Promising start to the week – our market is up 75 – a little under the 90 point gain the SFE Futures had predicted this morning but has peaked and is rolling off the top into midday. Banks doing all the work with the Financials up 2.7% against resources down 1.9%.

The strong demand for the institutional bookbuild conducted by Wesfarmers last week has eased concerns about the credit markets, the ability of corporates to fund debt and the exposure of banks to corporate debt. UBS has also upgraded the global banking sector (to NEUTRAL).

The good start today also comes on the back of an 85 point gain on Wall Street on Thursday, and a 42 point rise on Friday. The Dow has now gained for two weeks on the trot – first time since February. S&P 500 now down just 4.8% this year. The NASDAQ fell on Microsoft earnings guidance. Financials did well – up 1.7% – Merrill Lynch closed up on press suggestions they are in talks with a private equity group about a possible investment in Merrill’s if they need the funds. Ford had a rough session after three broker recommendation downgrades post what looked like good results the night before and AMEX closed up 5.7% on results. Humana, Sysco, Verizon, Visa, William Wrigley Jr. all report tonight.

  • Both BHP and RIO up in ADR form on Friday, 2.4% and 2.21% respectively. BHP going against the trend, down 58c to 4432c and RIO likewise, down 2% to 14371c. This is despite an article in The Australian saying BHP and RIO may get a freight premium on iron ore prices and a quote from RIO CEO Tom Albanese “Markets remain very strong and the prices of many of our products are at record highs, bearing out our view that the U.S. slowdown will have little effect on global metal and mineral supply and demand balances”.
  • Metals mostly up on Friday – Nickel up 2.7%, Zinc up 3.5% and Copper up 0.2%. Aluminium down 3.4%. Zinifex up 2c to 1037c.
  • Oil price up $2.54 to $119.64 after a ship under contract to the U.S. Defense Department fired warning shots at two boats in the Persian Gulf. Woodside down 46c to 6003c.
  • Gold up 30c to $889.70. Newcrest down 104c to 2936c and Pan Australia up 2c to 118c.
  • US Bonds down with the 10 year yield up to 3.87%.

Making the news today…

  • Commonwealth Bank of Australia (CBA) have put out a presentation on the modernisation of their core banking systems. Ralph Norris says “The modernisation of our core systems is a fundamental strategic plank to the successful future of the Group”. They will spend $580m on upgrading their banking “legacy systems”. They expect efficiency gains of $200m plus a year as a result. CBA up 4% to 4519c.
  • Orica’s (ORI) interim result is out – slightly below analysts’ expectations. Underlying profit (exc. one-offs) was up 13% to $229.8m – analysts’ on average expected $234.3m, GSJB Were predicted $236.1m. ORI down 14c to 2986c.
  • Wesfarmers has resumed trading today – up 4.4% to 3768c – after being in a trading halt since April 16. The institutional element of the capital raising has received a better than expected response with a bookbuild price of 3725c some 825c above the rights issue price and above the theoretical ex rights price of 3608c. WES was up 6% on open.
  • Insurance Australia Group (IAG) struggling after cutting its insurance margin guidance for the year to 6-8% from 9-11% due to the impact of high storm costs and increased credit spreads in the 2H. IAG down 5c to 433c.
  • Asciano’s (AIO) CFO Austin Perrin has announced his resignation, he wants to explore other career opportunities. Commercial Director Peter McGregor to be acting CFO. AIO up 9c to 417c.
  • Ten Network Holdings (TEN) announced it has secured a new 3 year $630 million syndicated loan, replacing an existing facility that was due to expire in December. TEN up 5c to 230c.
  • In order to offset its record fuel bill, Qantas (QAN) will raise domestic and international fares by 3-3.5% and has suspended its share buyback. It is confident that it will meet its 2007/08 profit target despite the difficult conditions. QAN up 4c to 341c.
  • Boart Longyear down 1c to 180c on its AGM. Merrill Lynch has a SELL recommendation.
  • Just Group is expected to seek legal action over remarks made last week by Solomon Lew’s Premier Investment Group (PMV). JST up 2c to 405c.
  • Industrea (IDL) has won a BHP Billiton contract in South America. IDL up 1c to 45c.
  • Dyno Nobel (DXL) has entered into an agreement with Koch Nitrogen Company to market 100% of the urea ammonium nitrate produced at Dyno Nobel’s Cheyenne, Wyoming manufacturing facility. DXL up 6c to 317c.
  • Australian Agricultural (AAC) is having another good day extending a 34% rally in the past two weeks. No company announcement but plenty of overnight rain in NSW. AAC up 10% to 318c.”
  • Gloucester Coal (GCL) having a blinder – it has announced its quarterly activity report and expects a significant increase in FY09 earnings despite 3Q sales being down 22% to 458,000 tons. GCL up 8.6% to 1059c.
  • Hedley Leisure and Gaming (HLG) up 6% on talk of asset sales.
  • ABN AMRO have cut their target price on ABC Learning Centres (ABS) from 250c to 165c saying “We see little upside to share price performance until a more detailed earnings review is undertaken at the FY08 result in August”. ABS down 3.5c to 140c.
  • Monadelphous (MND) up 17c to 1340c. UBS have upgraded to a BUY with a 1500c target price.

We have a few charts in the MARCUS TODAY newsletter this morning which suggest the market has hit quite a significant bottom in the last couple of weeks with US bond yields on the rise, a switch to equities going on and a desertion of “safe” sectors like Gold. Newcrest on a PE of 25.4x and a yield of 0.2% and following a disappointing production report last week is in no shape to handle a fall in the gold price.

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