Morning Market Report

The market is up 112 – the SFE Futures suggested a 91 point rise in the market this morning. An hour before the close on Wall St they were suggesting an 87 point fall. Wall St had a massive late rally.

The Dow Jones closed 298 points higher – It moved in a massive 632 point range and made a sensational recovery from a 334 point drop midday to close the session higher for the first time in 7 days on the back of a huge rally in bond insurers on capital raising efforts, short covering, bargain hunters and speculation that the Fed will again cut rates by 75bp next week. The bond markets are factoring in a 100% chance of a 50bp rate cut. The rally was led by the financial sector which had its biggest advance in five years – JP Morgan, Bank of America and Citigroup all closed close to or up 10% after Bear Stearns told investors to buy large banks saying they historically outperformed when the Fed has aggressively cut interest rates.

US homebuilders also had a huge session up 15%, its biggest gain since 2002 on interest rate cut hopes. The NASDAQ finished 1.5% higher despite disappointing results from Apple and Motorola that initially had the index well down. eBay closed down 4.8% in after hours trading on late results. Apple Inc. had its biggest fall in 6 years – down 11% – CEO Steve Jobs said the company was failing to meet the most optimistic 1Q forecasts and told investors to expect slower sales growth. Motorola down 19% on results.

Resources up 1.8% this morning, BHP up 48c to 3437c and RIO up 384c to 10985. BHP up 4.89% in ADR form overnight. RIO up 4.02%. We can ignore their falls in the UK which came before the Wall St rally. After a 9.3% rise in BHP yesterday which outstripped a 5.0% rise in RIO the RIO share price is at the smallest premium to the BHP bid since the 3 for 1 bid. The suggestion is that the financial market turmoil and the reduced global growth expectation have played into BHP’s hands and that BHP are less likely to increase their bid and are more likely to confirm and formalize their 3 for 1 bid by the UK takeover panel deadline to put up or shut up by 6 February. The current BHP price puts the BHP bid for RIO at $101.67 compared to RIO at $106.01. This $4 premium has come in from $20.

Lot of debate about whether the RBA will raise rates at their meeting on 5 February. The inflation number yesterday appears to have raised the chances with the suggestion that they would raise rates if it were not for the financial market uncertainty. One strategy comment that caught the eye this morning for its clarity… ”You’d be crazy to sell at these levels” says Bell Potter. It also points out the PE on the market at 12.2x is below the 13x hit in the 2002 bear market and well below the long term average of 15x and the bull market PE of 17-20x.

The almost universal “safe” broker recommendation at the moment is to buy big stocks for value. Most mentioned stocks include Banks, BHP, QBE, AMP, AXA, WES. The braver will be buying the stocks that have fallen the most for a lucky bounce.

• Disappointing production numbers this morning from Newcrest Mining (NCM). NCM down 20c to 3470c.
• Allco Finance Group (AFG) has seen the forced sale of 22m shares by senior executives after margin calls. They have results on Feb 15th. Merrill Lynch described the stock as oversold yesterday. Stock up 21% today to 267c up 47c.
• According to The Age, Centro Properties (CNP) new CEO Glenn Rufrano will update the market on the company’s timetable for refinancing its $3.9bn worth of maturing debt. CNP last traded at 36c, down 94% since December 17.
• Sino Gold Mining (SGX) down 29c to 721c after announcing 4Q gold production increased by 128% to 32,186 ounces.
• Zinifex (ZFX) up 63c or 6.9% to 956c after announcing zinc production increased 2.9% in the 2Q from last year. They say demand from China is likely to remain healthy and that their $2bn in cash sitting in the bank is worth a whole lot more in a volatile market. ZFX is down 67% in the past 12 months.
• Mirvac Group (MGR) has followed Leighton Holdings into Dubai by announcing it has entered into a strategic partnership with Dubai-based developer Nakheel through a $300m placement. The raising will cut Mirvac’s debt to total assets ratio by 5% and allow MGR to take advantage of takeover opportunities. MGR up 5.1% today.
• Macquarie Group maintain their NEUTRAL recommendation on Wotif (WTF) ahead of their results. They have a 490c target price with the catalyst being “Continued strong growth in online accommodation bookings”. WTF up 6c to 481c.
• UBS Warburg upped their recommendation on Woodside Petroleum (WPL) to BUY from NEUTRAL saying “Woodside’s favorable outlook is further supported by its aspiration to build a new LNG production train every two years,” They also upped their target price to 5213c from 5125c. WPL up 48c to 4458c.
• Credit Suisse upped their recommendation on AXA Asia Pacific (AXA) to NEUTRAL from UNDERPERFORM due to recent share price weakness. The stock is down 19.3% since Jan 8 compared to a 11% fall in the S&P/ASX 200. They maintain their 750c target price. AXA up 5.9% or 33c to 594c.
• The Banks have an 8.4% gross yield and CBA has results coming up. They have also fallen further than the market. No wonder it heads the lists of stocks to buy on this correction.
• Companies going ex-dividend tomorrow are DJW and LST.

We again list ASX 200 PEs and Yields in the Marcus Today newsletter today. Plenty of bargains in there. For a view on the market and the latest in strategy comments go to the MARCUS TODAY newsletter today and sign on for a FREE TRIAL.

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