Morning Market Report, Jun 24, 2008

The market is down 34 — 100 property trusts and infrastructure stocks have gone ex-dividend (ex-distribution) this morning. The banks and insurance stocks have knocked over 36 points off the ASX 200. BHP and Fortescue add 20 points. The SFE Futures suggested a 13 point fall. Financials down 2.1%, Resources doing their bit for the market — up 0.9%.

DOW FLAT. Down 28 at worst. Up 44 at best. Financials smashed – Credit concerns weigh on sentiment with downgrades in the financial sector and an earnings downgrade to AIG on the deteriorating outlook for bank earnings. Goldmans downgraded financial sector to UNDERPERFORM from Neutral — said credit crisis related losses will linger into 2009. Slowest trading day since 12 May — light volumes awaiting Fed’s 2-day meeting tomorrow. Uranium to fetch $90 as Indian reactors drive demand and Crude keeps going up — up 1.2%. Awaiting the Fed’s 2-day meeting beginning tomorrow — the generally consensus is that rates will be left unchanged at 2%.

BHP up 2.52% in ADR form overnight, RIO down 0.3%.
Metals mostly down overnight — Nickel down 2.5%, Copper down 0.4% and Zinc down 1.3%. Aluminium unchanged.
Oil price up $1.20 to $135.98 on disappointment over Saudi Arabia’s decision to lift production modestly and concerns that output from Nigeria will decline.
Gold down $16.50 to $887.20
US Bonds up with the 10 year yield down to 4.16%.

US market fairly quiet ahead of the FOMC Meeting which runs for two days this time and will give us a result on Thursday morning our time. There is a 10% chance (no chance) of a rate rise and a 30% chance of a rate rise next meeting.

RIO has announced an 85% increase in iron ore prices negotiated with China’s biggest steelmaker BaoSteel (+96.5% for “lump” and +79.88% for “fines”)… BHP is very likely to follow suit. This is at the bottom end of the recently mooted 85-90% expectation but is obviously an improvement on the 65-71% increase achieved by the world’s biggest iron ore producer Vale (Brazil — the old CVRD) and takes into account the freight cost advantage of Australian producers for the first time.

Talk is that Rio Tinto wants to sell a 5-year, a 10-year and a 20-year tranche dollar bonds tonight. Size of the offering is believed to be around $3bn. RIO up 165c to 13922c.
St. Barbara has received $63.5m from its bookbuild and placement. Ed Eshuys has upped his holding by 5m shares. SBM down 1c to 35.5c.
Rumours of a Qantas merger with Singapore airlines not doing the share price any good. High fuel costs and slowing economic activity have now halved the share price since October last year. QAN down 2c to 301c.
There was a Brambles trading update today. The stock has been drifting on concerns about the US economy and on the increasing fuel costs. Management has described it as “solid”. BXB up 6.6% to 797c.
Speculation is growing that private equity group KKR is considering running the numbers over Babcock & Brown (BNB). BNB down 10c to 597c.
Bloomberg carry and article talking about Indian demand for uranium pushing the price up to $90.
BG Group has decided to go hostile and off-market with its $13.8bn or 1550c bid for Origin Energy (ORG). Hopes they might end up bidding more.
Tap Oil (TAP) confirmed it has around 33 petajoules of gas available to it under arrangements with the John Brookes JV at Varanus Island and has entered into gas sales agreements for the on-sale of this gas. Brokers have been downgrading TAP on the back of the Varanus Island gas explosion. TAP unchanged at 171.5c.
Valad Property Group down another 9% on the back of the post distribution downgrade research this morning. It is also ex distribution. VPG down 10% to 70c.
Octaviar (OCV) — formerly known as MFS Ltd — announced the operator of its Premium Income Fund is claiming $147.5m from OCV relating to investments made by the fund. The ATO is also demanding $56m of unpaid income and around $4m in interest. OCV remains in a trading halt and in discussions with creditors. OCV last traded at 99c.
China’s and India’s stockmarkets are the worst performing stockmarkets in the world so far this year. Chinese and Indian stocks are down 46% and 28% respectively since the beginning of 2007.