit?

The article notes NAB reported a $1.2 billion profit in the three months to June, yet its shares fell and were trading at $24.70. This highlights that share prices can move differently from headline profits as markets react to many factors beyond a single earnings number.

What practical takeaways should everyday investors consider from this reporting season?

Focus on company-specific earnings and updates, because individual stocks are driving market moves. Watch for rotations out of defensive yield stocks, keep an eye on macro signals like business confidence and international GDP, and remember that short-term share price moves can diverge from reported profits.