The market is down 60 despite the SFE Futures suggesting a 34 point rise this morning.
MONDAY session on Wall St – Dow up 176 almost completely negating the 171 point loss in the Friday session and rising despite falls on Asian markets. McDonald’s took a hit overnight, (down 6.5%) after announcing flat sales for the past 13 months. According to Bloomberg 4Q earnings have fallen 40% for the 176 companies in the S&P 500 that have reported results thus far, but that figure excludes financial companies whose earnings fell 136% in the 4Q. The Commerce Department said U.S. builders cut prices by more than 10% last month but still failed to lift sales, which fell 4.7% to an annual pace of 604,000, nearly a 13-year low. The financial sector had another good session closing up for the fourth time in five days on expectations the Federal Reserve will reduce interest rates when it meets this week. Bank of America up 4.5%, JP Morgan up 4% and Wells Fargo put on 3%. The NASDAQ closed up 1%.
The Fed meets on Tuesday for a two day meeting with an interest rate decision on Wednesday (Thursday morning our time) – the market is factoring in a 100% chance of a 25bp cut and a 88% chance of a 50bp cut and any hesitation to cut may be negative for markets. The Senate Democrats are looking to extend the application of the $150bn fiscal package announced by the White House. Bush is expected to use the State of Union address to appeal to them not to delay the package by complicating it.
Resources are down today along with the rest of the market…BHP down 30c to 3648c and RIO down 261c to 11589c (it was up 9.3% on Friday). Metals mostly up overnight, Copper up 0.6%, Nickel up 0.5% and Zinc up 0.4%. Aluminium down 0.3%. Zinifex down 26c to 1039c. Oil price up 62c to $90.99 on expectations the Fed will cut interest rates when it next meets. Woodside down 20c to 4699c. Gold up $16.40. Newcrest up 19c to 3484c.
A lot of weekend press about Jerome Kerviel the 31-year-old Futures trader who incurred $7.09bn of losses for Societe Generale and is being blamed for last weeks yo-yo sell off on Monday and Tuesday and the recovery during the rest of the week. He is currently free having been released from custody with charges of “breach of trust” and unauthorized computer activity with attempts to nail him for forgery. He faces up to seven years in prison and large fines. As of December 31st all his trades were in the black. He had been expecting a $441,000 bonus for 2007. Kerviel’s lawyers have suggested that Societe Generale was using their client to hide sub-prime losses. Societe Generale’s share price is down 7% from Monday.
In the news today…
- Allco Finance Group (AFG) announced that some of its margin lenders have agreed to a standstill not to sell any more AFG shares. It was a horrendous month for AFG, two of the four margin lenders exercised their power of sale over 22.1m Allco Finance shares to make sure API (the company owned by senior executives that held the shares) met its obligations to them. AFG up another 16% today to 395c after hitting a five year low of 170c. They fell 83% and have now bounced 78% from the recent low. They are still 70% down from their highs.
- Sino Gold Mining (SGX) announced this morning that its gold production in February at its Jinfeng mine in China will be lower than previous estimates of 12,700 troy ounces because of a lack of power supply. They don’t expect full power to be available until after the Chinese New Year holiday next month. Investors don’t seem to be bothered; they have pushed the price up 2.8% today to 821c.
- Sinosteel now has an 18.7% stake in Midwest (MIS) but there is talk that Sinosteel is set to walk away from a planned $1.2bn bid as a result of a major shareholder refusing to accept their offer and will use the stake to block any other takeover offer from Murchinson (MMX). MIS down 26c or 7.4% to 338c and MMX also down 6.6% to 341c.
- Coca-Cola Amatil (CCL) has completed its $170m off-market share buyback at an average price of 784c. A support for the price gone for now. CCL up 1c to 915c.
- According to the AFR, Primary Health Care (PRY) and Healthscope (HSP) both had a chat on the weekend about potentially carving up takeover target Symbion (SYB). PRY’s MD Ed Bateman told the AFR that his company was open to informal talks with HSP about SYB’s pathology, radiology and medical centers. HSP up 4c to 537c, PRY down 5c to 1105c and SYB is down 2c to 388c.
- Paladin Resources (PDN) announced its Langer Heinrich project in Namibia has reached design output of 2.6m pounds of uranium a year. Production in the 4Q increased to 390,807 pounds, up from 259,755 in the 3Q. Hasn’t done much for the share price, up 3c to 510c.
- UBS Warburg upped their recommendation on Sims Group (SGM) to NEUTRAL from SELL and its target price to 2820c from 2465c after lifting its profit forecast by 34% to $296m. They say, “Scrap prices have started 2008 on a strong note globally, rising almost US$100 a ton in all the major markets, as strong demand and seasonal supply limitations take effect”. SGM up 145c 2927c.
- Goldman Sachs JBWere maintain their HOLD recommendation on Woolworths (WOW) and 3258c target price saying they expect it to announce a 10% rise in 2Q sales for the year and like-for-like food and liquor sales growth of 8%. 2Q sales numbers due out tomorrow. WOW up 5c to 3122c.
- UBS Warburg upped their recommendation on Telstra (TLS) to BUY from NEUTRAL and upped their target price to 495c from 475c saying, “Given current market sentiment, defensive characteristics and upward industry revenue momentum, we upgrade to Buy.” They are the second broker in a week to upgrade Telstra to a BUY. Goldman Sachs JB Were recently upgraded to a BUY saying the three main drivers for their recommendation were “reasonable valuation (FY08E PER 14x, FY09E PER 12.6x, FY08 dividend yield 6.9% fully franked), “strong operational momentum” and “Solid, defensive earnings outlook with minimal downside earnings risk.” They have a 485c target price. Now 454c.
- UBS Warburg upped their recommendation on Leighton Holdings (LEI) to NEUTRAL from SELL and maintain their 5000c target price saying, “Domestically, it is clear that the level of resources & associated infrastructure projects fuelling domestic investment has been underpinned by strong growth in China”. LEI down 86c today to 4828c.
- GUD up 5.9% to 980c on its interim results – net profit up 18% and on track for top end of their FY guidance.
- On the diary tonight in the US we have December Durable Goods, January Consumer Confidence and results from 3M Dow Chemical, Countrywide, Eli Lilly, US Steel, Unisys, Yahoo!
We have Woolworths 2Q sales numbers tomorrow and results from Alesco and AFIC. We have a view on the market in the MARCUS TODAY newsletter today. Although we appeared to have bottomed on Tuesday it seems it was a Soc Gen bottom…..not a market bottom. Its back to business as usual… worrying about the US, credit markets and a swing against leverage. Sign on here for a FREE TRIAL of MARCUS TODAY. We will have a results Diary in the newsletter this week.
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