The market is down 50. The SFE Futures suggested a 42 point fall in the market this morning.

The Dow Jones closed down 149 on Friday – It moved in a 103 point range and finished lower led by a weak close from the previous session and lower-than-expected earnings results from several blue chips. Google fell a further 5% on the back of their lower-than-expected 2Q earnings result on Thursday; concern grew about the 88% increase in costs during the quarter and the number of employees jumping by 1,548 in just three months. Caterpillar closed down 4.4% after reporting lower-than-expected profit, and Citigroup also disappointed with profit from consumer banking falling 15% to $2.7bn. Microsoft down 2% on their results. Without any major economic data or corporate activity to support the market, the Dow Jones closed more than 1% lower. The Dow Jones index recorded its first weekly fall in five weeks, it closing down 1.1% on the week, both the S&P 500 and the NASDAQ finished 1.2% lower for the week.

All sectors doing it tough today…BHP down 33c to 3807c and RIO down 41c to 9949c. Citigroup have upped their RIO and BHP forecasts by 10-15% on a higher copper price forecast. They talk about a super cycle. They have target prices of $42 and $103 with a BUY on BHP and a HOLD on RIO. Metals all up on Friday, Nickel up 3.3%, Zinc up 3.6% and Copper up 1.7%. Aluminium up 0.8%. Zinifex down 17c to 1991c. Oil price down 37c to $75.53 as the threat of terrorism ease along with tension in Nigeria. Woodside down 65c to 4593c. Gold up $6.60 and is ready to test the psychological $700 level in the near future. Newcrest down 3c to 2450c.

The squall before the storm. The US results season is in full flight – plenty to keep us busy this week – 130 companies out of the S&P 500 have reported – average earnings growth is 1% above expectations. The Australian results season starts in the middle of next week (Wednesday August 1st). In economic news, we have the preliminary estimate of Q2 GDP number in the US on Thursday and Australian CPI (inflation) numbers on Wednesday. (Expect core CPI up 0.7% in the June Q – a rise of 0.8-0.9% is likely to trigger worries about an interest rate rise). There is a uranium conference in Perth on Wednesday, another chance to wind up expectations and the hype and Australian Foundation Investment Company (AFI) have final results this week. Our market has followed Wall Street’s lead from Friday and is starting the week in the red.

  • Australian Producer Prices numbers are out – up 1.0% on the Q and 2.3% on the week. This is higher than the 0.7% and 2.0% expected. The market dropped on the news. Not quite enough to cause interest rate worries – we await the CPI data on Wednesday before worrying about that.
  • Perpetual Limited (PPT) announced this morning they acquired the mortgage processing assets of National Lending. It’s their second acquisition this year in the mortgage services sector after buying Wignalls Lenders Mortgage Services in February. PPT down 160c to 8150c.
  • There is a heap of bullish broker research out this morning on Macquarie Airports (MAP), Goldman Sachs JBWere have labelled the stock their top pick in the local infrastructure sector. Catalyst being MAP’s solid operating outlook, upside risk to earnings and potential capital management on the back of recent asset sales. They say buy up to 491c. MAP up 7c today to 417c.
  • JP Morgan have maintained their bullish outlook for CSL Ltd (CSL) after US based plasma maker Baxter reported impressive earnings confirming the strength of the plasma products market. They say buy up to 10975c and that CSL’s current PER of 26 is reasonable considering forecasted EPS growth of 24% a year, on average over the next 4 years. CSL down 67c to 8865c.
  • Centennial Coal (CEY) up 7c to 336c after maintaining their FY guidance despite a 4% fall in 4Q coal production. They expected profit to come in between $30m and $40m before a non-cash write down relating to their Newstan mine.
  • Credit Suisse has initiated coverage on WorleyParsons (WOR) with a “neutral” recommendation and 4000c target price. They see growth potential and strong global demand for minerals and energy, particularly in the hydrocarbons industry. WOR down 61c to 3519c.
  • Just Group have bought Smiggle for $29m.
  • Multiplex’s independent experts report says MXG is worth 462c to 526c – the bid is at 505c. On that basis the experts say it is fair and reasonable and the MXG board have officially recommended the bid.
  • Credit Suisse also say the KKR bid for Macy’s in the US makes David Jones look expensive. They have an UNDERPERFORM recommendation adding to a SELL and a REDUCE recommendation from other brokers after their earnings upgrade last week.
  • Orica is getting criticism from shareholders for rejecting the original private equity bid at $32. There was talk last week of a new bid at $37 but there is no follow through on the story so far with the Orica price hitting 3199c and closing the week at 3100c up from 2909c. ORI down 1c to 3099c.
  • Morgan Stanley have downgraded Santos to a UNDERWEIGHT. Goldman Sachs JBWere downgraded them to a SELL last week. Morgan Stanley also say Bluescope Steel is overpriced.
  • Shares in Mosaic Oil (MOS) and Santos (STO) are getting belted this morning after announcing the Hurricane oil and gas find development is a flop and unlikely to be commercial. Santos says they’re disappointed but are planning on targeting oil in the region with another three wells planned. MOS down 2c or 10% to 17.5c and STO down 49c or 3% to 1431c.
  • The Chinese raised rates by 27bp on Friday to 6.84% – after their 2nd Q GDP number up 11.9% (a 12-year high) I don’t think an incremental interest rate rise is going to upset the equities enthusiasm – when it comes to slowing the economy it doesn’t feel like their heart is really in it. The rate rise was expected. Inflation picked up to 4.4% in June (above the central banks 3% range) but on the back of a rise in food prices which is seen as temporary.
  • Colleague and mate Tom Elliott is in the AFR this morning page 21 (such a handsome chap) telling us that BHP is a private equity bid target. RIO less of a target after the Alcan (US$34bn) bid. He says the recent failure of certain deals (Qantas, Coles) will not “quell the appetite” for private equity. He also suggests that eventually the four pillars policy (which protects the major banks) will go.
  • US Bond yield dropped below 5% at 4.95% down from 5.03%. It hit 4.92% for the first time since early June.

In today’s edition on MARCUS TODAY we have the first part of an idiots guide to portfolio construction. For those of you who have ever invested in a course or a trading system you might not enjoy the cartoon.

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