Morning Market Report, Apr 14, 2008

The market is down 107 in reaction to Wall St’s dismal Friday. 30 Dow companies report this week after a bad start to the season last week that saw UPS down 9.9%, Alcoa down 4.7% and GE down 12.8% on results.

Dow down 257. Biggest fall in 5 weeks. Fell all session on the back of a poor 1Q result from GE and in anticipation of quarterly results from the banks this week which now present a risk rather than a hope. As a result, industrials down 4.6%. Dow down 279 at its worst and down 2.25% for the week. Main issue remains whether or not the market is building some sort of bottom. Although the hopes are there, the concerns are the results season after a series of disappointments last week and weak economic numbers. The majority of economists believe the US is going into or already is in recession – a confirmation of recession is going to mean a slower turn-around for the stockmarket. GE’s results are not a good start to the season. Analyst consensus earnings averages dropped for the 14th week on the trot. Consumer confidence below expectations. Airline index down 7.6% as Frontier Airlines goes into Chapter 11. April University of Michigan confidence survey below expected 69 – down to 63.2 from 69.5. Lowest confidence since 1982. Market awaiting Monday’s March retail sales amidst concerns for the health of the consumer. They are expected to be flat.

Both BHP and RIO down in ADR form on Friday, 1.18% and 0.74% respectively. BHP down 58c to 4158c. RIO down 110c to 13750c.
Metals mixed on Friday – Copper up 0.2%, Aluminium up 0.3% and Zinc down 1.3%. Nickel down 1.8%. Zinifex down 30c to 938c.
Oil price up 7c to $110.14 – Chevron Corp and Total announced they are in talks with the Iraqi Oil Ministry to increase production in an important oil field in southern Iraq. Woodside down 138c to 5430c.
Gold down $5.70 to $931.80. Newcrest up 10c to 3280c.
US Bonds up with the 10 year yield down to 3.47%.

Citigroup has a bit of Strategy Research out this morning saying “EARNINGS Growth 2009 – Will there be any?”. They then look at which stocks and sectors will see earnings growth. They expect earnings growth of 3.0% in 2007/8 down from 15.5% in 2006/7. Up to 10.2% in 2008/9. Sectors that have a higher risk element to their earnings profiles include building materials, healthcare, food, food retail, gaming and media.

Financials and industrials underperforming again today with resources outperforming although still down. The main concern is still the expectation of higher provisions and potentially some profit warnings ahead of the bank sector results following the ANZ warning last week. The main problem with the GE results in the US was the finance division which has clearly had a rapid deterioration in the last few months. With a number of US banks and brokerage houses reporting their results in the US the risk seems to be on the downside.

Housing Finance numbers are much weaker than expected. Down 5.9% in February against forecasts of -0.5%. February Investor finance was down 9.5%. No need for a rate rise in those figures.
Leighton Holdings’ (LEI) HWE Mining Unit awarded a $344m contract at Rio Tinto’s iron ore mine in WA. LEI down 30c to 4370c.
Anzon Australian (AZA) shares down 6.6% on Friday with postponement of interest in the Nexus takeover offer as Nexus await drilling results from AZA’s sidetrack at Basker 6 well. Nexus also postponed their shareholder vote. AZA down 8c to 120.5c.
Arc Energy (ARQ), Oil and gas producer, is in talks with Worldwide Exploration Ltd (AWE) about its proposed $500m takeover of AWE – AWE up 16% on Friday. ARQ up 13.5c to 138c.
Kagara Ltd (KZL) confirmed Lounge Lizard nickel deposit in Forrestania is not currently up for sale, but says it may sell it in the future to fund the development of its Admiral Bay project. KZL flat at 446c.
Sino Gold Mining (SGX) down 11.5% Friday – SGX’s new Jinfeng mine in China forecast to produce less gold because of lower than expected ore grades – operational costs also to rise. SGX down 90c to 560c.
Paladin Energy (PDN) – Director Rick Crabb and Secretary Gillian Swaby, disclose holdings of 6,383,218 million 7,038,345 million PDN shares (respectively) are subject to margin loan facilities at Lift Capital – Lift capital went into receivership on Friday. PDN down 20c to 440c.
Qantas’ (QAN) Jetstar will enter a “strategic partnership” with Pacific Airlines which will lead to a large expansion over the next 6 years and the Vietnamese budget airline re-badging itself “Jetstar Pacific.” QAN down 16c to 364c.
Energy developments (ENE) down 23% due to its West Kimberly power plant project, Broom Power Station, experiencing an incident where its electricity supply to the town was interrupted. It has been the catalyst for an earnings guidance downgrade.
After falling 21% and 26.8% on Friday Tabcorp and Tattersalls are down another 5.48% and 3.73%.
Merrill Lynch says BUY Fairfax. FXJ down 10c to 327c. “We believe Fairfax is starting to look much more attractive relative to historical long-term PEs and global comparisons”.