The market is up 151 after Wall Street experienced its biggest rally in five years – up 420 – (although it went up 416 points last Wednesday). It was also the third biggest rise ever on the back of good results from investment banks, an 8.5% rally in financials, hopes that the run on the investment banks is over and on the Federal Reserve cutting interest rates by 75bps. The Futures suggested a 148 point gain in the market this morning.

Dow Jones was up 420. It closed right on its peak and up 286 points before the Fed announcement on good results from Goldman Sachs and Lehman Bros with the Fed decision a bit of a side issue. The Dow dropped 100 points on the Fed announcement on disappointment that they only cut rates by 75bp instead of 100bp…..then it rallied another 286 points. Financials had their biggest gain in 8 years up 8.5% bouncing off a 5 year low. Homebuilders helped lead the rally after better than expected Housing Starts numbers and Homebuilders helped lead the rally after better than expected Housing Starts numbers. Goldman Sachs up 16% on results (fell 3.7% yesterday). Q1 earnings down 53% to 323c a share against forecasts of 259c. Goldmans CEO said about Lehman Bros that they are “totally confident’ in Lehman’s ability to weather the current financial crisis” and Lehman Bros up 46% on results (it fell 19% yesterday). Q1 net income down 57% to 81c against forecasts of 72c. They took a $1.8bn mortgage related write-down. Equities revenue up 6%.

On the back of the Fed decision and their commitment to extend their position as lender of last resort Goldman Sachs JB Were in their Australian research this morning say “the negative sentiment towards the domestic financials will reverse heading into their May reporting period. We have therefore decided to reverse our underweight Bank position in the model portfolio”.

  • Both BHP and RIO up in ADR form overnight, 2.83% and 6% respectively. BHP up 98c to 3668c.
  • Metals all up overnight – Copper up 2%, Nickel up 2.3% and Zinc 1.7%. Aluminium up 1.6%. Zinifex up 48c to 997c.
  • Oil price up $3.83 to $109.57 after the Federal Reserve cut interest rates by 75bps in a hope of stimulating the US economy. Woodside up 122c to 5490c.
  • Gold up $1.70. Newcrest down 122c to 3627c. Gold stocks have performed very well in the fall. Getting left behind in the rise.
  • Bonds down with the 10 year yield up to 3.45% from 3.30%.

A very quiet day on the news front heading into the Easter break. For those that have forgotten, it is a short week thanks to the Easter holidays. The ASX markets close early at 2.30pm tomorrow and don’t re-open until Tuesday morning the 25th.

  • Iluka have completed their institutional share placement – it seems to have been 3.5x oversubscribed suggesting strong support (but it was a very deep discount). The placement price was 255c. ILU up 6.2% to 346c.
  • Oil Search (OSH) has published their Strategic Review this morning. OSH up 1c to 466c.
  • Chinese company Chinalco – who bought $14bn worth of Rio Tinto (RIO) in the beginning of the year – said it is more likely to up its stake in RIO than reduce it. RIO up 270c to 12250c.
  • Macquarie Leisure Trust Group (MLE) announced the acquisition of 10 health clubs and one development site at a FY09 EBITDA of 2.2x for $7.4m from Zest Health Clubs. It has completed an institutional bookbuild raising of $20m at 250c per security ensuring MLE’s gearing remains in the 30-35% range. MLE down 12% to 240c on the back of the news.
  • Apex Minerals (AXM) has raised $62m to funds future development. AXM down 7c to 89c.
  • Talk is that MFS Chairman Andrew Peacock might be planning to step down within 2 months. MFS unchanged at 99c.
  • According to Street Talk, the National Australia Bank (NAB) is a likely buyer of ABN AMRO Australia. There is also talk that Citibank Smith Barney’s Australian operations could also be on their radar. NAB up 116c to 2890c. Banks are outperforming today.
  • The market is keeping an eye on Fortescue Metals’ (FMG) major shareholder MMK or Magnitogorsk Iron & Steel after the newswires said the Russian company has no plans to change its 5.4% holding. FMG up 4.1% to 708c.
  • United Group up 2% (lagging the market) with Charlie Aitken at Southern Cross Equities titling today’s email “UGL is UGLY”. It is actually a BUY recommendation with the comment that the share price fall is completely overdone on a 40% discount to valuation.
  • ABN AMRO have upgraded Leighton Holdings to a BUY with a 4450c target price. Now 4182c up 62c.
  • The NAB have upped their substantial shareholding in ABC Learning Centres (ABS) by about 4.5m shares to 6.71%. ABS up 7c to 151c.

In the MARCUS TODAY newsletter today we have an article titled “The Mother of all stuff ups” talking about Hedge Funds and how assumptions are the bedfellow of surprise and error.


Peter Fray

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