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Morning Market Report

Profit expectations downgraded across the board.

The market isdown eight points.

The Dow Jones was down 43 at 16,066 — After an initial jump, shares eased lower throughout the day, closing near lows in a 120 point range on light volume.
Market attention was centred on developments in Ukraine, with comments by both Russian foreign Minister Sergei Lavrov, who said Russia had no intention of invading Eastern Ukraine, and US Secretary of State John Kerry who said nothing much had changed. Domestically, economic data was subdued with falls in both consumer sentiment and producer prices.

The S&P fell five points to 1841.

Oil rose 0.70%toUS$98.89.

Gold rose US$6.60 to US$1379.00 per ounce.

The US$ was weaker against most major currencies after weak producer price inflation data. The Australian dollar was weaker, trading under US90c at US89.99c.

VIX Index rose 9.86% to 17.82.

US treasury markets were weaker —  The yield on the 10 year bond rose one basis point to 2.654%.

European shares were generally weaker  — The UK FTSE fell 0.40% and the French CAC fell 0.80%, but the German DAX rose 0.43%.

European bonds were mixed —  The yield on the Euro 10 year bond yield rose one basis point to 1.546% but the UK 10 year bond yield was two basis points lower at 2.664%.

Base metal prices were mixed —  Lead rose 0.97% and copper rose 0.83% but zinc fell 0.31%, nickel fell 0.25% and aluminium was 0.07% weaker.

Iron ore rose US$1.40 to US$110.10 a tonne.

STORIES

  • Lend Lease has been appointed as the preferred renderer for the $2.65 billion NorthConnex Motorway in Sydney.
  • Wesfarmers (WES 4185c) — Will confirm by the end of the month whether it will float its $1 billion OAMPS insurance business. This morning Merrill Lynch reduced its recommendation to Underperfom and cut its target price by 22% to 3800c. The broker has taken into account a more subdued outlook for Wesfarmer’s businesses and reduced the potential for cost savings in its retail businesses. Earnings are going backwards in four out of eight Wesfarmers businesses. “Given its lack of growth, we expect Wesfarmers will look closely at acquisitions, which may dilute shareholder value initially, as has been the track record of past acquisitions.”
  • BHP is planning to return cash to shareholders within months as Chinese demand for resources fuels the miner’s increase in output. The miner has confirmed it will cut costs by $6.1 billion by the end of this year and a reduction in debt to $US25 billion. CEO Andrew Mackenzie said ”When we get that number ($25 billion), we will have a serious and practical conversation on how we might increase cash returns to shareholders.” Analysts say once BHP has reduced its gearing levels below 30% it could look to conduct a shareholder buyback or invest in further growth.
  • Ten Network (TEN) — JP Morgan has reduced its earnings forecasts ahead of the company’s first half 2014 profit results. It says that weak ratings for TEN has led to the downgrade in  revenue forecasts by -5% and -4%. The broker said
  • Westpac (WBC) — At a strategy briefing last Friday, the bank discussed the massive cost savings and higher productivity gains from restructuring branch networks and rolling out improved mobile banking services. Its proposed transformation plan will convert branches into more open and accessible venues for selling products. The bank has redesigned 34 Westpac branches and by the end of this year 75 will have been completed.
  • Aussie dollar  — Goldman Sachs has lowered its Australian dollar forecasts to US80c for the next year after a fall in the terms of trade, less supportive capital flows and concerns about Chinese financial conditions. Goldmans said “Our bearish Australian dollar forecast is underpinned by expectations that US data weakness is transitory, headwinds to Australian growth are intensifying, the next phase in the decline in the terms of trade has commenced and capital flows are turning less supportive”.

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