The market is having a yo-yo day – down 9 having been down 170 on worries about the banks and a downgrade of credit ratings on $270bn worth of mortgage backed securities by Standard & Poor’s in the US after hours, something that briefly put the fear of God into the banking sector. The CBA is now up – earlier on today it was down 3.5% after a 5.2% fall yesterday. The Dow Futures are down an uncomfortable 84 at the moment. Yahoo fell 12% after hours on its late results. Housebuilder Pulte Homes fell 8.6% on results and is down another 4.2% after hours.

The Dow Jones closed down 37 overnight – Wall St. moved in a 275 point range and flew to be up 200 points on the FOMC decision to cut rates then fell over on a CNBC report that the S&P was about to cut credit ratings on up to $500bn of mortgage backed securities. The Fed confirmed “considerable stress in the financial markets” and lowered interest rates by 50bps to 3%; together with last week’s 75bp cut, it is the fastest monetary policy expansion since 1990. The FOMC said in a statement: “Downside risks to growth remain” which suggests they are likely to cut rates again.

Bond insurers closed down, led by Ambac Financial Group (down 16%) and MBIA, after Fitch Ratings took away its top ranking on Financial Guaranty Insurance Co., and in economic news, the US economy grew at an annual rate of 0.6%, only half the rate economists’ had expected and down from 4.9% in the previous 3 months. Closer analysis suggests the number wasn’t that bad. The NASDAQ closed slightly down.

The Fed cut follows the 75bp cut on 22nd Jan and is what the market expected and wanted and keeps the Fed “ahead of the curve” in trying to mitigate the drop in economic growth and hopefully avoid a recession (although coming close to a recession is probably just as bad for equity markets). Bottom line – The pre-emptive “on the ball” stance of the Fed is encouraging for markets. Economists are now looking at the jobs numbers as the main predictor of recession – they are due on Friday – encouragingly the ADP private employment report out last night suggests a strong rebound in jobs in January. We have forecasts of 1.0% GDP growth in Q1 and 1.2% in Q2.

Resources have rebounded and going OKish – BHP up 36c to 3647c and RIO up 297c to 11731c on talk overnight that BHP will up its proposed offer from 3 for 1 to a 3.5 for 1 offer. Macquarie Group, who are advising RIO believe that BHP can afford to up the proposal to as high as 5-for-1. The UK briefly ran the RIO price up on the hope. They were not so impressed in the US. Metals all down overnight, Nickel down 1.8%, Zinc down 1.3% and Aluminium 0.2%. Copper down 1.8%. Zinifex down 23c to 1008c. Oil price up 68c to $92.34 on speculation the economy will be stimulated by the Federal Reserves decision to lower interest rates. Woodside up 56c to 4519c. Gold down $4.50. Newcrest down 35c to 3465c.

  • BANKS WORRIES – The market fell over yesterday led by the banks – it was up 121 at one point and closed down 97. The banks went from being up over 1% to closing down – CBA down 5.2%, National Bank 4.9%, ANZ down 1.7% and Westpac down 2.5%. The story on the newswires was that JP Morgan published a bit of research suggesting the banks were exposed to a potential 50% drop in commercial property values. There was also talk yesterday of a variety of infrastructure companies coming under pressure because of higher rates and reduced liquidity in their potential lending facilities.
  • Goodman Group (GMG) reaffirmed earnings guidance this morning and announced it had entered into a 4 year $800 unsecured banking facility that will mature in January 2012, replacing their $600m facility that was maturing in May this year. GMG up 13c to 433c.
  • According to The Australian, Industry Superannuation Property Trust, CBA’s Colonial First State, Stockland (SGP), Westfield Group (WDC), Mirvac Group (MGR), GPT (GPT) and Singapore’s CapitaLand are all interested in acquiring Centro Properties $2bn Australian wholesale fund. Centro opened up its data room two days ago. CNP down 4c to 62c.
  • Alumina (AWC) has announced an expected 15% fall in net profit to $436.4m from $511.1m last year due to higher operating costs and currency issues. They say demand for Aluminium will grow at around 10% in 2008 and that its joint venture with Alcoa is expected to produce 14.8m metric tons of alumina in 2008. AWC will pay a final dividend of 12c, same amount as last figure. AWC up 1c to 551c despite the result.
  • Woolworths (WOW) announced sales numbers yesterday – initially described as disappointing. UBS Warburg maintain their BUY recommendation despite slightly cutting their target price to 3700c from 3750c. “We are still confident of a high quality, strong profit result…However, we acknowledge at a 40% premium to the market the relative PE appears unsustainable.” Macquarie Bank maintained their UNDERPERFORM recommendation and 2687c target price saying “Inflation is going to be a big issue for retailers, brand owners and consumers.” WOW down 42c to 2908c.
  • Beach Petroleum (BPT) announced its production numbers today – 2Q oil production was up 32% thanks to the resumption of full production at the Basker and Manta fields and revenue was also up 9% to $129.8m. BPT down 1.5c to 131.5c.
  • Good news for Macmahon Holdings (MAH) shareholders – outperforming the market today – after announcing it had been given an extension to its Olympic Damn contract with BHP and awarded a long term contract an for Jubilee Mines’ (JBM) new Sinclair Nickel Project. The company said in a statement and with these two new contracts, it has $1.2bn, or 95% of its forecast revenue locked away for the year ending June 30. MAH up 1c to 131c.
  • ABB Grain (ABB) has appointed David Kingsley – who has 20 years’ experience in finance – as their new CFO. ABB down 17c to 853c.

We have an article in the newsletter today looking at the three elements you need to achieve happiness although after the recent stockmarket falls it seems you need four.

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