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Morning Market Report

A big day for overseas markets, particularly in the UK.

The market is up five points. The Dow Jones was up 75 at 16,532 — The market opened strongly, reaching the day’s highs early, before drifting lower after mixed economic data. It strengthened again in the afternoon session and traded in a 100 point range. Volume was lighter than average.

The S&P rose 0.7% at 1886, a fresh record high.

US economic data was mixed  — The ISM manufacturing reading for index was 53.7, up from 53.2 previously but lower than the expected 54. And the Markit final Manufacturing PMI dropped to 55.5 from 57.1.

European markets were stronger  —  The UK FTSE rose 0.82% and the German DAX was up 0.50%. The French CAC 40 hit its highest level since September 2008 during afternoon trade, closing up 0.8% after data showed the country’s manufacturing sector was recovering.

The Australian dollar fell to a low of US 92.30c and is currently at US 92.42c. The RBA held its key rate unchanged at 2.5% while reiterating rates are likely to remain on hold for the foreseeable future.

US bonds were weaker and the 10 year bond yield was five basis points higher at 2.755%

Iron ore rose US$0.80 to US$117.60 a tonne.

Oil fell 1.82% to US$ 99.73 a barrel following weak Chinese data and ahead of inventory data tomorrow which is expected to show another increase in supply. There were reports Libya was close to a deal with rebels, freeing exports blockaded by the rebels since July.

Gold fell US$4.40 or 0.34% to US$1279.00 an ounce.

Fed Speak  —  Atlanta Fed President Dennis Lockhart gives his economic outlook tomorrow and St Louis Fed President James Bullard will also be speaking.

STORIES

  • Goodman Fielder (GFF) — Have issued a profit warning after competition intensified in sales of grocery items and New Zealand dairy farmers charged more for milk. Conditions have become worse since February, when they said earnings would be broadly in line with last year’s $185.6 million. The company now says earnings are more likely to be 10%-15% below an analyst consensus of $180 million.
  • Crown (CWN 1666c) and Echo Entertainment (EGP 248c) — Are up against each other again in a fight to build a new $1 billion casino at the Queen’s Wharf development in Brisbane. Both casino operators also face competition from Lend Lease (LLC 1195c) and Chinese Greenland Holdings for the possible second casino in Brisbane. Six companies including EGP and CWN have applied to develop Queen’s Wharf, a massive Brisbane city revamp which comes with 700 metres of river frontage.
  • NextDC (NXT) — Announced that it has completed two new data halls in their Melbourne and Sydney data centres.
  • BHP Billiton (BHP 3705c) — Shares closed up 1.82% yesterday after news that the company is considering spinning off non-core assets which include aluminium, nickel and bauxite businesses, potentially realising close to $20 billion which could be returned to shareholders. BHP said: “We continue to actively study the next phase of simplification, including structural options, but will only pursue options that maximize value for BHP Billiton shareholders.” It comes as part of BHP’s four pillars strategy, focusing on iron ore in the Pilbara, US petroleum, copper in South America and coal in Queensland’s Bowen Basin. Potash remains a potential fifth pillar. According to Deustche Bank, BHP has the potential to make $US25 billion of asset sales. The news should be a positive for the share price going forward, demergers are often well-received by the market. So far only Merrill Lynch has released a note. They have a “buy” recommendation with a target price of 4550c, and say that if BHP were to sell off assets anytime soon, it would reduce EPS by 3%-6%. The overall message is that BHP is looking to unlock value which could trigger a re-rating. On the chart, BHP is showing a technical reversal just above support around 3550c.

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