The market is down 16. Financials down 0.8% – not bad considering the sharp fall in the financial sector in the US on concerns about the future of Fannie Mae and Freddie Macquarie Group, the biggest mortgage providers. Resources up 0.1%. Property down 2.3%.

Dow down 128. Up 12 at best. Down 251 at worst. Got below 11,000 for the first time in two years. Dow is 21.6% off October high – S&P500 down 20.8% – staying in bear-market territory. Financials down and resources up in the US overnight. Market dominated by fears over Fannie Mae and Freddie Mac’s capital positions – share prices down 22.3% and 3.13% having been down over 50% mid session – they hold $5 trillion in mortgages – about half the total mortgages in the US. Fannie Mae and Freddie Mac are down 85.48% and 88.47% from their year highs. They fell after the Fed failed to confirm a Reuters story which suggested they’d be able to tap the Fed for emergency funding from the discount window. Suggestions that one of the two is technically insolvent and that only a Fed intervention will keep them liquid. Treasury Secretary Paulson has sought authority from Congress to buy equity stakes in Fannie and Freddie and increase lending to them both through a temporary increase in the limit on their lines of credit. Indymac goes bust – the Government stepped in to take over IndyMac Bancorp at a cost of $4-8bn. IndyMac is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history. It had $32bn of deposits at the end of March. The bank will reopen on Monday as the IndyMac Federal Bank. The IndyMac share price is 99.06% down from its year high and fell 64.29% in after hours trade. Lehman’s fell 16.6% on more debt concerns. Citigroup down 0.55% – will sell German retail banking operations to France’s Credit Mutuel for $7.7bn – covering losses from failed mortgages. Posts results this week. First big wave of 2Q earnings results this week– 7 Dow companies and 53 S&P500 components – analysts forecast the S&P companies to be on average 10% down year-on-year. Results this week include Citigroup, JP Morgan, Wells Fargo, US Bancorp, Capital One and Merrill Lynch – big week for setting financial sentiment.

The Dow Futures are currently up a rather large 90 points suggesting a bounce on the Dow tonight.

  • Both BHP and RIO up in ADR form on Friday, 2.53% and 3.27% respectively. BHP up 3c to 4038c. RIO down 110c 12490c.
  • Metals mostly up on Friday – Zinc up 1.72%, Aluminium up 0.89% and Copper 0.44%. Nickel down 1.39%.
  • Oil price up $3.49 to $114.96 on tensions between the West and Iran. Newcrest up 96c to 3243c.
  • Gold up $18.60 to $9.60.60. Woodside up 65c to 6125c.
  • US Bonds down with the 10 year yield up to 3.96% from 3.80%.

Bit quiet on the news front.

AUD sitting at 24-year highs on US$ weakness driven by credit crisis fears and a conviction that the Fed won’t be lifting rates any time soon. Personal finance down 7.8% in May another sign of economic weakness after the Housing starts, Housing finance and Consumer sentiment numbers last week. The weekend TV talked about Australia heading into recession. Macquarie analysts say copper price risk is to the upside with supply disruptions likely to continue into 2H08.

  • Zinc stocks on the up as 27 Chinese smelters threaten to cut production by 10% – Oxiana up 4.1% and Kagara Zinc up 4.9%. Oxiana has a vote to change its name to Oz Minerals on Friday.
  • Nickel stocks having a very rough run – after big falls last week despite a nickel price rise, we have Panoramic down 6.8%, Mincor down 5.2%, Albidon down 9.4%, Poseidon Nickel down 5.1%.
  • Toll Holdings (TOL) exits its 62.7% stake in Virgin – they will distribute most of it as a special dividend to Toll shareholders – 1 VBA share for every Toll share. Toll hasn’t been able to find a long term investor to buy their stake. TOL on a forward PER of 10.8 times and fully franked yield of 3.1%. Commsec analyst says TOL’s decision is good as it will assist in them focusing on their core logistics business. VBA up 1c to 51.5c. TOL up 3.5% to 660c.
  • Citigroup says NAB’s potential purchase of ABN AMRO’s Australian and NZ businesses could cost $700 – $1.0bn. “In addition, ABN AMRO would bring investment banking capabilities in structured finance and infrastructure, as well as a proven distribution network…We understand one other Australian major is bidding, as well as at least two international investment banks”. UBS cut their NAB price target to 2900c from 3450c. NAB sits on forward price to earnings of 9.6 times and a 95% franked yield of 7.2%. NAB down 54c to 2691c.
  • Tatts and Tabcorb making comments over the weekend about the logic of merging parts of their businesses. “We’re both aware that there’s great benefits from putting parts of our companies together,” McIlwain (TTS) told ABC TV’s Inside Business program on Sunday. TTS flat at 238c.
  • CSR (CSR) clarified its earnings guidance late Friday saying FY08 EBIT would rise between 5-10%, as opposed to the more than 5% stated Friday. EBIT still set to be down from the previous consensus of 14% growth. Trades on forward PER of 10 times and a fully franked yield of 7%. CSR bounced 5.1% on Friday – flat today at 207c.
  • Chevron announces a 15m ton per year LNG facility which will directly compete with Woodside’s Pluto development – both parties are now looking for 3rd party gas to fuel their respective LNG plants. The Woodside share price unperturbed.
  • Leighton Holdings (LEI) has announced that its Arabian Gulf 45% stake joint venture Al Habtoor Leighton Group has won an A$2.25bn contract for the Al Bustan mixed use development in Abu Dhabi. LEI up 2c to 4607c.
  • Valad (VPG) raised $322m for its specialist French Industrial Fund – $158m in equity and $164m in debt – a German bank is putting up a first tranche 5-year facility for the $164m. VPG down 5.45%.
  • St Barbara Mines (SBM) has discovered a high gold mineralization deposit at Jaccoletti. Share price up 9%. It has fallen 31% in the last month alone.
  • Sinosteel have 52% of Midwest Corporation – at the same time Harbinger have upped their stake to 10.5% enabling them to block compulsory acquisition on their own. They paid about the 638c offer price from Sinosteel.

The week ahead sees some significant results in the US from Financials, tech stocks and airlines as well as CPI, PPI and Bernanke’s Testimony to the Senate Banking Committee on Tuesday. In Australia we have a number of Resources stocks reporting their Quarterly production numbers and the RBA Bulletin. For a full Diary see the MARCUS TODAY NEWSLETTER.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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