The market is down 109 on the back of heavy losses on Wall Street overnight. The SFE Futures suggested a 116 point fall in the market this morning.

The Dow Jones lost 219 overnight – It moved in a 310 point range and wiped out Friday’s 181 point low volume gain on the back of continued credit market concerns. Financial stocks dominate the headlines, the sector lost 3% overnight helped by a 5.5% fall in Citigroup shares after a CNBC report said the bank may cut around 45,000 jobs. There is also the news that Bank of America, JP Morgan Chase and Citigroup are all trying to convince competitors to assist them in putting together an $80bn “SuperSTV” fund to bail out STV’s, companies that borrow short-term to invest in high yielding securities. Both Fannie Mae and Freddie Mac fell nearly 10% after UBS cut their recommendation on the two to “neutral” from “buy”. The NASDAQ fell 2%.

Resources struggling along with the rest of the market, BHP down 64c to 4147c and RIO down 185c to 13615c (it was down 300c at one point). RIO held a presentation in London overnight – RIO have pulled out all the stops – flexing some muscles in their push to appear as big as possible and get a better price from BHP. They kept saying “its all about value” and unveiled a huge iron ore expansion, committing to spend $2.7bn to expand Pilbara capacity. Worth noting the RIO comments on the commodities cycle – Strong commodity prices to remain for decades.

Metals mostly up overnight, Zinc was the big mover (up 4.8%), both Aluminium and Copper up 0.6% and Nickel down 0.9%. Zinifex down 33c to 1438c. Oil price down 58c to $97.66 on talk OPEC will agree to up crude production during a meeting next week. Woodside down 97c to 4782c. Gold up $1.80. Newcrest doing well today, up 9c to 2509c.

  • HEALTHSCOPE BID FOR SYMBION IS OFF – Symbion say the ATO have ruled against rollover relief for the Healthscope bid and that the Healthscope bid will not now proceed. They still reject the Primary Healthcare (PRY) bid (at 410c cash) as inadequate but say an acquisition of SYB by PRY would still be earnings accretive for PRY at a price well over 450c (inviting a bid at above 450c presumably). Friday’s scheme meetings to vote on the SYB bid from HSP will not now proceed. SYB down 21c to 387c. HSP up 20c to 563c.
  • The market will be carefully listening to ANZ’s boss Michael Smith later on today to see if the bank will be lifting its interest rate more than the RBA move. Investors and home owners became nervous last month when Smith said banks are facing higher wholesale funding costs due to the credit crunch, which can’t be absorbed forever and will eventually have to be handballed to customers. CBA have said the same thing. ANZ down 42c to 2720c.
  • Tower Australia (TAL) have disappointed with their profit result this morning, the stock is down 5% to 255c after announcing a lower-than-expected $40.7m profit, up 29% from last year. Were’s expected a NPAT of $48.4m. GMG declared a 4c dividend with Managing Director Jim Minto saying the company is well positioned for future growth.
  • UBS Warburg continues to like Babcock & Brown Japan Property Trust (BJT) despite the stock losing 20% this year. They have a Buy recommendation and 226c target price, 43% above the current share price. BJT down 2.5c to 156c.
  • JP Morgan have initiated coverage on United Group (UGL) with a “Buy” recommendation and 2218c target price saying it is their preferred pick in the sector. UGL has had a great year, up 46% but is down 20c today to 1965c.
  • Kerry Stokes’ Seven Network (SEV) has extended its offer for Unwired (UNW) to December 3. SEV up 1c to 1341c.
  • Publishing & Broadcasting (PBL) ceases trading on Friday; new entities Consolidated Media Holdings (CMH) and Crown (CWN) will begin trading on Monday.
  • Wesfarmers have an investor day today – details on their progress/plans for Coles likely to be positive. WES doing OK today, up 15c to 4267c. Goldman Sachs JB Were have upgraded Wesfarmers earnings on the back of a raised coal price outlook. They have a HOLD and a 4568c target price. Now 4552c.
  • Gunns (GNS) is in a trading halt pending an announcement. GNS last traded at 345c.
  • On the diary tonight in the US we have November Consumer Confidence and JP Morgan start a building conference that runs a few days – may hear more about the state of the housing market.

In the MARCUS TODAY newsletter today we have a look at the RIO presentation overnight in London and conclude that RIO want the BHP deal to happen but at the right price. That price will have to be above $150. At some point, probably out of the blue, BHP will presumably make a formal low ball offer as a catalyst for the next step of the merger… negotiating the price, something that RIO seems to have started doing already. BHP and RIO have the same prospects. BHP is cheaper.

For investors the stock to buy is obvious. RIO is a gamble from this price, but probably quite a good one. Even if the bid went away, the price will be quite well supported and the long term is fine…there’s up to 30% upside on a BHP top end bid and 15% downside.

MARCUS TODAY – “Inform, Explain, Educate, Entertain”.

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Peter Fray

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