Morning Market Report, Jan 21, 2008

A poor start to the week. The market is down 106, and continues to capitulate. The SFE Futures suggested a 75 point fall in the market this morning. We continue to wait for “The bottom” after a 15.4% fall in the market from the top on November 1st. A 20% fall is officially a “bear market”.

The Dow Jones closed down 59 on Friday – It moved in a large 318 point range and closed the session down despite the Dow index rallying 182 points earlier in the session. Consumer sentiment index better-than-expected. Financial sector down 1.8%. It was a horror week for all three major indexes; both the Dow Jones and NASDAQ lost 4%, while the S&P 500 fell 5.4%, its biggest weekly loss since 2002. The Dow Jones and S&P 500 have both fallen 15% since hitting record levels on October 9 last year, while the NASDAQ has lost 18% from a 7-year high set on October 31.

Resources down today despite a rise in metal prices…BHP down 22c to 3458c and RIO down 460c to 11940c reversing Friday’s 4.5% rise with a 3.8% fall. The press carried rumours on Friday that BHP were preparing to increase their bid for RIO – RIO was up 6.98% in the US and 5.67% in the UK (78% of their market cap is listed in the UK). The new bid terms were rumoured to be up from 3 BHP for 1 RIO to 3.5 BHP plus $16 cash for 1 RIO (now worth $137 versus RIO at $119). The deadline for BHP to “put up or shut up for 6 months” set by the UK takeovers panel is 6 February. BHP were in the Sunday Times in the UK as the weekend reiterating that RIO have “unrealistic expectations of value” and that there has been categorically “no decision taken to move from proposal to bid”. Xstrata was up 9% in the UK on Friday on bid talk.

Metals all up on Friday, Nickel up 4.1%, Zinc up 3.1%, Copper up 2.4% and Aluminium up 0.5%. Zinifex up 18c to 970c, the stock is down 25% in the past month. Oil price up 44c to $90.55 – up for the first time in three sessions after OPEC said it would not lift oil output. Woodside down 78c to 4678c. Gold up $1.20. Newcrest up 62c to 3515c.

Relatively quiet week ahead – US Company results season is the main focus at the moment – Main results this week include Microsoft, Bank of America, Wachovia, Ford, AT&T, Apple, DuPont. In Australia we are into the Resources sector quarterly production number results season with BHP on Wednesday. Others include Oxiana, Zinifex, Newcrest and Santos. Harvey Norman Q2 sales tomorrow will also give a guide for all retailers (sector hard hit in recent market fall after a stellar performance last year). HVN down 1c today to 601c.

After a speech from Glenn Stevens at the weekend the general conclusion is that rates will remain on hold despite Bond markets pricing in a 58% chance of a 25bp rise in interest rates from the RBA meeting on February 5th. The key indicator will be the 4Q CPI figure to be released this Wednesday.
MFS Ltd (MFS) is in a trading halt – City Pacific (CIY) have withdrawn its bid for the company’s financial services division. MFS is already down 85% in the last week as it launched a funding proposal (seemingly disguised as a company restructure) that kicked off Centro style fears for the company. MFS’s share price fell from 400c last week to 71c. Now 99c. It is down from a high of 685c this year. They have lost $1.453bn in market cap in the last week.
Allco Finance Group (AFG) down 19% to 388c (down from 624c this month) on concerns (see AFR Due Diligence column) about credit market problems and hedge funds selling the stock. Challenger Financial Services (CGF) going the same way….down 17% on concerns about one of their funds being exposed to MFS. It is down to 346c from a high of 514c this month. JP Morgan has an overweight recommendation this morning and a 692c target price.
Western Areas (WSA) came out of a trading halt this morning – it announced a high grade massive sulphide intersection at shallow depth. The drilling results are limited but they say Spotted Quoll is “already showing potential to become the Company’s third nickel mine on Forrestania, after Flying Fox and Diggers South.” WSA up 3.5% or 16c to 470c.
MEO Australia (MEO) down 75% on disappointing drill results at its Heron-2 well.
ABN AMRO upped their recommendation on Seek (SEK) to BUY from HOLD after they upped their earnings forecasts. SEK up 15c to 681c against the trend. They are down from 845c in the last month.
JB Hi-Fi (JBH) up 5c to 1185c as Credit Suisse upgrades earnings by 8% and their target price to 1350c from 1290c saying they expect strong results and this is an attractive “entry point”.
Goldman Sachs JB Were maintain their NEUTRAL recommendation on Kingsgate Consolidated (KCN) and say the key catalyst for the stock is the granting of mining leases for the Chatree North project in Thailand, ‘If the Chatree North mining leases are granted, KCN is a buy, if they are not then it is a sell”. They have a 500c target price. Now 492c.
Credit Suisse cut their recommendation on Alumina (AWC) to “Underperform” from “Neutral” after lowering their 2008 net profit forecast by 36% saying earnings will be hurt by high energy and freight costs. They have a 600c target price. AWC down 16c to 517c.
Xstrata Nickel Australia has extended its takeover for Jubilee Mines (JBM) to the 15 February 7pm. JBM down 35c to 2244c. Xstrata currently have 50.62% of JBM.
Transpacific Industries (TPI) have reconfirmed that its previous announcement on 3 December 2007 that the $2.35bn syndicated debt facility is fully underwritten. Hasn’t done much for its share price, down 41c or 4.58% to 854c.
Consolidated Media Holdings (CMJ) – one of the companies that split from Publishing & Broadcasting – is in a trading halt pending an announcing from the company. CMJ last traded at 386c.
Some commentary around about the market PE being the most attractive since the bull market began in 2003 – PE now 13x prospective.
US Markets closed tonight so we have a two day run with no US-lead.
Companies going ex-dividend today include LCL, MHI, SNL and TWR.