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Morning Market Report

Markets worldwide bounce back after a tough start to the week.

The market is up five points.

The Dow Jones was up 72 at 15,445 — after an initial dip, the market strengthened during the day to be up 109 points at one stage. It dropped in the final hours, trading in a 120 point range.

The market recovered from heavy losses yesterday with limited external influences. Economic data was limited to factory orders which fell 1.5% after a 1.5% rise the previous month. Excluding transportation, which fell 9.7%, factory orders rose 0.2%. Company earnings continued to come in — Michael Kors and Yum! Brands were both strong. More than 60 companies are expected to report results after the close.

The S&P rose 13 points to 1755.

Oil was up 1.22% at US$97.61.

Gold fell $5.40 to US$1254.50 per ounce.

The US$ was marginally stronger against most major currencies and the Australian dollar was also stronger after the RBA statement yesterday which suggested interest rates were on hold for the rest of 2014.

The Australian dollar is currently trading at US89.32c.

VIX Volatility index fell 13.01% to 18.65.

US treasury markets were weaker  —  the yield on the 10 year bond rose five basis points to 2.632%, as demand for “safe haven” assets waned.

European shares were mixed after disappointing earnings result — the FTSE fell 0.25%, the German DAX was down 0.64% but the French CAC rose 0.24%.

European bonds were generally weaker  —  the yield on the Euro 10 year bond rose one basis point to 1.651% and the UK 10 year bond yield was one basis point higher at 2.700%.

Base metal prices were generally stronger  —  aluminium was up 0.66%, lead rose 0.42% and copper was up 0.11%. Nickel fell 0.22% and zinc was down 0.10%.

Iron ore was unchanged at US$122.60 a tonne.

STORIES

  • Echo Entertainment (EGP) — first half underlying profit was up 1.3% to $71.5 million. Net profit was $46.1 million down 31% and below an expected $52.7 million. The company also announced that its CEO John Redmon will step down in the coming six months. Lower profits were blamed on one-off expenses of $22.2 million from “extinguishing out of the money interest rate swaps” and a lower actual win rate in the VIP gaming business. Interim dividend of 4c fully franked.
  • Acrux (ACR 208c) —  Has just come out of trading halt and is down 6%. The stock was put in trading halt pending a response to a story that the US regulator was looking to investigate whether their Axiron testosterone replacement therapy increased the risk of stroke and heart attack. This comes on the back of two separate studies, both showing an increased risk of cardiovascular events in patients prescribed the therapy. The fall in the share price coincides with some broker research we highlighted in the newsletter on Monday.Basically the company has denied that their Axiron product increases the risk of stroke, heart attack and death. The FDA has not concluded their investigation and these reports are not uncommon.
  • Downer EDI (DOW 480c) — Closed down 1.23% yesterday after posting positive profit results. First half profit was up 5.4% to $99.1 million which was in line with one broker forecast of $99.6 million and ahead of a consensus forecast of $95 million. The company says they are on track to meet the full year forecast for a profit of $215 million. They expect the rest of this financial year to remain a period of consolidation for the business, rather than growth.
  • TPG Telecom (TPM 501c) — Has been sold off this week by 7.22% after Communications Minister Malcolm Turnbull questioned the legality of TPM’s plans to rollout its own Fibre-to-the-Basement (FTTB) network. Although Turnbull has questioned the legality, the ACCC has indicated that they would not be opposed to or will not regulate TPM’s proposed FTTB roll-out. TPM’s share price has had a stellar run since it first announced plans to rollout this network.
  • Fortescue Metals Group (FMG) has been issued with a prohibition notice to cease blasting at Christmas Creek following an incident on Friday. The Department of Mines and Petroleum is investigating a separate incident at FMG’s Solomon mine where several workers remained in a blast exclusion zone.
  • REA Group (REA) — Net profit increased 37% to $70.7 million. Revenue rose 30% to $209.4 million which was above an expected $198.4 million. The interim dividend of 22c. The company said that its strong profit result was due to the long term vision it took on their business. It saw where the property advertising market was headed and made a decision to shift its focus from subscriptions to depth products which met specific market needs.

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