Morning Market Report, Jul 15, 2008

The market is down 88. Financials down 3.3% after the biggest fall in financials in the US in eight years. Resources outperforming relatively, down 0.3%. Property down 3.4%. SFE Futures were down 37 this morning.

Dow down 85. Up 139 at best. Down 97 at worst. S&P500 nearly 22% off its October high. Paulson’s 3-point plan to bail out Fannie Mae and Freddie Macquarie initially had the market opening up 139, but when Jim Rogers got on Bloomberg and said the plan was an “unmitigated disaster” and that Goldmans were predicting more falls in the companies, the financials plummeted. Financials down 5.14% — the biggest one day fall in 8 years. 96% of financial companies on the S&P500 fell. The Fed have given Fannie and Freddie access to the discount window if need be. Fannie and Freddie initially opened up about 30% higher, but plummeted soon after on thoughts the Treasuries’ plan was aimed at depositors not shareholders — Goldmans predicted they’d fall another 35% – thrifts and mortgages down 13%. Financials also dogged by the collapse of IndyMac Bancorp which was seized by the FDIC over the weekend – it is the largest thrift to fail in US history. IndyMac had fallen 99% from its 52-week high before its final collapse and now investors are fearful of other regional banks going down — Regional banks were down 11%. Washington Mutual fell 35% — its steepest fall ever – and National City fell 19% to a 24-year low, even as they rejected claims of financial problems amidst a run on their banks. They said they’ve seen no unusual depositor activity. Utilities were the next worst performing sector — down a relatively small 1.3%. Resources outperformed again – metal prices all up except for Nickel. Only 2 out of 10 sectors up — energy outperformed – up 0.8%. Fed passed new rules to crack down on certain dodgy lending practices to prevent future credit crises. Investors fled to the safety of bonds — treasuries up 26bps sending its yield down to 3.86%.

Both BHP and RIO up in ADR form overnight, 0.48% and 0.32% respectively. BHP down 0.4% to 3974c. RIO down 0.4% to 12301c.
Metals mostly up overnight — Aluminium up 0.37%, Zinc down 1.29% and Copper up 0.30%. Nickel was down another 4%.
Oil price up 20c to $145.16 — above $145 for the third time this month — the price has been supported lately by President Bush’s decision to lift an executive ban on offshore oil drilling. Woodside up 2.2% to 6205c.
Gold up $13.40 to $973.70. Newcrest up 1.7% to 3300c.
US Bonds up with the 10 year yield down to 3.86% from 3.96%.

The Minutes of the last RBA Meeting point to rates remaining on HOLD with the comment that current interest rate settings are “exerting the appropriate degree of restraint.”

The A$ hits another high of 97.39c. We are on our way to parity. The fact that the US Government is about to quasi underwrite $5.3 trillion of residential loans through their support of Fannie Mae and Freddie Mac does nothing for the US$.

Banks smashed today — most off more than 3% following the lead from the US financial sector. Macquarie down 6%. ABN AMRO comments on the whole sector saying “given global sentiment towards financials is likely to remain negative due to the prospect of further writedowns and capital raisings, we maintain that a sustained bounce-back of Australian bank share prices is unlikely in the short-term.”

The RBA has estimated the impact of the Apache West Australia gas plant explosion on the Australian economy will take 0.25% off GDP – but gives no time frame for slowdown. WA economic output to be impacted by 3% due to the disruption.

ACCC’s July 31st grocery price inquiry likely to have an $810m impact of lost revenues across the retail sector. Retailers down today. Woolworths loses 2.8%, Wesfarmers 3.8%, Metcash 2.3%.

Allco Finance Group (AFG) up 20% early announcing they have reached agreement with senior banks on new financing terms which will run until September 2009 — at a margin of 3.5% if debt $600m or greater. No market cap review clause will exist. AFG on track to reduce debt to $400m by June 2009.
Centro Properties (CNP) has agreed to sell 29 of its 31 shopping malls in its wholesale Centro America fund for US$714m to pay back debt. Gives CNP a little space with its bankers while it works to sell assets to settle mounting debt to the tune of $6.6bn. It sold the assets at a 10% discount to their previous book value, which won’t help when they go to sell assets from their Australian wholesale fund. CNP up 22%.
Babcock and Brown Infrastructure’s (BBI) analyst’s briefing highlights less than a 0.5% FY08 EBITDA impact from the Varanus Island gas supply crisis. WestNet Rail FY08 capax slightly above forecast. BBI flat. It was up 6% yesterday.
Crown (CWN) hits a record low. Down 6% or 50c to 782c on fears for a global slowing in gaming expenditure, uncertainty over their acquisition intentions and hurdles for their Macau JV business put up by visa restrictions on mainland Chinese.
Incitec Pivot (IPL) said its ammonium phosphate plant at Phosphate Hill has returned to normal operating conditions after essential repairs costing $49m in net profit. Up 2.93%.
Leighton Holdings have announced a $130.6m contract from RIO. Share price down 4.39% or 200c to 4360c.
Goldman Sachs ups aluminium price forecasts after a 10% cut in Chinese production.
Bernanke gives his testimony on monetary policy to the Senate Banking committee tonight.