Slight rise defies dismal economic view

THE sharemarket has started September with a small rise despite disappointing economic numbers.

By InvestSMART · 4 Sep 2012

By InvestSMART ·
4 Sep 2012

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THE sharemarket has started September with a small rise despite disappointing economic numbers.

The benchmark S&P/ASX 200 Index rose 7.6 points, or 0.2 per cent, to 4323.7.

Poor data from China, a surprise drop in Australian retail sales and ex-dividend trading in large stocks, such as BHP, were all an early drag on the market.

"We did have competing forces - we had quite a strong lead from the US market from Friday night but offsetting that was the negative PMI from China and the pretty disappointing retail sales result locally," said CMC Markets senior trader Tim Waterer.

China's official purchasing managers index (PMI) fell to a nine-month low of 49.2 index points in August, from 50.1 the previous month, a drop that was mirrored by a separate PMI index by HSBC.

Australian Bureau of Statistics data showed retail spending fell 0.8 per cent in July, coming in below expectations of a 0.2 per cent rise.

Mr Waterer said a glass half-full approach from traders helped push the market back up into gains.

"[Traders are] thinking 'yes while the economic numbers were weak, it may prompt some central bank activity, both here and potentially in China'," he said.

The Reserve Bank board meets today to decide on the cash rate, but economists almost unanimously predict the rate will stay on hold for a third straight month.

But the weak local data has raised expectations of a rate cut later this year, which contributed to the dollar plumbing a six-week low of US102.4?.

Mr Waterer said the market was also heavily influenced by miners which, despite BHP trading ex-dividend, regained much of their earlier losses. BHP finished down 38?, or 1.2 per cent, at $31.41, while Rio Tinto added 61?, or 1.2 per cent, to $49.85, and Fortescue rose 2?, or 0.6 per cent, to $3.56.

There was little activity among the banks. ANZ added 2?, or 0.1 per cent, to $24.84, Westpac gained 8?, or 0.3 per cent, to $24.85, NAB rose 9?, or 0.4 per cent, to $25.30 and CBA led the gains, up 25?, or 0.45 per cent, at $54.99.

"Once we found our feet after being down, it was quite a muted trading session in the afternoon. Some of which is down to the fact that the US is on holiday this evening," Mr Waterer said.

Consumer discretionary stocks took a blow after the weak retail data, which showed that department store sales slumped 10.2 per cent last month.

Myer fell 7.5?, or 3.8 per cent, to $1.92, David Jones slipped 3?, or 1.2 per cent, to $2.39 and JB Hi-Fi lost 17?, or 1.9 per cent, to $8.96.

Mr Waterer said several events could prompt fireworks on the market later in the week. Highlights are Thursday night's meeting of the European Central Bank on interest rates, and employment data from the US on Friday.

with agencies

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Frequently Asked Questions about this Article…

Why did the ASX 200 rise slightly even though economic data was disappointing?

The S&P/ASX 200 rose a small 7.6 points (about 0.2%) as traders balanced weak local and Chinese data with positive leads from overseas. CMC Markets’ Tim Waterer said a 'glass half‑full' attitude and hopes that poor data could prompt central bank action helped push the market into modest gains.

How did China’s PMI reading affect Australian sharemarket sentiment?

China’s official PMI fell to a nine‑month low of 49.2 in August (down from 50.1), signalling weaker manufacturing activity. That negative PMI weighed on early trading in Australia because China is a major demand source for Australian miners and exporters, creating headwinds for the market.

What did Australia’s retail sales report show and why does it matter for investors?

The Australian Bureau of Statistics showed retail spending fell 0.8% in July, well below expectations for a 0.2% rise. Weak retail sales hit consumer discretionary stocks and raised expectations that the Reserve Bank might ease policy later in the year, which can influence interest‑rate sensitive sectors and the broader market.

How did major miners like BHP, Rio Tinto and Fortescue trade on the day?

Miners were influential in the session: BHP traded ex‑dividend and finished lower (about a 1.2% fall to $31.41), while Rio Tinto gained around 1.2% to $49.85 and Fortescue rose roughly 0.6% to $3.56. Despite early pressure, miners reclaimed much of their losses during the day.

What happened to bank stocks during the session and what should everyday investors note?

Bank stocks were relatively quiet. ANZ edged up about 0.1% to $24.84, Westpac gained roughly 0.3% to $24.85, NAB rose about 0.4% to $25.30 and CBA led gains around 0.45% to $54.99. For investors, muted bank moves reflected the overall cautious tone while traders waited on economic and policy cues.

Why did consumer discretionary shares like Myer and JB Hi‑Fi fall?

Consumer discretionary names were hit after the weak retail report showed department store sales slumped 10.2% in the month. Myer fell about 3.8% to $1.92, David Jones slipped around 1.2% to $2.39 and JB Hi‑Fi dropped roughly 1.9% to $8.96, reflecting concerns over softer consumer spending.

What is the market watching in the coming days for possible volatility?

Traders flagged several potential market movers: the Reserve Bank board meeting (where economists widely expected rates to be held for a third straight month), Thursday’s European Central Bank interest‑rate meeting and US employment data on Friday. Any surprises from those events could spark volatility.

How did the weaker economic data affect the Australian dollar and interest‑rate expectations?

Weak local data raised expectations of a possible rate cut later in the year, which contributed to the Australian dollar slipping to a multi‑week low. Traders also suggested the soft figures might prompt central‑bank activity both in Australia and potentially in China, influencing currency and interest‑rate expectations.