Morning Market Report, Nov 02, 2007

The market is down a big 123 or 1.8% on the back Wall Street’s losses overnight. The SFE Futures suggested a 134 point fall in the market this morning.

The Dow Jones fell 362 overnight – It moved in a 376 point range and finished nearly 3% lower, the biggest points fall in 5 years, after brokers downgraded financial stocks and concerns about a US recession returned on the back of disappointing economic data. Just a day after cutting interest rates by 25bp, the Fed pumped $41bn into the US financial system to help companies through the credit crunch; it was the largest cash injection since September 2001 when $50.35bn was put into the system following the 9/11 terrorist attacks. It pushed the opposite message to the Fed Statement which had appeared to suggest the credit crunch was over. Financial stocks got a beating after CIBC World Markets downgraded both Citigroup (down 6.9%) and Bank of America (down 5.3%), the two biggest US banks. They suggest Citigroup needs $30bn in capital to bring its capital ratios in line with its peers. To do that it probably needs to sell assets, cut the dividend and have a capital raising. The Financial sector fell 4.6%. .

Resources struggling today, BHP down 156c or 3.4% to 4532c. Macquarie Bank maintained their Neutral recommendation and 4141c target price saying despite our attraction to the BHP Billiton asset portfolio, they’re not upgrading on value grounds. RIO down 430c or 3.7% to 11070c. RIO bid story – RIO was up 4.6% or 500c yesterday. The stock took off in our market just as the UK was waking up yesterday afternoon. There was an article in The Independent and The Financial Times saying that RIO was going to be bid for by BHP and Xstrata. RIO was down 3.81% in the US overnight.

Metals mostly down overnight, Zinc down 3.1%, Copper down 2.9% and Aluminium 0.2%. Nickel up 1.2%. Zinifex down 43c to 1622c. Oil price down 63c to $93.53 despite hitting a record high. Concerns about a slowing global economy and France’s decision to release oil from its strategic reserves fed the fall. Woodside down 44c to 5180c. Gold down $1.60. Newcrest down 55c to 3295c.

RBA Meeting on Tuesday. Expect them to hold. They have a tightening bias but in the face of the US rate cut they aren’t about to raise rates.

AGL Energy had a big day yesterday – up 5% after Merrill Lynch said it could become a takeover target if the share price keeps falling. It named TRUenergy, Babcock & Brown Power (BBP) and Origin Energy (ORG) as potential buyers. AGK announced this morning they will be selling their 33% stake in AlintaAGL to Alinta 2000 Ltd for $522m, which was part of the deal made as part of the merger and demerger of AGL and Alinta in 2006. AGK up 45c against the trend to 1311c.
Westpac (WBC) down 42c to 3064c, lots of positive broker research this morning on the back of their impressive earnings result yesterday. ABN AMRO said WBC is its favourite pick among the banks and expects its shares to outperform. They have a BUY recommendation and upped their target price to 3438c from 3112c. Price up 25% this year.
Macquarie Airports (MAP) announced it has appointed Graeme Johnson as its new CEO. He will replace Frank Kwok, who has been appointed chief operating officer of Macquarie Bank’s investment banking funding division. MAP down 3c to 437c.
Telstra AGM Wednesday – the focus will be on the irrelevant subject of institutions trying and failing to reject the Director Remuneration package. Lots of broker research on Tesltra today on the back of their profit upgrade yesterday.
PMP has disappointed with their AGM this morning – down 10c or 6% to 160c – they expect business to be quiet in the 1H compared to the last year, but expect it to pick up again in the 2H.
Coles Group Scheme Meeting this Wednesday. Wesfarmers has been rallying into the meeting on hopes that when they actually get their hands on Coles and become the 8th biggest stock in the market (instead of the 18th) the international institutions will start to notice it and propel it again. WES down 75c to 4300c.
Ramsay Health Care (RHC) has told investors at a UBS conference to expect low-double-digit earnings growth in the 2008 financial year. RHC down 13c to 1071c.
Resmed has announced a fall in profit on the back of higher research costs and special charges, despite sales increasing by 14% to $186m. RMD down 8% in last Q but up 3.7% or 13c to 464c today.
Not good – Downer EDI has had its AGM and said 1Q earnings are likely to be flat despite the business performing in line with expectations.
CSR has interim results on Wednesday – unlikely to be upbeat in the face of the sugar price, the US housing market and the US$ weakness. CSR down 6c to 343c.
David Jones has Q1 sales numbers on Thursday. If they are anything like Harvey Norman’s they will be good. Currency helps (they import a lot of goods for sale). DJS down 9c to 484c.
Companies going ex dividend today – Harvey Norman (6c), WHF and WLS.

We have an article in the MARCUS TODAY newsletter today called “Handbags”. If you are stuck for conversation at The Races tomorrow this will bail you out. It includes an investment technique that will make you very rich or very poor. I have seen it work.

Good Luck at the Races tomorrow (Derby Day in Melbourne). Remember….the Races are like the Tech Boom: