Morning Market Report, May 31, 2007

The market is up 77. The SFE Futures suggested a 47 point rise in the market this morning.

The Dow Jones closed up 111.7 – It ignored the 6.5% fall in Chinese markets (although it did open down 60) and moved in a large 180 point range closing nearly 1% higher after the Federal Reserve indicated in their minutes of the last meeting that inflation is still a concern but that the economy, having weakened in the last Q was still expected to grow at a moderate pace. You will notice on the intraday Dow Jones chart on the right that the market was all square until the Fed Minutes were published at 2pm. The Minutes have been interpreted as meaning that rates could fall in the future although they are clearly still on hold. In takeover activity, CDW Corp. accepted a $7.3bn offer from Madison Dearborn Partners and real estate investment trusts closed higher after one broker upgraded the sector to a “Buy” on the back of yesterday’s takeover activity involving Tishman Speyer and Lehman Brothers buying Archstone-Smith Trust for $13.5bn. The S&P 500 index closed in record territory for the first time in seven years. Can’t see the same happening with the NASDAQ any time soon, it closed at 2593 still 45% off its closing high of 5,048 set in March 2000.

Just about everything is up today. Resources no exception…BHP down 67c to 3174c and RIO up 163c to 9618c. Metals all down overnight, Copper down 0.8%, Nickel down 2.1% and Zinc 1.7%. Aluminium down 0.5%. Zinifex up 45c to 1760c. Oil price up 28c to $63.47 on concerns that stockpiles won’t increase enough to reduce a supply deficit. Woodside up 32c to 4400c. Gold down $4. Newcrest up 21c to 2189c

There was a big stuff up this morning…looks like someone sold 133,000 ORI at best and took the (illiquid) price from 3130c down to 574c – $3m order. Knocked 40 points (?) off the index. Doh! Recovered now.

One of the other little statistics going around today after the Chinese tripled stamp duty this week is that when the Chinese introduced stamp duty on shares on 12 June 1992 it made no impact on the first day but over the next five months stock prices fell by more than 70%. Also worth noting the comment that although we are all quoting the PE on Chinese shares as 50x, the forward PE is 25x and 20x comparing with our own of 17.5x and 16x. Chinese profit growth is obviously much higher than ours…in other words the Chinese stockmarket is not such a bubble after all. See this article on FN Arena from Rudi Filapek-Vandyck.

Property trusts all up across the board thanks to merger and acquisition activity. We had heard that Blackstone and Morgan Stanley real estate funds were raising capital in the US and were interested in the Australian REIT sector (Blackstone made a US$39bn REIT sector bid in the US recently and there were two US$20bn bids in the last week). That story has been confirmed this morning with a $6.6bn agreed bid for Investa (IPG) at 308c from Morgan Stanley Real Estate. The whole sector is up 3.8% today. Westfield (WDC) up another 3.4% to 2147c, Mirvac Group (MGR) up 4.8% to 550c and Investa Property Group (IPG) up 14.1% to 307c.
BHP Billiton (BHP) announced this morning that Marius Kloppers, who currently heads the company’s Non-Ferrous Materials division will replace Chip Goodyear as CEO on October 1 this year. An internal appointment illustrates the strength of the management team at BHP, an external appointment would have given the message that it is unable to groom, nurture and hold onto talent. The market likes succession certainty and that has been delivered.
Chemeq (CMQ) have called in administrators after the WA Court of Appeal upheld the Supreme Court ruling that CMQ failed to uphold their end of the bargain regarding achieving gross revenue of at least $4m triggering a redemption order for $60m from a convertible bond holder. The stock was once trading at 861c in June 2003. One broker had a bit of research out at the time with a valuation of $11. Another was raising capital for it and describing it as a company of substance. CMQ last traded at 8.3c.
Rinker (RIN) – Cemex have announced it will extend the deadline for its $14.25bn offer to 22 June from 8 June. On Monday, Cemex held 36.7% of the stock, well short of the minimum acceptance level of 50%. RIN down 7c to 1926c.
Sonic Healthcare (SHL) has bought Switzerland’s Medical Laboratory Group for $97.2m. The company said the acquisition would be EPS positive and will be paid for with debt. SHL up 25c to 1481c.
Graincorp (GNC) down 5c to 1045c after it reported a 1H NPAT of $5.5m, down 71% from last year mainly due to the drought. It wasn’t all bad news though, they did up their guidance for FY07, they are now expecting a loss of $20m-$23m, down from a loss $20m-$30m.
Austar (AUN) announced at their AGM that they have had takeover approaches and remain in confidential and preliminary talks, but no mention of who they were talking to. Merrill Lynch mentioned last week that the Foxtel is “clearly the most logical owner of Austar. AUN up 1.5c to 168c.”
There are stories this morning that both Bain Capital and the Blackstone Group have also pulled out of the bidding for the Coles Group. CGJ down 9c to 1659c. WES up 41c to 3808c.
Just Group (JST) is up 8c to 394c after JP Morgan upgraded their recommendation to OVERWEIGHT.
UBS have upped their target price on Qantas to 650c from 590c. QAN up 3c to 569c. Looks like they have done their dash in the short term.
Biota (BTA) up 5.5c to 172.5c on upped profit guidance.