The market is down 30. BNB and BBP continue their tumble – down 29% and 33% at 11am. Financials off 1.9%. Resources up 1.1%. SFE Futures were up 39 this morning.

BHP has added 15 points to the ASX 200. The banks have taken 20 points off.

Dow up 58. Up 186 at best. A higher oil price sending stocks tumbling in the afternoon. Retail sales saved the day – up more than expected. The majority of the $117bn in tax rebates will feed into the economy in the July-through-September quarter. After that, the economy is predicted to slow again. Banks lifted off their 5-year low. Futures now predicting a 100% chance for Fed raising target rate by mid September. Financials led the risers – up 2% – Morgan Stanley upgraded the sector to a BUY. Lehmans sacked their CFO and COO. Energy sector down 1.8%. Bond yields up – highest since April. Merger activity – Yahoo! and Microsoft fail to make agreement on business combinations – as a result, Yahoo! shares plummeted. Microsoft now expected to walk away. Metals mostly down.

  • BHP down 1.41% in ADR form overnight – RIO up 0.57%. Both up in the UK – 2.96% and 4.05% respectively. BHP up 94c to 4274c. RIO up 147c to 13135c.
  • Metals mostly down overnight – Nickel up a big 5.3%, Copper down 1%, Zinc down 2.7% and Aluminium down 0.3%. Zinifex down 6c to 856c.
  • Oil price up 48c to $136.91 on talk that Nigeria’s state owned oil company will take over oil operations in parts of the country from a Royal Dutch Shell PLC joint venture, a move many believe will cut output. Woodside up 187c to 6309c.
  • Gold down $10.90 to $872.00. Newcrest down 92c to 2606c.
  • US Bonds down with the 10 year yield up to 4.21%.

Babcock & Brown taking another absolute beating this morning. The main issues are the breach of the $2.5bn market cap trigger on their debt covenants and uncertainty about the reaction of the banks. The trigger was at 750c but the share price is now down below $5. Concerns about underperforming satellites – BBP in particular. The impending finalization of BBP’s $2.7bn loan facility. An S&P credit rating downgrade. ANZ removing BNB and BBP from their approved list for margin lending purposes. Short selling. Merrill Lynch cutting their target price from $24 to $7.50 this morning. UBS cutting theirs from $25 to $6.80 (but say there is significant upside if the banks allow them to continue trading). There is also talk of the company being privatized (an MBO). 40% of the stock is owned by staff.

Bottom line, the most attractive thing about the stock is that fact that the share price has fallen so far. But we are not tempted to buy because there is anything s-xy or solid about the company. We are simply dragged in by our natural tendency to think that things that have fallen a lot are cheap. It is not necessarily so. Stocks fall for a reason. What goes down usually goes down in the stock market and what goes up goes up. So most of us will leave BNB well alone and applaud who have the guts to step into the breach and who succeed.

Major banks exposed to BNB may experience further selling pressure. All majors off this morning. The BNB sentiment is rubbing off on Macquarie Group which is down 7%.

Other news:

  • Surprisingly, a fund managed by Babcock & Brown and Deutsche Bank will buy UK rolling stock leasing company Angel Trains from Royal Bank of Scotland for circa $7.5bn.
  • RBA governor Stevens to speak today at 1.30pm – if he telegraphs he is as worried about slowing growth as much as he is about inflation, then it could mean rate hike expectations will be dampened. Broadly expected to remain hawkish though in light of global inflation pressures.
  • BHP’s decision to move forward maintenance on Nickel West smelter likely to have 1% impact on underlying EBIT. BHP will remove 28,000 tonne from seaborne nickel supply – Macquarie says the expected 30,000 tonne global surplus will essentially be offset by BHP’s decrease in nickel output.
  • Talk that Leighton Holdings and Macquarie Infrastructure are backing the Acacia syndicate for the $15bn national broadband network bid in competition with Telstra. LEI up 13c to 4989c. MIG down 3c to 287c.
  • Ten Network (TEN) plummets 10% in early trading on 3Q earnings release – warns FY EBITDA to be down 10% as economic conditions hurt advertising.
  • Premier Investments (PMV) have extended their takeover offer for Just Group (JST) to the 18th July. PMV down 9c to 751c. JST down 4c to 340c.
  • IOOF Holdings (IFL) has signed a strategic investment management and distribution alliance with MacarthurCook (MCK) – IOOF take 3.45m shares at $1.15 each – 13% of MCK. IFL down 4c to 508c.
  • Transurban Group (TCL) finalized its $1.52bn Capital Beltway project in the US – issued US$589m in bonds in New York at 4.97% lower than the 5.35% rate expected. TCL up 3c to 538c.
  • Origin (ORG) completed its offshore work at the Kupe Gas Project. ORG down 5c to 1555c.
  • SP AusNet (SPN) completed a GBP250 million issue of 10-year Sterling bonds that will refinance $320m in medium term notes due to expire in November 2008. SPN up 3.5c to 113.5c.

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