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. With AGENCIES

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Frequently Asked Questions about this Article…

Why did the Australian sharemarket stabilise near the 4,300-point level?

The market stabilised after the S&P/ASX 200 rose 8.9 points to 4,292.2 as positive company earnings and improved business sentiment offset earlier weakness. A National Australia Bank survey showed a surge in business confidence and stronger-than-expected German economic activity also helped lift sentiment.

What drove the S&P/ASX 200 higher during the session?

Analysts said individual stocks, not whole sectors, were driving the rise as the profit reporting season continued. Investors were reacting to positive company earnings and fund managers began rotating out of defensive yield plays, boosting select shares.

How did the NAB monthly business survey affect markets and investor sentiment?

NAB’s survey showed business confidence jumped to 4 in July from minus 3 in June — its biggest rise in 10 months — which improved sentiment. NAB’s chief economist noted recent European talks and the passing of the carbon tax hurdle likely helped global demand outlook and market confidence.

What happened to Telstra and CSL shares and why is that relevant to investors?

Both Telstra and CSL had been sold off about 8% in recent weeks but saw a reasonable bounce of roughly 2% during the session. That kind of stock-specific rebound illustrates how reporting season and shifting fund flows can create buying opportunities or renewed interest for retail investors.

What did National Australia Bank (NAB) report and how did its share price react?

NAB reported a $1.2 billion profit for the three months to June, yet its shares fell to $24.70 during the trading session. The move shows that even positive headline profits don’t always produce an immediate share-price lift when other factors are at play.

Did international economic news influence the Australian market that day?

Yes. Late-day data showed German GDP grew 0.3% in the quarter versus the 0.2% economists had expected, and that slightly stronger European activity helped domestic market sentiment. NAB’s economist also pointed to recent talks in Europe as providing relief to financial markets.

What role did oil prices and overseas market leads play in the day’s trading?

Early trade lost ground due to negative leads from Wall Street (down 0.13%) and London (down 0.26%), and crude oil dipped to about US$92.76 a barrel. Those factors weighed on the market initially, but company earnings and improving confidence helped reverse the early losses.

What should everyday investors watch during the profit reporting season referenced in the article?

Keep an eye on company-specific earnings announcements, as individual stocks — rather than whole sectors — were driving the market. Also monitor surveys and macro updates (like NAB’s business survey and international data) and be aware of fund-manager rotation away from defensive yield plays, which can create volatility and stock-specific opportunities.