Morning Market Report, Jul 21, 2008

Great start to the week — up 114 points and steaming ahead. Almost double the 59 points the SFE Futures had predicted this morning. In the last couple of weeks it seems to be either Resources or Financials that are up whilst the other is down. Today they are both up.

Seems that whoever caused the 60 point fall on Friday in the face of a 207 point rise on Wall St has stopped selling and we’ve reversed a lot of the illogical Friday fall.

Wall Street up 49 on Friday – Up 64 at best. Down 65 at worst. Closed on highs in a late session rally. Dow up 3.57% for the week – pulled out of bear market territory (less than 20% off highs). Oil price down – Nymex down 41c to $128.88. 4^th fall on the trot. Oil stocks mostly up though. GM up 2.6% as it reassured about its capital position. Crude down 11.4% for the week – biggest weekly drop ever – down $16 over 3-days. Still up 40% for the year. Treasury secretary Paulson said the banking system is sound but that more failing banks are likely to join the list. Results so far have been better-than-expected – Bloomberg tallies show 91 companies have reported on the S&P500 – 73% have beat expectations, 3% were in-line and 24% missed expectations. Earnings are down 21.4% on a year ago. Fannie Mae and Freddie Mac helped sentiment by assuring their capital positions exceed regulatory requirements. They were up 22% and 10%. Tech stocks down 1.28% after Google disappointed with their earnings numbers – the search engine fell 9.8%. Microsoft down 6.03% on results and the comment that “customers are looking at every cent they spend”.

The SEC’s new rules in the US banning short selling on 19 financial stocks comes into effect today. The suggestion is that any benefit of the new rule has already been seen in the financials bounce in the last few days of last week – sector up 11.4% in a week.

The SFE Futures suggested a 59 point rise in the market.
BHP up 0.43% in ADR form on Friday, RIO down 0.62%.
Metals all down on Friday – Aluminium down 3%, Nickel down 1.82% and Copper and Zinc both down 1.04%.
Oil price down 49c to $128.94 – it experienced its biggest weekly drop ever after losing $16 over 3 days.
Gold down $12.70 to $958
Bonds down with the 10 year yield up to 4.09% from 4%.

June PPI numbers are out – up 1.0% in the June Q….better than the 1.5% expected. Up 4.7% year on year versus forecasts of 5.2%. The A$ dropped a bit on the announcement. We have all important CPI numbers on Wednesday although the indication from the PPI number is that interest rates may well have peaked for now.

Citigroup believes the upcoming Australian reporting season will be “downbeat rather than disappointing” with FY09 guidance to be the critical factor. They expect to be disappointed by 35 stocks and expect positive earnings surprises from less than half that number. Main themes will be cost pressures, cash flows, currency, geographic exposure and management changes. They say last year’s bad news is already priced in.

Platinum Asset Management (PTM) struggling today after announcing late Friday the market consensus for its FY09 EPS is optimistic (although they do not issue earnings guidance). The stock is down 59.7% in the past year and down another 12c or 4.14% to 278c.
Oxiana shareholders don’t approve Owen Hegarty’s termination payments on Friday. They did vote to change the name of the company to “Oz Minerals Limited”. OXR up 4c to 200c.
Flight Centre flying – it expects to announce a 40% increase in pre-tax profit for fiscal 2008 or $212m. They announce results on August 26. Also reaffirmed guidance of 10-15% profit growth for fiscal 2009. FLT up 11.3% to 1758c.
Alumina (AWC) underperforming on the back of a cost blowout at its Brazilian expansion project. Its JV is now facing costs of US$1.62bn for its share of the Alumar refinery expansion against previous guidance of US$1.3bn. AWC up 9c to 462c.
Credit Suisse expects Macquarie Group’s (MQG) 1Q trading statement on Wednesday is likely to be subdued and not entirely negative. MQG up 205c to 4797c.
Foster’s Group (FGL) has appointed Ian Johnson as acting CEO after the departure of Trevor O’Hoy post admissions that the Southcorp acquisition had been a failure. FGL up 16c to 481.
Talk is that Cape Lambert Iron Ore (CFE) will receive a bid from Russian steelmaker Evraz. Evraz bought 19% of the company last wee on market. CFE up 4.5c to 90c.
SAI Global (SAI) has confirmed earnings guidance. SAI up 20% to 260c.
Asciano (AIO) have responded to a speeding ticket – They will continue to assess optimum financing strategy but no decision has been made on any funding options. AIO up 23c to 353c.
Equinox (EQN) says plant commissioning will be delayed until December as a result of the fire that caused damage to the transformer and adjacent sub station. GSJB were say the delay will “clearly impact on FY08 production” – they have a Buy recommendation and 750c target price. EQN down 1c to 374c.
Biota (BTA) and GSK conclude litigation through Mediation. BTA to be paid $20m after litigation settlement. BTA unchanged at 78c.
Macquarie says the banks are well capitalized with only a low risk of material cuts to dividends. NAB and WBC preferred. Banks flying – all up over 3% on average.
David Lamont has resigned as CFO of PaperlinX (PPX) and will take the position of CFO of newly formed OZ Minerals. Search is under way by PPX to find a new CFO. PPX down 1c to 190c.
As reported in the papers, Fortescue Metals announce it has achieved project completion on its 5^th anniversary. FMG up 10% to 893c.
Patersons has a recommendation to BUY the Nickel Sulphide stocks after extraordinary falls in some of them. PAN, MCR, IGO, ALB, MBN, WSA on the list.
Sundance Resources (SDL) has announced a compliant Inferred Mineral Resources of 1.2bn tonnes of Itabirite hematite. (Ave. grade of 38%). Its a great headline but has been criticised by some for the high SiO₂ content (44%) which will impact the commercial prospects of the ore body. SDL up 5c to 27c.
Primary Health Care have announced today that it has sold its consumer products business to French Sanofi-Aventis for $560m – will assist in paying down debt acquired in the $2.7bn takeover of Symbion. PRY up 25c to 500c.