Morning Market Report, Jul 01, 2008

Our market is down 14 despite the SFE Futures suggesting a 17 point rise in the market this morning.

RBA MEETING today with an announcement at 2.30pm. Very likely to keep rates on hold.

Dow up 3.5. Up 91 at best. Down 59 at worst. Same themes overnight as per the last year – Resources up and Financials down. A bit of a quiet US session on the news front. Fears persist of further financial company write-downs and capital raisings during the upcoming reporting season. Financials down 2.1% after a broker cut price targets on a number of regional and national banks on fears of further mortgage related write-downs, dividend cuts and discounted capital raisings.

2Q write-downs likely to dominate news during 2^nd Q results season starting soon. Merrills and Citigroup fell on comments from JP Morgan that mortgage securities could drop further. Lehmans plummeted on fears it may be sold for less than its market value – has lost half its market cap this quarter.

In economic news the National Association of Purchasing Management-Chicago (NAPM) survey shows conditions contracted for the 5^th month in a row – but at a rate less than economists had predicted and May mortgage payment delinquencies outnumbered the catch-ups on overdue payments on homes. With house inventories in the US remaining very high – 10.9 months worth – some are saying that prices are likely to fall another 10-15% before bottoming. The NASDAQ fell 1%.

The SFE Futures suggested a 17 point rise in the market.
BHP up 2.78% in ADR form overnight, RIO up a huge 8.15% on talk of ArcelorMittal taking a stake to have a say in any asset sales post a BHP bid. RIO only up 2.4% in our market.
Metals mostly unchanged – Zinc up 0.1%, Copper down 0.2% and Aluminium down 0.2%. Nickel unchanged.
Oil price up 27c to $139.96 – it initially went backwards after the US Energy Information Administration revised US April oil demand downwards by 863,000 barrels per day to 19.77m bpd, as higher costs reduce demand.
Gold down $3 to $928.30
US Bonds down with the 10 year yield up to 3.97%.

JUNE SUMMARY: Market down 7.6% in June – biggest June fall since 1940, Banks down a massive 12.73% dragging Industrials down 11.56%, Property Trusts down 12.54%, Oil price up 9.90% and Gold price up 4.6%.

FINANCIAL SUMMARY: Worst Financial Year since 1982, Worst June since 1940, ASX 200 down 16.9%, Dow Jones down 15.4%, Industrials down 30.3% and Resources up 25.4%.

Rio Tinto was up 8.15% in the US overnight after the Financial Times website said Lakshmi Mittal – head of steel giant ArcelorMittal – was considering buying a stake in Rio Tinto from existing shareholders. RIO has also announced settlement of iron ore prices with all its Asian customers in line with the Baosteel settlement saying “These agreements are a strong endorsement of the settlement reached last week and reflect the very strong demand for our products across the world’s fastest growing markets.”

ResMed (RMD) up around 12% on talk that Germany’s Linde AG may launch a takeover bid for the company. RMD up 12.1% to 407c.
Allco Finance Group (AFG) has managed to extend its $250 million bridge facility until July 31. AFG up 2c to 42c.
Great Southern Plantations (GTP) have announced an MIS sales update. A 24% drop on last year. Like for like sales down 6%. They were up 5% initially and are down 5% now.
Timbercorp (TIM) up 4.5% on their June sales update.
Equinox (EQN) have announced the commissioning of the Lumwana Sag Mill. Seen as a “Very Cheap” stock by Patersons Securities. EQN down 2c to 466c.
Macarthur Coal (MCC) is in a trading halt – it has to do with the company enquiring into Ken Talbot’s sale of a 10% stake to South Korea’s POSCO. MCC last traded at 1687c.
Babcock & Brown Wind (BBW) has acquired 4 German wind farms. The acquisition will be funded using existing resources. BBW up 5.5c to 170c.
MountGibson Iron (MGX) also doing OK after falling nearly 5% yesterday. GSJB Were say it is their top pick in the iron ore sector on 7x 2009e EPS, 4x-5x 2010. MGX up 4c to 316c.
Adelaide Brighton has announced the $81m acquisition of QLD’s Hanson Building Products. ABC down 1c to 374c.
The Housing Industry Association tells us Australian new home sales went backwards 5% in May. The weakness is likely to satisfy the RBA’s attempts to slow down the economy.
Concerns that the US will have a sell off ahead of the long weekend coming up. The US market is closed for Independence Day on Friday.
The A$ was up 12.9% in the last Financial Year. Makes for a pretty messy results season for a lot of companies.
European Central Bank expected to raise rates on Thursday and complain about inflation pressures. Should be good for the Gold price.