The market is up 16 after being initially down 34 at one stage. The SFE Futures suggested a 27 point fall in the market this morning.

The Dow Jones was down 22 overnight – It moved in a narrow 58 point range and finished slightly lower in a quiet session ahead of the start of the 3rd Q earnings results season and the FOMC Minutes tonight. The bond market was closed for the Columbus Day holiday and there was no major economic news to push the market significantly in either direction. The energy sector fell after a 2.8% fall in the oil price, and miners finished lower on concern a slowing US economy would reduce demand for energy and metals. In takeover activity, Thompson Corp.’s $17.7bn bid for Reuters Group is expected to come under closer scrutiny after the European Union said the acquisition raises competition concerns for the supply of financial information. The Royal Bank of Scotland will ask their shareholders to vote on the $101bn acquisition of ABN AMRO Holdings. The S&P 500 closed down for the first time in 3 sessions, and the NASDAQ finished slightly higher. Google Inc. shares (up 2.6%) surpassed $600 for the first time. It has taken 11 months for the stock to rise from $500 to $600 and it is up around 27% since bottoming at $480.46 on August 16. Also worth noting the nine year old Google has a higher market cap. ($189.6bn) than Wal Mart, the worlds largest retailer which has been around for decades.

Resources not doing so well today…BHP down 74c to 4395c and RIO down 272c to 10860c. BHP has taken 13 points off the ASX 200 and RIO 4 points. Goldman Sachs JB Were maintained their “Buy” recommendation and 11645c target price on RIO saying since “the time of RIO’s announced bid for Alcan on 12th July there have been significant movements in both aluminium price and the main currencies where Alcan operates (AUD, CAD and EURO).” UBS Warburg ups their target price on BHP from $45 to $52 and on RIO from $128 from $118 on the back of higher iron ore and copper price assumptions. BHP earnings up 6% and 10%. RIO earnings up 10% and 12%. Despite that they downgrade the resources sector to NEUTRAL saying “Despite our relatively positive view on commodity performance going forward, we would argue that mining equities currently factor in much of this already”.

Metals all down overnight, Copper down 3.1%, Nickel down 4.1% and Zinc 3.6%. Aluminium down 1.6% Zinifex down 20c to 1855c, UBS Warburg cut their recommendation on ZFX to “Neutral” from “Buy” after recent share price appreciation despite maintaining their 2000c target price. The stock is up 13% in the last month. Oil price down $2.23 to $78.97 to a four week settlement low on the back of an easing storm threats to the Gulf of Mexico. Woodside down 63c to 5115c. Gold down $8.50. Newcrest up 18c to 2843c. Citigroup cut their recommendation on NCM to “Hold” due to recent share price appreciation. Despite the downgrade, they upped their target price to 3300c from 2860c and say M&A activity is on the cards within 6-12 months if operational improvements and consistency are achieved.

A little quiet on the announcement side of things…

  • Healthscope (HSP) have made a new proposal to Symbion Health (SYB). It includes an offer worth 423c to 443c a share with some assets going to Healthscope and other assets to private equity firms Ironbridge Capital and Archer Capital. The offer is actually a couple of percent below the last HSP offer that was blocked by Primary Health Care. The Symbion price is not impressed (down 3c to 417c) and the HSP share price is down 6c to 569c. HSP down 6c to 569c.
  • Perhaps the interesting part of this deal is that Private Equity activity is not dead. As the credit crunch recedes, as the Bernanke Put becomes established, the confidence increases again as does the ambition. Perhaps we should start worrying about stocks being bid for by Private Equity again. Stocks on the potential bid list include: Orica, Brambles, IAG, AMP, AWB, ABB, FGL, RIO, MAH.
  • Leighton Holdings (LEI) has received the green light to up their current 14.9% stake in Macmahon Holdings (MAH) by the Foreign Investment Review Board. The company are also planning to sell over $400m worth of bonds together with ABN AMRO to finance the acquisition of Sydney’s Cross City Tunnel Group. LEI up 16% in the last month and up another 95c today to 5715c.
  • Fosters up despite ABN AMRO downgrading their recommendation to a HOLD after the recent price rise – there is a bit of bid speculation creeping into the price – the UK/European brewing sector is alive with talk of bids including Scottish & Newcastle and Molson on the move on SAB Miller bid talk. FGL up 4c to 690c.
  • Woolworths hitting a new record high today, up 87c to 3178c. Some stocks may bore you to death but you simply never sell them out of a long term portfolio. WOW is outperforming the market in a resources boom. Since the start of the resources boom in June 2003 Woolworths has outperformed the All Ords by 41%.
  • Monadelphous (MND) up 65c to 1561c today after presenting at the Macquarie Emerging Leaders conference with a presentation entitled “Sustaining Growth”.
  • US dollar recovering a bit against all currencies – the A$ went over $90 yesterday (23 year high) with talk of parity before long. The Canadian dollar recently hit parity for the first time since 1976.

We have a comment in the MARCUS TODAY newsletter today on the A$ going as it heads to parity including which stocks are most likely to be impacted. We also have a picture of the All Blacks on their way back from France (courtesy of our Kiwi office).

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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