The market is down a big 62. The SFE Futures suggested a 73 point fall in the market this morning.

The Dow Jones was down 147 overnight – It moved in a 150 point range and closed over 1% down on the back of disappointing economic numbers and some profit taking from investors. The International Council of Shopping Centers announced sales at 53 US retail chains fell a combined 2.4% last month causing most retailers to close lower. Retailers have been struggling due to higher oil prices; around 80% of them have missed analysts sales expectations. The trade deficit increased to its highest level in six months on higher oil imports, some economists are now suggesting the government may reduce its first quarter GDP estimate. The Dow was due for a pull back considering it had put on more than 1,000 points since the start of March, the S&P 500 closed 1.4% down and NASDAQ had a bad session finishing 1.7% lower.

Resources all down. BHP down 100c or 3% to 3080c and RIO down 182c or 2% to 9006. There seem to be a lot of traders thankful for the opportunity to buy RIO on weakness. Metals mostly down. Aluminium down 1.7%, Zinc down 2% and Copper 2%. Zinifex down 41c to 1794c. Nickel up 1.4%. Oil price up 31c to $61.85 making up some of yesterday’s losses after the US government announced a larger-than-expected increase in US oil and fuel inventories. Woodside down 90c to 4230c. Gold down $15.50 or 2.3%. Newcrest down 43c to 2277c.

Our market has followed the lead from the Dow Jones overnight and is currently down 1%. RIO Tinto (RIO) back around $90 after nearly breaking through the $100 mark this week – a bid from BHP does appear to make sense for BHP shareholders. The enthusiasm with which everyone accepted the rumour is testament to the wind behind the resources sector, the willingness of the market to believe anything and the availability of free cash flow in the sector. My grandmother could borrow the money from the ANZ and bid for almost any resources stock and be able to cover her interest payments with the free cash flow a few times over. Twice in the case of a bid for BHP or RIO.

  • Coles Group (CGJ) down 1c to 1779c. Talk is that Tesco will walk away from the Coles situation. One broker this morning said if WES is successful in acquiring CGJ it could trigger a credit downgrade to BBB+ which could significantly impact WES’s Insurance business. They say it might lose key clients if it is not an “A rated” business.
  • Allco Finance (AFG) announced this morning it is considering a hybrid capital security issue as it looks into diversifying its longer term funding sources. It appointed UBS Warburg, ABN AMRO and Westpac to explore hybrid options. The market doesn’t like the idea, AFG down 27c to 1111c.
  • Fosters (FGL) up 1c to 653c after saying Australian grape harvest is down 30% and it is possible that the 2008 harvest may be down 20-25%. They are talking at the Goldman Sachs JBWere’s consumer products conference. Still lingering talk that it will be bid for.
  • AGL Energy (AGK) is entering the wind farm market announcing it has bought the right to develop a 71 megawatt wind farm in South Australia. The right was purchased from private owners Wind Prospect but no price was disclosed. AGK down 3c to 1522c.
  • Petsec Energy (PSA) down 12c or 7% to 140.5c after one of its wells was temporarily plugged and abandoned.
  • Alinta have announced that they have signed a revised agreed “scheme implementation agreement” with Babcock & Brown/Singapore Power. In other words they have rejected the Macquarie Bank consortium and agreed an upped offer from BNB worth 1606c plus 40c of franking credits…an improvement of almost 100c on the last offer. They say the bid from Macquarie offered “similar headline financial outcomes” but the BNB bid offers more “completion certainty” and a higher confidence in the scrip value of the bid. There will be a scheme meeting in August and completion by the end of August. The stock starts trading at 12.20pm. BNB is down 53c to 2885c before the announcement. MBL down 202c to 8815c.

We have a couple of articles in MARCUS TODAY today. One title ‘Want to buy something?’ highlighting stocks in the ASX 200 with the highest gross yields and lowest PE’s and an article titled ‘Want to sell something’ showing a list of stocks that are vulnerable in a market downturn by reason of their recent performance or high PE and nearness to their year highs.

THE MORNING MARKET REPORT is provided by the MARCUS TODAY daily stockmarket newsletter. You can subscribe for a free five day trial here.

Peter Fray

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