The market started off strongly but is now down 16. The SFE Futures suggested a 8 point gain in the market this morning.

WALL ST down 4.6 – Dow was down 105 with an hour to go. It was up 15 at its peak. Not a bad performance from Wall St considering we went to bad last night with the Dow Futures down around 140, Japan down 4.5% and India down 5.1%. Saved by the last hour. Financials still weak – down 1.2%. Along with technology down 0.6% they were the only two sectors to fall. Commodities strong – Materials (resources sector) the best on the day. CRB index up 1%, oil at a record high. Gold close to $1,000 hitting $984. Some of the mid tier resources stocks were up 7-8% including gold stocks. Warren Buffett was on CNBC for an hour’s interview. He said the US was already in recession. Construction Spending had its biggest fall in 14 years (since 1994) down 1.7% in January (expected down 0.7%). It follows a 1.4% fall in December. Federal Reserve Chairman Ben Bernanke speaks at the community bankers’ conference tonight. Hard to see what more he can add to the multiple testimonies in the last week.

Lot of press about the RBA Meeting today. Rate rise at 2.30pm today looks inevitable – only 25bp expected bringing the official cash rate to 7.25%. Recent strong inflation data suggests further rate rises will follow with a 50% chance of another rate rise in May. We also have an RBA Statement with the decision with Minutes of the Meeting to follow in a few days.

OXIANA and ZINIFEX – Lots of press about the $12bn merger between OXR and ZFX resurrecting Australia’s mid-tier mining sector which disappeared after the takeovers of WMC and MIM. Some disappointment that “Stronger Forever” Owen Hegarty has resigned himself to the chairmanship of the integration committee but is not taking a leading role in the future – “Surprise Driver in charge of the bus” says one headline. Both OXR and ZFX down today, OXR down 20c to 370c and ZFX down 59c to 1156c. The research is essentially positive on the deal today.

A bit quiet today…

  • City Pacific (CIY) getting smacked. Down 49% to 97.5c. One of its funds – City Pacific First Mortgage Fund – breached a condition on a loan from the Commonwealth Bank of Australia (CBA). CBA down 10c to 3990c. CIY announced late Friday the fund drew down a short-term facility of $50m which is part of a $240m facility. The loans are all secured by prime mortgages. CBA has demanded the fund to pay back the facility by May 31, with a first instalment of $90m due by March 31. CIY fell 49% or 94.5c to 97.5c before going into a trading halt pending an announcement. Not great news for the banks although the CBA is up today against the trend, and not great news for other financial engineers.
  • Talk of a bid for Just Group in the AFR. Up 5% ahead of results tomorrow. Expected profit of $40m up 8%. Citigroup expects Just Group (JST) to announce a 1H net profit of $40m when it reports tomorrow. They say BUY and have a 550c target price.Citigroup expects it to announce a 1H net profit of $40m when it reports tomorrow. They say BUY and have a 550c target price.
  • Primary Health Care says it has received a number of offers for Symbions’ vitamin-making and drugstore distribution units. PRY now has takeover stake of 88% in SYB. PRY plans to sell the units to help pay for the acquisition. PRY up 2c to 597c.
  • Domino’s Pizza acquired Pinky’s Pizza. Were’s say it’s a good bolt-on acquisition and will provide DMP with economies of scale. DMP is on Were’s Conviction BUY list. DMP down 1c to 325c.
  • Seven Network (SEV) down 14.4% in the last 4 days, hits 6 month low. Were’s cut their recommendation to HOLD from BUY. SEV down 31c to 1064c.
  • According to Were’s, QBE Insurance (QBE) is trading at 9.2x forward earnings, cheapest rating since 9/11. Insurance sector got a bit of a scare when Warren Buffett told his shareholders in his annual shareholder letter that it’s a certainty that insurance-industry profit margins will fall significantly. “That party is over”. QBE down 5c to 2115c.
  • Some of Telstra’s (TLS) investments will be put on hold and reviewed after the government asked for network information to provide to potential bidders in relation to a possible fibre to the node network. TLS down 2c to 464c.
  • Australian 4Q current account deficit expected to increase as imports outpace exports. Economists expect the deficit to increase to $17.7bn from $15.6bn registered in the 3Q.
  • January Retail Sales numbers flat against forecasts for +0.5%.
  • Allco Finance Group down another 25%.

In the MARCUS TODAY newsletter today we have a quick look at Berkshire Hathaway’s Letter to Shareholders and include all the ASX 200 PEs and YIELDS including lists of the Highest Yields and Cheapest PEs.

For a FREE TRIAL OF THE MARCUS TODAY NEWSLETTER click here

Peter Fray

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