The market is up 7. The SFE Futures suggested a 6 point rise in the market this morning.
The Dow Jones closed up 41 in a half session ahead of the 4 July holiday (markets closed tonight) moving in a relatively narrow 60 point range and closed higher for the second consecutive session on plenty of takeover activity and encouraging economic data. There was $11bn plus of acquisitions mentioned overnight. Kraft Foods Inc. announced they would offer $7.2bn for the biscuit division of French company Groupe Danone, Teck Cominco offered $4.1bn for Canadian copper miner Aur Resources, and Wendy’s International majority shareholder and billionaire investor Nelson Peltz said he might bid for the company. The Commerce Department said US factory orders fell by a lower-than-expected 0.5%, half what economists had expected and the NASDAQ had a good session closing 0.5% higher; Apple’s Inc. shares hit a record high overnight thanks to the iPhone.
Wall Street had an early closing and will be closed tonight for the Independence Day holiday.
Resources doing well today… BHP up 30c to 3618c and RIO up 37c to 10107c. Metals mostly down overnight, Aluminium down 0.4%, Zinc down 0.9% and Copper 0.1%. Nickel up 1.1%. Zinifex unchanged at 1898c. Oil price up 30c to $71.41 on concerns about gasoline supplies ahead of Thursday’s government inventory report. Woodside down 4c to 4629c. Gold down $3.80. Newcrest down 11c to 2279c.
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THE RBA LEFT RATES UNCHANGED at 6.25%. No great surprise. A$ up a touch at 85.57c. Bonds down a touch. The CPI numbers on 25 July come into focus. Jury still out on an August rate rise.
- Questions are being asked about why the Coles Group (CGJ) share price is below the WES offer. Answer is – WES goes ex dividend (probably 150c) on or about the 21 August. So by the time the deal goes through in October WES will be down 150c on the current price. That makes WES worth 4110c to a Coles shareholder (4260c minus 150c) and the bid worth 1593c or 1561c after taking off the time value of money (2% cost over 3 months). There is also the chance that the deal could be terminated (if the WES price drops significantly). Both Coles and Wesfarmers can terminate merger if the volume weighted average price of WES drops below 4116c for 20 days. WES up 5c to 4265c and CGJ up 1c to 1563c. On that basis Coles is perfectly priced and is not actually a cheap way into WES.
- CSR Ltd (CSR) up 8c to 357c this morning after Ron Brierley’s Guinness Peat Group paid $184m to take up a 6% shareholding in the company. Talk is that he might bid for the entire company or just bid for their sugar operations division – regardless GPG must see some value there if they are throwing money at it.
- Fairfax (FXJ) up 5c to 460c. Brokers are calling the deal to buy Southern Cross’s (SBC) radio operations as a sensible one as radio stations are impacted less by the internet. There is some criticism that they are paying a full price. This acquisition allows Fairfax, publisher of 47 newspapers in VIC and NSW to diversify its earnings that are consistently being pressured by the internet.
- Crane Group (CRG) up 81c or 5% to 1701c after announcing they had raised $60m in an institutional placement to partly fund their $100m acquisition of Kingston Bridge Engineering. The placement was underwritten by Merrill Lynch and closed oversubscribed.
- Telstra (TLS) has provided shareholders with the opportunity to participate in a dividend reinvestment plan, which will allow investors to reinvest dividend payments without the cost of brokerage. TLS up 3c to 464c.
- Mineral Deposits (MDL) up 9c or 6% to 140c on talk that it will be taken over.
- The A$ is at a 22 year high, has been the third best performing of the 16 major traded currencies this year and just had its best financial year since 1992. Also on the currency front there is a front page article in The Australian newspaper is highlighting today how some of the smaller resources projects have been marginalised by the rising A$. Goldman Sachs JB Were just upped their A$ forecast and have downgraded a number of stock on the back of it. Running into the results season we are likely to see a number of companies with profits warnings/adjustments because of currency. Most obvious ones are overseas earners, Building material stocks, builders, steel stocks, stocks like CSL, ResMed, Billabong, Pacifica, Amcor and PaperlinX. Resources as well but you probably shouldn’t sell them for this reason.
- Goldman Sachs JB Were has a MARKETPERFORM/BUY recommendation on Perilya Mines (PEM) after a company update which was pretty much as expected. They say it is relatively inexpensive compared to its peers. They say the key is for the company to meet its production targets. PEM up 19c or 4.28% to 463c.
- Weak Retail Sales numbers yesterday are being blamed on a 13% rise in petrol prices in the last 3 months. Retail sales were down 0.1% against forecasts for a 0.7% rise making +5.7% YonY. More depressing perhaps was the revision of the April number from +0.1% to -0.3%. May Building Approvals were also down 5.6% yesterday – that compared to forecasts of -1.4%. It has lowered the chance of an interest rate rise with most brokers suggesting there is a 50% chance of a rise in August.
- Trade Deficit numbers are good and show a deficit down to $807m in May from $916m in April. Much better than the $1.15bn expected. Good for the A$. The deficit improvement comes despite the strong A$….which makes imported goods more affordable. Imports up 2%. Exports up 3%.
The Rinker risk free arbitrage is opening up every day as the A$ rises. RIN is now 1850c. You can buy 2000 shares and sell them to Cemex at 1950c. There are thousands of 2000 share trades still going through in Rinker as people take advantage of it. If you have not got your head around this issue you should – all the details will be on the Marcus Today website later today. It is a unique risk free return of $2,000 less costs of dealing. I have joked about this being the Mexicans giving you a free holiday in Hayman Island. It is not a joke. Some people are doing it many many times in as many different entities as they can find. You need to call your broker if you don’t understand it. Go to Marcus Today to read about it (members only).
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