Morning Market Report

The market is down 18 points. The Dow Jones finished down 37 — it was down 77 at worst. Now 15522. The S&P 500 closed down 6.

Markets a bit subdued ahead of the FOMC meeting at which the market is expecting to hear when the Fed will begin tapering its bond-buying program — current expectations suggest the first cutback will be announced at its September meeting. We are also anticipating a second-quarter preliminary GDP number tonight and official US jobs numbers on Friday.

The Chinese market was down 1.72% yesterday, with Japan down another 3.32%. Japan is down 7.8% in a few days in the wake of disappointing Japanese retail sales data and the uninspiring Chinese industrial company profits over the weekend. Bank of Japan governor Haruhiko  Kuroda said yesterday that Japan’s economic expansion would be moderate going forward. He warned that time was needed before the BOJ’s inflation target was reached.  

Soft June pending home sales data dented sentiment. Since the 30-year fixed mortgage rates started trended higher on tapering talk last May sales activity in the US residential sector have fallen off. See below for more. 

European markets mostly up — the UK FTSE up 0.08%, the German Dax up 0.17%, the French CAC up 0.01% with Spain up 0.27%, Italy down 0.89%, Greece up 1.00%.

Big UK bank Barclays Plc dropped by 3.5% on press reports it was readying to issue new capital of up to 5 billion pounds. The bank is also expected to exit what are now deemed to be “non-core” assets. Barclays reports its second quarter results tonight with earnings of 2bn+ pounds expected (powered by cost reductions and its investment bank). 

Metals mixed. Nickel the worst down 1.07%. Oil price down 15c to $104.55 despite reports that Egypt’s Muslim Brotherhood had urged its followers to march on security installations on the Monday in support of ousted President Mohamed Morsi.  Gold price up $6.90 to $1328.40. The gold price is up 12% from its low of $1179 on June 28. It recently peaked at $1348.70. Spot iron ore was down by 90c to $131.70. The price is up 20% in 8 weeks on Chinese restocking. There are fears that process may now be coming to an end in which case the iron ore price is now under threat. 

Best US sectors — telecoms (+0.7%) and basic materials (+0.5%). Worst US sectors — energy (-0.8%), financials (-0.7%) and consumer services (-0.6%). 

ANNOUNCEMENTS & STORIES 

• Woolworths (WOW) — Fourth-quarter sales update was OK. Sales rose 4.3% to $59.16 billion despite weak consumer confidence and low inflation. Australian food and liquor up 6.6% to $40.03 billion. NZ supermarkets division up 6.9%, petrol division up 1.2%, Big W up 4.9%, home improvement division up 49.6% and hotels division up 22% for the year. CBA analysts say the fall in share price this morning could in part be a reaction to the weak Big W figures, which were hit by adverse weather reducing clothing sales numbers.
• Rio Tinto (RIO) — Last night announced that it will be delaying the $5.1 billion underground expansion of the massive Mongolian Oyu Tolgoi gold and copper mine after the Mongolian government said its parliament would have to approve the provisional financing for the project when it returns from summer recess. RIO has been struggling to get things moving with the Mongolian government since last year. The Mongolian government wants to ensure it reaps what they consider adequate returns from the project after RIO raised the cost of developing the mine. Likewise, RIO wants to ensure it earns an adequate return after investing billions of dollars into the project. Parliament is due to return from recess in October. This means RIO will have to wait until October to secure approval for $4 billion in financing that has already been lined up with 15 global banks.
• Navitas (NVT) — Has reported its financial year  results. Profit was up 1.9% to $74.6 million, which was better than expected. Final dividend of 10.2c. Profit was 4% below broker consensus of $78.5 million.
• Amcor (AMC 1045c) — Macquarie has an outperform recommendation with a target price of 1105c. It says AMC is a significant beneficiary of a weaker Aussie dollar, with 84% of revenue coming from offshore. It thinks the Aussie dollar will fall further, which presents significant upside for the company (and any other A$ beneficiaries).
• Breville Group (BRG 745c) — Macquarie has an outperform recommendation with a target price of 780c up from 620c. It says the stock has rallied hard and is now back to where it was before the loss of Keurig earnings. This makes the stock fully valued at its current levels but is good value for the longer term.