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Morning Market Report

Bad news for Qantas shareholders as the market finishes lower.

The market is down 17 points. 

The Dow Jones closed down 25. The market was initially up 46 before drifting to be down 123 on strong economic data (good news is bad news for the tapering timetable). The market then strengthened towards the close trading in a 170 point range.

Data releases were stronger than expected and generated speculation about the US Fed’s rhetoric at the December 17-18 FOMC meeting. The ADP employment report showed the economy added 215,000 jobs during November, higher than the 173,000 expected and the Beige Book said the economy expanded at a “moderate to modest” pace.

The S&P was down two points to 1,793.

Oil was up 1.3% at US$97.32

Gold rose US$22.00 to US$1242.80 per ounce (typical, just as we taker a loss on RRL it bounces).

The US$ was stronger against most major currencies. The Aussie dollar was weaker and briefly traded below US$0.90 overnight. It is currently trading at US90.30c.

VIX volatility index rose 1.24% to 14.73.

US Treasury market was stronger —  the yield on the 10 year bond rose five basis points to 2.834%.

European shares were weaker  — falling for the third session led by the German DAX down 0.90%. The French CAC was down 0.57% and the UK FTSE fell 0.34%.

European bonds were weaker, with the yield on the Euro 10 year bond rising nine basis points to 1.811%. The UK 10 year bond yield also rose nine basis points.

Base metal prices were stronger  —  led by copper up 2.02%. Aluminium rose 1.96% and nickel rose 1.49%.

Iron ore rose US$1.50 to US$139.70 a tonne.

STORIES

  • Qantas Airways (QAN) —  Down 14% after issuing a profit warning. It expects an underlying loss to be in the range of $250-300 million for the six months ending December 31 2013. This loss compares to a profit of $223 million last year and a 2014 financial year forecast loss of $110-160 million by the brokers. The profit downgrade is due to deterioration in conditions during November. Group capacity expected to increase by 1.1% in the first half of the 2014 financial year compared to the first half of financial year 2013. Group Domestic capacity expected to increase by 1.9% in the first hald of financial year 2014 compared to the first half of the previous financial year. Total domestic market capacity is expected to increase by 2.7%. Fuel costs are expected to be $2.27 billion. The outlook for the second half of financial year 2014 remains volatile. It has introduced pay freezes and will cut another 1,000 jobs. Board pay to be cut.
  • The US ADP employment report was out last night. 215,000 jobs were created in November versus the 173,000 expected. The report raises expectations for a strong non-farm payrolls report on Friday, where unemployment could fall to 7.2%.
  • AGMs today  — Nufarm (NUF).
  • Local Economic data today —  International Trade, Overseas Arrivals and Departures.
  • The iron ore sector led a 50 point rebound in our market yesterday as AGO announced strong demand for its 2014 iron ore production on better terms than expected sparking talk of an iron ore shortage. The iron ore price is up again overnight at a three month high defying the trend in metals and gold. It seems the sector is the one bright spot in the resources space.
  • International Economic Data  — US Weekly jobless claims, US September quarter GDP (second estimate), Factory Orders.
  • European GDP was confirmed as rising only 0.1% in the September quarter. The services PMI was generally better than expected but Italy and France were weaker.
  • The Aussie dollar fell as low as US89.99c for the first time in three months on the back of strong US private employment report. The next support level is the recent low of 88.48c, below that its 80c.
  • Fairfax Media (FXJ) — Has agreed to sell its Stayz business to HomeAway Inc for $220 million. Stayz is an online holiday rental booking service that began in 2001 and was bought by Fairfax in 2005 to boost its inventory of online news and classifieds websites.
  • Warrnambool Cheese and Butter (WCB) — Patersons have released a research report on the stock. It has a Hold recommendation with a target price of 1005c up from 667c. The company has been the subject of three separate takeover bids. The original market capitalisation value was $319 million, but has now blown out to $532 million with a bid of 950c. Although it is the lowest offer, Patersons favours the Bega Cheese bid as it provides shareholders with ongoing exposure to the business prospects of WCB.

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