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Morning Market Report

Markets stayed subdued on the back of the release of half-year results.

The market is down 2.4 points. The Dow Jones closed up 16 to 15,755. The market traded within a 75 point range throughout the day, moving higher throughout the day.

The focus over the day was the likelihood of the Federal Reserve tapering the $85 billion asset purchase program at this week’s FOMC meeting. While the March meeting remains the most likely date, there is still a chance of an earlier start to the wind-back of the stimulus program, and trading is likely to remain subdued until an announcement is made. The PPI data was subdued with the PPI down 0.1% for November, the third monthly decline.

The S&P was flat to 1,775.

Oil was down 0.92% at US$96.60.

Gold rose $9.70 to US$1234.60 per ounce.

The US$ was steady against most major currencies. The Aussie dollar was stronger and is currently trading US$89.61c.

VIX volatility index rose 1.42% to 15.76.

US Treasury markets were stronger —  the yield on the 10 year bond fell two basis points to 2.867%.

European shares were weaker  — reaching two month lows with the UK FTSE down 0.08%, the French CAC falling 0.23% and the German DAX down 0.12%.

European bonds were stronger, with the yield on the Euro 10 year bond down one basis point at 1.827%.

Base metal prices were stronger —  with Zinc up 0.89%, nickel up 0.65% and copper up 0.50%.

Iron ore was down US$1.90 at US$136.00 a tonne.

STORIES

  • Insurance Australia Group (IAG) — To acquire Wesfarmers’ (WES) underwriting business in Australia and New Zealand and conduct a capital raising. The acquisition is expected to deliver modest earnings per share (EPS) accretion in its first full year of ownership, and at least 5% accretion in the second year. The acquisition will be funded from a combination of ordinary equity, subordinated debt and internal funds. This includes a fully underwritten $1.2 billion institutional placement at 547c per share, a 4% discount to the closing IAG share price on the 13 December 2013.
  • Macquarie Group (MQG) — Trades on a Post Consolidation Basis (Code MQGDA.ASX).
  • AWE  — Rejects Senex (SXY) offer.
  • Commonwealth Property Office Fund (CPA) — The battle for the $3 billion office landlord is heating up with DEXUS and Canada’s Pension Plan Investment Board gaining ground on GPT Group (GPT) with a sweetened bid and the signing of a facilitation agreement with CBA. Dexus (DXS) and Canada Pension Plan Investment Board, the original bidders, submitted a sweetened $2.98 billion dollar cash and shares offer. This beats rival GPT’s A$2.9 billion counter. The cash component of Dexus’s new bid now exceeds GPT’s, 77.45c to 75.325c. The market is expecting GPT to come back with an increased offer.
  • Aurizon Holdings (AZJ) — Have booked a one-off $150 million write down in the first half after they decided to scrap/ sell trains and wagons that they will no longer need over the next five years. They will also book a $47 million charge following a review of strategic projects including those in the Surat and Galillee basins in Queensland. In total they will book an asset impairment of between $130-$150 million due to the disposal of 181 locomotives and 2675 wagons.
  • Whitehaven Coal (WHC) — Protesters are blocking the entrance to a controversial northwest NSW coal mine, vowing to stop tractors from clearing the forest. They argue that the Maules Creek mine will destroy endangered woodland in the Leard State Forest and release thousands of tonnes of coal dust onto surrounding farms.
  • Crown Resorts (CWN 1590c) — Closed down 4.3% last Friday after the Victorian government announced a surprised poker machine levy. Crown says it is in talks with the government about the changes.
  • Rio Tinto (RIO 6509c) — Closed down 5c to 6509c last Friday after the company and the NSW Government denied claims they are abusing the planning process to expedite an expansion approval of the Warkworth Mine in the Hunter Valley.
  • Warnambool Cheese & Butter Co (WCB 920c) — Canadian diary giant Saputo extended their takeover offer for WCB by a week.
  • Yancoal (YAL 74c) – Closed up 2.78% last Friday after they received a long-term $281 million loan from their Chinese parent company. This follows news that foreign ownership rules were removed.
  • Qantas Airways (QAN 100c) — PM Tony Abbott has suggested he may support the removal of foreign ownership restrictions on Qantas. He said that the airline’s push for a level playing field was not unreasonable. The current foreign ownership rules limit foreign ownership to 49%. Because of this Qantas argues the limit hurts their ability to compete against domestic rival Virgin which owned by 3 airlines — Singapore Airlines, Air New Zealand and Etihad. The media is also talking about the introduction of a standby debt facility, backed by a government guarantee to help support the airline’s credit rating. This could help improve Qantas’ position.

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Property Observer

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