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Morning Market Report

The department store war between David Jones and Myer dominated local trading.

The market is up 16 points.

The Dow Jones was up 109 at 16,331 — markets started the day lower after Fed comments suggesting earlier than expected increases to interest rates but turned positive after some positive economic data and the apparent realisation that interest rates would rise when the economic environment warranted the decision. The market traded in a 200 point range.

Yesterday the Fed surprised markets  — After saying the benchmark federal-funds rate would remain near zero for a “considerable time” after its asset-purchase program ends, Fed Chair Janet  Yellen attempted to clarify the term, saying it is “hard to define” but “probably means something on the order of around six months.” This was earlier than analysts had previously expected and led to falls in equity markets, bond markets and precious metals.

President Obama announced additional sanctions on 20 Russian officials and individuals with close ties to Vladimir Putin while also targeting Bank Rossiya, which is believed to have close ties to the Kremlin. The president also signed an executive order that permits the use of sanctions against specific sectors of the Russian economy.

In response, Russia announced sanctions of its own against ten US officials and is boosting its military presence in the Crimean region. The move to annex Crimea is happening faster than expected with shopkeepers already accepting roubles.

Gold fell US$13.30 or 0.99% to $1328.00 an ounce after the suggestion of sooner than expected interest rate rises.

Base metals weaker —  nickel down 2.96%, copper down 1.98% and zinc and aluminium both down around 1.5%.

US economic data was stronger  — leading indicators and the Philly Fed survey were both stronger than expected and the weekly jobs claims weren’t as bad as expected.

The US dollar was stronger against most major currencies but the Aussie dollar was also stronger and is currently trading at US90.42c.

Chinese property stocks were stronger on news that two firms received approvals to make private placements of shares, which could allow others to raise funds amid growing fears of defaults.

The European Council meeting of EU heads has started —  Leaders are discussing how to proceed with sanctions and how to resolve Europe’s dependence on Russian oil and gas.

German PPI was flat in February and fell 0.9% year-on-year, in line with expectations.

Fed Speak —  St Louis Fed President James Bullard will participate in a discussion on “Debt and Incomplete Financial Markets: A Case for Nominal GDP”.

STORIES

  • Metcash (MTS) — Metcash sneaked through a profit downgrade at around 5pm yesterday evening before its strategic update this morning. Earnings have been hit by weaker than expected performance and costs from making changes to its business. The company has undertaken a transformation plan following a strategic review that began in June 2013. MTS has been reviewing its food and grocery operations to address structural challenges and will be reducing inventory, restructuring private label products and reducing many of its prices. The overall net effect – value of assets may be reduced by $30-$35 million.
  • iiNet (IIN – 760c) — Founder and CEO Michael Malone is expected to leave the company today after 20 years of service. Acting CEO David Buckingham will take over until the company finds a replacement. The departure could spark TPG Telecom takeover rumours, as Mr Malone’s financial stake in the company and preference not to merge were key hurdles preventing the iiNet’s sale. Some analysts believe his departure could make the prospect more likely. IIN’s share price is up 18% since the start of the year.
  • Myer (MYR 252c) — Shares were down 5.26% yesterday after the interim profit results. It wasn’t so much the headline numbers that caused the fall — first half Profit of $80.8 million came in slightly ahead of a consensus. But the department store war seems to be going to DJS who reported a rise in profit from its department stores this week whereas MYR’s profit fell 8%. Disappointing. MYR’s total sales grew by just 0.3%, well below DJS’s 3.8% growth. MYR also cut its interim dividend to 9c a share from 10c whereas DJS left its unchanged at 10c a share. Myer CEO Bernie Brookes talked about expecting gross margins in the second half to be flat compared to previous guidance of around +40 basis points. Cash costs are expected to rise 4%-5%. JP Morgan says the ‘drop in gross margins was not expected and weighed on the result’. They believe a merger with DJS is more a possibility than a probability. With DJS looking the more robust and led by the newly enthused Paul Zahra the takeover now looks unlikely (which is perhaps good for MYR’s share price) unless MYR comes back and offers a higher premium. If the market the deal is off, DJS might fall back to levels before the takeover was announced so the risk is higher in DJS.

Womens Agenda

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