Morning Market Report, Nov 20, 2007

The market is getting smashed today – down 124 on the back of heavy losses on Wall Street overnight. The SFE Futures suggested a 111 point fall this morning. It was down 140 early on with BHP under $40.

The Dow Jones was down 218 overnight – It moved in a 240 point range and finished lower on the back of broker downgrades associated with subprime mortgage losses and lower than expected earnings results. The financial sector dragged the market lower as it fell to its lowest level in over 2 years (down 3%) after Goldman Sachs cut their recommendation on rivals Citigroup (down 5.6%) and Merrill Lynch. They say Citigroup faces $15bn worth of write downs and now is the time to get out, Goldman also cut their target price on Merrill Lynch by 11%. The credit crisis is continuing to concern economists, according to Bloomberg, nine of 50 economists said there is a 50% or higher chance of a US recession over the next 12 months. In other news, Pharmion Corp. finished 32% higher after it accepted a $2.9bn takeover offer from Celgene Corp., and homebuilders fell 5.4% across the board, the most in three months, after the National Association of Home Builders/Wells Fargo index of builder confidence reading remained unchanged at 19 in November for the second consecutive month, the lowest since records began in 1985. The NASDAQ closed down 1.6%.

Resources doing it tough along with the rest of the market. BHP down 161c to 3999c (down from 4770c this month) and RIO down 515c to 13085c (recently peaked at $149.99). Metals all down overnight. Zinc down 7.2%, Nickel down 3.5% and Copper 3.6%. Aluminium down 1.6% (there were some bigger falls in other metal price futures contracts). Copper inventories have doubled since July and the Chinese have restricted bank lending until the end of the year to slow the economy. Zinifex down 4.1% or 62c to 1468c. Zinifex themselves talked about new supply and lower prices at a recent conference presentation.

As we run into the end of the week the US market closes for Thanksgiving on Thursday and half of Friday. We can’t look for much of a lead from there. There isn’t much company related stuff going on, main feature is the market itself…getting belted.

Westpac shareholders see the AFR page 47 for an article about the BT Investment Management float. One fund manager says he is not likely to be a long term shareholder. They note that Platinum Funds Management listed at 500c and opened at 911 and is now 525c having been under the 500c listing price at one point hitting 480c. They note Perpetual is 17% off its highs and IOOF 22.6% off its highs. Float PE of 18x. K2 Asset Management’s IPO closed yesterday oversubscribed. WBC down 43c to 2759c.
Mincor (MCR) have announced the purchase of a “major land package” from BHP. The Kambalda Nickel Ground. They say “We are thrilled at the opportunity to acquire this outstanding package of ground”. Price undisclosed. MCR down 16c to 441c.
Kerry Stokes’ Seven Network (SEV) upped its substantial shareholding in Western Australian Newspapers (WAN) yesterday to 19.4% from 17.3%. Above 19.9% and they will have to bid. SEV keeps telling us it’s only a strategic holding. SEV down 18c to 1300c and WAN down 17c to 1303c. WAN is down from 1600c three months ago.
Lion Nathan (LNN) announce earning numbers tomorrow, they’re expected to be positive but nothing special. JP Morgan forecast a FY07 net profit (after significant items) of $301m and expect management to provide “FY08 earnings guidance of low single digits”. They maintain their Overweight recommendation. LNN down 15c to 892c.
Crane Group (CRG) is not looking at buying Alesco (ALS) contrary to reports in today’s AFR. A spokeswoman of CRG said “Speculation in today’s press is incorrect”. Investors have beaten up ALS’s share price recently, down 19% in the past month. CRG down 64c to 1555c. ALS bucking the market trend up 17c to 1059c.
David Jones have announced they are investing $85m in the redevelopment and consolidation of its two flagship stores in Melbourne CBD saying there is enormous growth potential in the Melbourne metropolitan market. DJS doing OK today, down only 4c to 490c.
Wesfarmers up 41c to 4121c against the market trend as Macquarie upgrades them to OUTPERFORM. They have a 4351c target price. This combines with sales numbers from Coles (they officially take control on Friday) and the comment from the Coles management that they have had “arguably our best start to a financial year in the last five, with the whole group comfortably above its profit budget at the end of the first quarter”. Looks like the resurrection of Coles has already begun.
Uranium stock Paladin is down 49c to 697c (-6.6%). ABN AMRO have cut their target price marginally to 772c and have downgraded earnings expectations. They retain a HOLD recommendation. ERA is also down 4.5%. Equinox down 6%.
Lot of AGMs including Harvey Norman, realestate.com.au, Sally Malay, Ramsay Healthcare.
Incitec Pivot (IPL) goes ex-dividend tomorrow 191c, they also declared a special dividend of 40c.