The market is down 132 – that compares to the Futures suggesting a 156 point fall this morning on the back of the 370 point drop on Wall St.

The big news today – BHP have bid 3.4 BHP for 1 RIO – Offer is the “FIRST AND ONLY OFFER” with a minimum acceptance condition of 50%. Rio shareholders will hold 44% of the merged group and the offer is a 45% premium to the RIO price pre the bid approach. RIO has still refused to enter discussions (still 1.6 ball parks away) although they have now said that they will “carefully consider” the terms of the BHP bid. Almost broken the ice perhaps. It is NOT an agreed bid and the offer values RIO at US$147bn based on closing prices. BHP will now appeal to RIO shareholders to force the RIO management into negotiations. There is a suggestion that the bid is capable of being raised because BHP say it is based on the “information available” – which gives them and RIO an “out”. In other words RIO can argue their case for a higher bid and BHP can be persuaded. Hopefully today’s bid simply starts the process and brings RIO to the table. When that becomes clear we should see both stocks start to make progress.

BHP down 5.5% on that and their rather flat but OK (not dazzling) interim results. RIO up 245c or 1.9% to $128.80. At the current BHP price of 3750c the bid is worth $127.50. Perhaps the most depressing part is that BHP say it will take 9-12 months to complete the transaction. Yawn. Might be enough for traders to bail although longer term the merger if it happens will likely propel both BHP and RIO and after the recent market weakness you might hope BHP and RIO are due to recover some of their 21.6% and 11.5% falls from their recent highs.

The Dow Jones close down 370 – Wall St. moved in a big 370 point range and closed nearly 3% lower after the ISM non-manufacturing index fell from 54.4 to 41.9 in January against forecasts of 53. It was the first contraction in the non-manufacturing sector in five years. Below 50 implies economic contraction. The number has kicked off another round of US recession fears. The heavy falls on Wall Street overnight pushed the S&P 500 index to its lowest level in 11 months despite most companies announcing better-than-expected earnings results. Around 65% of the 311 companies in the S&P 500 that have announced results thus far have topped analysts expectations, a little better than the 60% from this time last year. Financials took a hit after Fitch and Moody’s Investors Services announced they are taking another look at bond insurers to see if they are financially sound to keep their credit rating, MBIA Inc. and Ambac Financial Group both finished lower. Interest rate futures are suggesting a 100% chance of the Federal Reserve cutting interest rates by 50bp to 2.5% when it meets on March 18. The NASDAQ fell 3% – Microsoft fell another 3.7% on concerns about their $44bn takeover bid for rival Yahoo Inc.

On the back of the ISM number the 2 year bond yield in the US dropped under 2% as the equities to bonds switch kicked in. Official interest rates are 3.0%. The 10 year yield fell 21bp to 3.57%. There is talk that the Fed will have to drop interest rates again before their March meeting (says Merrill Lynch). The odds of a 50bp rate cut at the next meeting rose on 18 March rose to 76% from 68%.

BHP Results – Net profit of US$6.02bn, down 2.4% from $US6.2bn last year and Revenue was up 16% to $US25.54bn from $US22.1bn last year. In the statement, the company said, “Led by China and India, Asian economies have shown little sign of slowing,” and “While emerging market economies continue to grow strongly, downside risks to the global economy exist”.

The rest of the resource sector is struggling – down 3.6% overall against a market down 2.2%. Metals all down overnight, Zinc down 4.2%, Nickel down 1.1% and Aluminium 1.6%. Copper down 1.8%. Zinifex down 64c to 966c. Oil price down $1.75 to $88.32 on the back of an unexpected contraction in the service sector. Woodside down 146c to 4650c. Gold down $19. Newcrest down 126c to 3430c.

Prior to today the ASX 200 had risen 574 points or 10.5% in the past 3 days.

  • The other big news – Macquarie’s operational briefing this morning includes the retirement of Allan Moss on 24th May 2008 and FY08 guidance of $1.8bn with H1 in line with H2 (which was $733m) – that is a bit below some analyst forecasts (JB Were expected $1.88bn) but then they have probably been conservative. Dividend payout confirmed at 50-60% of retained earnings. The stock is down 6.4% this morning (down 436c to 6280c) against a market down 1.7%. So getting belted in other words.
  • Stockland (SGP) released its 1H profit result this morning. CEO Matthew Quinn said, “The recent volatility in capital markets has had no material impact on our operating results or financial strength”. SGP down 27c to 730c.
  • CPU bid for QM Technologies worth $153m or 340c a share. QMT was 225c and is up 50% to 338c this morning. QMT is a “provider of essential mail and customer communication management services to Australian businesses, specializing in the integrated delivery of print and electronic communications”. CPU down 13c to 788c.
  • Mitchell Communication Group (MCU) announced 1H08 EBITDA of $15.2m, up 37% from last year. Were’s like the stock given FY08E PER of 12.4x and yield of 4.5%, they say the result confirms strong profit momentum. They have a 170c target price, the stock last traded at 89c.
  • Boom Logistics interim results. Price down 5%. Revenue up 19%, NPAT down 22% after “non cash adjustments to reflect impairment of assets and additional depreciation charges”.
  • SP Ausnet (SPN) has refinanced $1.55bn worth of debt via a syndicated bank facility through a syndicated bank facility. Price unchanged.
  • UBS Warburg advise investors to take advantage of ABC Learning’s (ABS) poor performance and BUY the stock. They say although the rest of the market is factoring in negative EPS growth, they see 11% growth in EPS in FY08 “driven by: (1) domestic margin gains and (2) margin gains on pcp from the key US portfolio”. They have a 604c target price. Price down 4.8% or 21c today to 414c.
  • UBS Warburg maintain their BUY recommendation on Photon Group (PGA) with a 795c target price. Now 575c.
  • On the US diary tonight we have 4th Q Productivity, weekly crude inventories and results from a host of companies including CIGNA, Sarah Le, Time Warner and MetLife. There is also a few Fed talks – Richmond Fed President Lacker speaks at Marshall University, Philadelphia Fed President Plosser speaks on the economic outlook, Fed Governor Kroszner speaks on mortgage regulation.

We have an article in the MARCUS TODAY newsletter today pointing out how the “”herd of lemmings” (that’s us) has grown in the last 10 years making the market more sensitive, volatile, and vulnerable to being “led” – even by lies.

Sign up for a FREE TRIAL of the MARCUS TODAY NEWSLETTER today.

Peter Fray

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