Our market is up 98. The SFE Futures predicted an 84 point rise. More than a couple of comments from colleagues about how ridiculous the market is at the moment…volatility is massive … and “what chance do you have” trying to trade it. The reply is to say that extreme volatility is often the pre-cursor to change – after a 28% fall in the market….lets hope so. Financials up 3.4%, Resources also up 1.8%.

The Dow Jones “Lotto” index was up 266 reversing the 240 point fall yesterday. Up 267 at best closing on its highs. Down 3 at worst. It was basically the falling oil price, better-than-expected 2Q reports and increasing consumer confidence that did the trick. Financials closed up 7.5%, with investors thinking there are better times ahead for the sector. Lehmans up 11%, Bank of America increased 15%, JP Morgan up 8.2%. Merrills announced it would sell $30.6bn worth of ABS CDOs for only $0.22 in-the-dollar, or for $6.7bn – a remarkable discount – to strengthen its balance sheet. The sale will mean a $4.4bn pre-tax write-down in the 2Q. Merrills has had $51.8bn in write-downs and credit losses since the credit crisis started. In other news, US Steel Corp up 14% in the biggest one-day jump since 2002 posting 2Q profit that doubled on higher prices and July consumer confidence better-than-expected – rose 2% month-on-month – up to 51.9 and the first gain in 6-months – boded well for stock market. Earnings have topped estimates for ¾ of the 255 companies that have reported 2Q results so far – but profits down 23% on average and the earnings for banks are down 90% while the earnings in the discretionary sector are down 33%. The NASDAQ also had a strong session – up 2.45%.

  • Both BHP and RIO up in ADR form overnight, 2.4% and 1.7% respectively.
  • Metals all down overnight – Nickel down 3.79%, Zinc down 2.4% and Aluminium 1.92%. Copper down 1.08%.
  • Oil price down $2.51 to $122.21 – hit a 7 week low – despite concerns of a militant attack on two Nigerian crude pipelines.
  • Gold down $11.20 to $916.50
  • Bonds up with the 10 year yield down to 4.03%.

ABN AMRO is the latest bank to cut their recommendation on the Australian bank sector (to Underweight from Neutral). They tell us the sector is likely to underperform until there is clarity on where bad debt levels will peak. They cut ANZ to HOLD from Buy and St. George (SGB) to SELL from Hold. The NAB is ABN AMRO’s only BUY recommendation. They expect flat dividends and underwritten dividend reinvestment plans across the sector, and there is now a risk of capital raisings. GSJB Were went underweight banks yesterday with a SELL recommendation on the ANZ. ANZ up 50c to 1603c, SGB up 3.5% to 2659c.

BHP Billiton have released its Letter to Rio Tinto shareholders. BHP warn RIO would be trading lower without their takeover proposal and Chairman Don Argus says BHP’s offer of 3.4 BHP for 1 Rio share represents a “substantial premium” of 45%. BHP expects the various regulatory approvals for the deal to be completed by the end of 2008, after which BHP should be in a position to send offer documents to RIO shareholders. BHP up 82c to 3909c.

We have had a busy morning on the announcement front…

  • Aristocrat Leisure (ALL) down 17% (down 21% at once stage) after announcing late yesterday that its FY profit to will be down as much as 23% due to currency issues. (Weak US$, Strong AUS$ – highlights the issue for other stocks). Now expects earnings for the current year to be between $190m-$200m compared to previous guidance of $247m.
  • Austar United Communications (AUN) down 4% – Good results but hasn’t done much for the share price – EBIT up 20% against guidance of up 20% – has announced a 1H loss of $7.6m compared to a $24.7m profit last year. AUN interest bill for the half rose to $30.8m from $20.7m. AUN down 4.5c to 121c.
  • Lihir Gold (LGL) said 2Q gold production came in at 177,000 ounces, up 27% on the previous Q. Maintained its guidance for FY production of more than 850,000 ounces of gold. Also mentioned that commercial production from Ballarat is due to commence in the 4Q. LGL up 3c to 292c.
  • AED Oil (AED) up 12% – it has produced 340,000 barrels of oil in the June Q. Output was impacted by a short sut-in for routine review. Output to date is at around 1.6m barrels. AED up 25c or 11.2% to 247c.
  • The National Australia Bank (NAB) board is due to meet in Melbourne today. The Australian reported this morning that CEO John Stewart might be given his marching orders on the back of plans of a further $830m provision for its exposure to the US. NAB up 55c to 2533c.
  • Rio Tinto (RIO) have announced they will spend $2.15bn to expand their Corumba iron ore mine in Brazil. IT wants to increase production to 12.8m metric tonnes by 2010. Ausenco (AAX) has been awarded the US$140m contract for the mine. RIO up 255c to 12170c.
  • Broker downgrades this morning for Alesco (ALS) after saying yesterday its outlook will remain challenging despite announcing a solid profit yesterday. UBS cut to NEUTRAL from BUY, ABN AMRO to HOLD from BUY. ALS up 3c to 678c.
  • Mirabela Nickel (MBN) up 5% – it has announced a 40% increase in production capacity at its Santa Rita nickel project in Brazil to 27,000 tons. It is due to start commissioning in mid-2009. MBN up 23c to 424c.
  • Bradken (BKN) has priced a $110m institutional placement to fund the acquisition of AmeriCast Technologies Inc. Placement will result in the issue of around 13.7m additional shares at an issue price of 805c. BKN up 13c to 897c.
  • Macquarie Group (MQG) has upped their shareholding in Auckland Airport to 5%. MQG up 6.6% to 5168c.
  • GSJB Were has increased their forecasts for headline inflation. Now expects headline inflation to average 4.4% & 3.6% in 2008 & 2009 respectively.
  • Australian building approvals fell 0.7% in June from May – below expectations of a +1.7% rise, but well above 7.2% fall in May.

We have an article in the newsletter today looking at Oz Minerals. A lot of the brokers are telling us to buy it, it has performed terribly and it will soon be a Copper and Zinc play instead of a mostly Zinc play. It needs, China, the zinc price and the copper price to perform of course. All else is detail. At the moment the resources sector is down 20.7% from the top. When that momentum turns you would have the OZ on the list. We also have a Diary for the Results season we are just getting into. Login to view. The MARCUS TODAY newsletter now includes two daily emails – one pre-market and one midday. For a free 21 day trial of the MARCUS TODAY newsletter please go to this link or www.marcustoday.com.au

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Peter Fray
Peter Fray
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