Morning Market Report, Oct 03, 2007

The market is down 3. The SFE Futures suggested a 19 point fall in the market this morning.

The Dow Jones closed down 40 overnight – It moved in a relatively narrow 95 point range and finished lower on the back of disappointing housing numbers and energy stocks going backwards. The National Association of Realtor’s said their seasonally adjusted index of pending sales for existing homes fell 6.5% in August from July and 21.5% from last year. Despite the news, homebuilders put on 5.4% following a 4.3% rise yesterday after Citigroup said the sector looks attractive, and automakers had a strong session after September auto sales came in better-than-expected. General Motors was the Dow’s biggest gainer, (up 2.8%) they experienced little impact from a 2 day strike last week and rival Ford Motor finished 4.1% higher despite announcing a big drop in sales. Energy heavyweights, Exxon Mobil and Chevron Corp helped drag the market lower after the oil price went backwards for a third consecutive day, and in takeover activity, Toronto-Dominion Bank fell 5.6% after they agreed to buy Commerce Bancorp for $8.5 billion in cash and shares. The NASDAQ closed up 0.2%. Google finished in record territory after Credit Suisse said they expected the company to announced better-than-expected earnings when it reports later this month.

The Reserve Bank of Australia left interest rates on hold at 6.50% as expected. Future directions of rates are now hinging on 3Q CPI data that is expected later this month. Economists are predicting further pain for homeowners if the CPI increases by around 1%. Our market is taking a breather today after yesterdays strong gains. The S&P/ASX 200 put on 1.5% and closed in record territory for the 40th time this year. The index is up 17.5% this year compared to the 13% rise Dow Jones index.

Resources struggling today… BHP down 93c to 4511c, RIO down 185c to 11065c. Rio Tinto (RIO) announced they have received anti-trust approval from the European Commission for their acquisition of Alcan. In August they received approval from Canada’s Quebec Province government and US anti-trust clearance. Metals mixed overnight, Nickel up 1% and Copper up 0.6%, Zinc down 1.1% and Aluminium down 1.6%. Zinifex down 15c to 1795c. Oil price down 31c to $80 for the third straight day, some commentators are suggesting September’s rally to record levels above $83 was due to speculative buying rather than anything else. Woodside down 61c to 5129c. Gold down $17.80 or 2.4%. Newcrest up 13c to 2840c. The stock has put on 26% in the past month.

Takeover activity seems to be picking up again. Goldman Sachs JB Were’s believes the takeover offer announced yesterday for Coates Hire (COA) from National Hire (NHR) and Carlyle Group consortium of around 659c a share ($2.2bn) is “reasonable”. They maintained their “hold” recommendation. UBS Warburg has also labeled it “reasonable” and said the ACCC wouldn’t have a problem with it. COA up 3c to 646c today after finishing 33c higher yesterday.
RAMS Home Loans getting smashed today…again. RHG down 24% to 50c. Westpac (WBC) announced yesterday they will be buying RAMS brand and distribution business form $140m leaving RAMS with the mortgage book. RAMS founder, John Kinghorn told the AFR, “I wouldn’t suggest it’s an excellent outcome for our shareholders, but it’s the absolute best we can do in the circumstances”. The stock is now down 80% from its listing price of 250c. Citigroup maintained their Buy recommendation on WBC and 2850c target price saying the deal “will be accretive by year two”. WBC up 42c to 2943c.
The ACCC have delayed their decision on whether they will allow Woolworths (WOW) to snap up some of Coles Group’s (CGJ) general merchandise assets. A decision is now expected on October 17. I’m thinking Wesfarmers (WES), if successful with their bid for CGJ, will be very reluctant to hand any assets over to their biggest rival. WOW CEO Michael Luscombe will address the National Press Club this afternoon.
CSR Ltd (CSR) up 1c to 318c, they announced they have received regulatory approval for their Don Mathieson & Staff Glass acquisition announced in September.
Valad Property Group (VPG) announced they have bought 4 office and retail properties in the middle of Brisbane for $127.6m. VPG up 2.5c to 202c.
UBS Warburg has cut their recommendation on Seek (SEK) to “Sell” from “Buy” due to recent share price appreciation. The stock up 31% (including a 7c divi) since releasing their results 6 weeks ago and up 75% in the past 12 months. They say the outlook for the company remains excellent, its just that the share price has run ahead of the fundamentals. They have a 840c target price.
Banks up again today – CBA up 43c to 5803c, NAB up 59c to 4102c, ANZ up 28c to 3048c and WBC up 35c to 2936c. Financials up in the US overnight.
Harvey Norman (HVN) has hit a fresh 52 week high and is continuing to do well, up another 13c today to 620c. The stock is up 15% in the last month helped by strong earnings results and their international expansion starting to pick up momentum.
Fox Resources (FXR) up 4.5c to 99c after lifting the size of their copper and nickel reserves and resources at their projects.
The Euro weakened against the $US, ending a streak of eight straight sessions of record highs,
Webjet (WBA) the only company going ex divi today – 4.5c.