Australian Stock Market Report - Morning - 04/18/2012

By Craig James, Commsec Chief Economist | April 18, 2012 4:50 AM IST

(7am AEST)

US factory output fell for the first time in four months, down by 0.2pct in March. US industrial output was unchanged in March after a similar result in February. For the March quarter industrial production rose at a 5.4pct annual rate, with manufacturing advancing at a 10.4pct pace. US housing starts fell 5.8pct in March to an annual rate of 654,000 units. However building permits rose 4.5pct to a 747,000 unit annual pace - the highest since September 2008.

The IMF revised up world growth to 3.5pct in 2011 (previously 3.3pct) and 4.1pct in 2012 (previously 3.9pct). The baseline forecast centred on low growth for advanced economies, especially Europe, but with significant downside risks. The IMF lifted US growth forecasts to 2.1pct for 2012 (previously 1.8pct).

European shares rallied on Tuesday, after a well-received Spanish debt auction. Spain sold 3.2 billion of 12 and 18-month paper with healthy bids. Spanish 10yr bond yields fell back below 6pct - down 13bps to 5.94pct. An unexpected rise for German investor sentiment boosted hopes that Europe´s largest economy was recovering. The ZEW economic sentiment index rose from 22.3 to 23.4 in April. The benchmark FTSEurofirst 300 index rose 2pct with the German Dax up 2.7pct and the UK FTSE up 1.8pct.

US sharemarkets posted their biggest gains in a month on Tuesday. Strong corporate earnings and the fall in Spanish bond yields provided investors with a reason to bid up equities. Coca-Cola, Goldman Sachs and Johnson & Johnson all reported profits that beat estimates. At the close of trade, the Dow Jones was higher by 194pts or 1.5pct with the S&P 500 up by 1.6pct while the Nasdaq gained 54pts or 1.8pct.

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US treasuries fell on Tuesday (yields higher) as healthy demand for Spanish debt eased euro zone concerns. US 2yr yields were flat at 0.27pct, US 10yr yields rose by 1pt to 1.99pct.

The greenback eased against the Euro and commodity currencies on an improvement in risk appetite. The Euro rose from lows near US$1.3090 to highs near US$1.3165 and ended US trade at US$1.3125. The Aussie dollar rose from lows around US103.00c to US104.15c and ended US trade near US103.95c. And the Japanese yen traded between 80.35 yen per US dollar to JPY80.90 and was near JPY80.85 in late US trade.

Benchmark crude oil rose for a second straight session on Tuesday. An earlier-than-expected reversal of the Seaway pipeline to help ease the glut of oil in the Midwest continued to spur buying. US Nymex crude rose by US$1.27 or 1.2pct to US$104.20 a barrel. London Brent crude rose by US10c to US$118.78 a barrel.

Base metal prices were mixed on the London Metals Exchange on Tuesday. Copper bounced off three-month lows breaking through $8,000 a tonne as the healthy Spanish debt auction eased growth concerns. June Comex gold futures price rose by US$1.40 or 0.1pct to US$1,651.10 an ounce.

Ahead: In Australia, quarterly building activity figures are released. Bank of Queensland releases it half year result. In the US, no economic data is released.

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