The market is down 25 (down 72 at worst) following the Dow wiping-off nearly an entire week of gains. Seems the credit crisis is not over after all. Financials underperforming – down 1.3% following the 5% drop in the US financial sector. Resources down 0.4% after significant 3% falls in BHP and RIO in the US last night. Most of the big industrials struggling – down 0.8%. SFE Futures down 58.

Dow down 225. Down all session – 239 at worst. AIG posts massive loss, Citigroup caves in to fraud allegations and announce they’ll buyback debt securities sold to the public, jobless claims way up, Wal-Mart sales poor and outlook soft, and crude jumped.

All 10 industry groups down. Indices still shaping up for a gain this week post the 331 point rise on Wednesday. Financials down 5% – AIG fell 18% (largest one-day decline ever) on a $5.4bn 2Q loss – posted $0.51c per share short of the expected profit of $0.63. Pandora’s Box opens – Citigroup has agreed to buy back $7.5bn of auction-rate debt securities from 40,000 retail clients and pay a $100m fine for misleading investors about the risk. After hours the Bank of America has received subpoenas and requests for information about its auction rate securities – could follow the way of Citigroup – other banks being investigated too. Citigroup down 6.24%, Merrill Lynch down 8.42%, BoA down 5.77%. S&P500 retailing Index down 2.1% – July numbers of 21 of the 31 retailers posted same-store-sales short of consensus. Wal-Mart said outlook is soft. Techs down 0.1% – outperformed relatively – semiconductors up 2.3%. Intel up 3.8% positive comments from Citigroup. Crude prices up 1.2% – broke the 3-day dive of $5.00. Resources down 0.3%.

CNBC adjectives of the Day – “Nosedive” – “Reality check” – “Sell the rallies”

  • Both BHP and RIO down in ADR form overnight, 2.98% and 3.16% respectively. BHP and RIO dragging on the market, down 0.9% and 1.3%.
  • Metals mostly up – Nickel the big mover up 6%, Lead up 3.29% and Copper up 0.55%. Zinc down 1.14%. Oz Minerals up 2.3%. Panoramic Resources up 8.4%, Minara up 7.1%.
  • Oil price up $1.27 to $119.84 after Kurdish rebels claimed responsibility for a fire at key Turkish pipeline that supplies Western countries. Woodside up 2%.
  • Gold down $5 to $873.80. Newcrest up 0.3%.
  • US Bonds up with the 10 year yield down to 3.93% from 4.05%.

Iron ore stocks underperforming the resources as China’s trade surplus narrows by 17% YonY and posts its 4th monthly consecutive fall as their economic growth drops down a gear – FMG down 2.2%, PMM down 1.0% and MMX down 1.4%.

WESTPAC TRADING UPDATE (WBC) – Well received – Main point is that there is no need for an ANZ or NAB style profit warning – they say they are not at risk “from the types of significant write-down in securities portfolios that have impacted some other financial institutions“. FY08 cash earnings growth on track for 6-8% growth on-year – revenue forecast to rise by 8-9% and expense growth of 6-7%. Lending growth has slowed but housing growth has been strong. WBC expects margins to be stable. Provisions expected to be at similar levels to 1H08 – don’t expect significant writedowns. WBC outperforming its peers – up 1.4%. Three other big banks down – CBA down 0.8%, ANZ down 3.0% and the NAB down 2.5% taking the ASX200 index down 12 points on their own.

Property Trusts underperforming all sectors – down 2.1% on news that even LPTs that haven’t had profit warnings like Westfield (results on the 29th) face an evaporating credit market and may have to sell assets rather than raise capital through the market. WDC down 2.5%.

Apart from that not a lot of news:

  • Newcrest (NCM) have announced they have increased their 30% stake in the PNG Gold Morobe JV to 50%. NCM up 4c to 2525c despite the $5 fall in the gold price overnight.
  • Boral (BLD) and Adelaide Brighton (ABC) are rumoured buyers of Cemex Australia’s concrete pipes and products assets. BLD up 3.1% and ABC down 2.3%.
  • UBS say Constellation Brands are unlikely to bid for Foster’s (FGL) wine business. FGL down 2.0%.
  • Tabcorp (TAH) down 2.1% after yesterday’s better-than-expected results and today’s broker research – there was some relief they weren’t a disaster with one broker saying they did well to meet guidance.
  • Connect East (CEU) up 1c to 86 after a big fall on their disappointing Eastlink traffic numbers yesterday. Rumour has it broker analysts are ripping up and down the link as we speak to justify their BUY recommendations. Goldman Sachs JB Were cut to HOLD this morning.
  • CSR up 3.98% today as Goldman Sachs JB Were ups their recommendation on the stock from HOLD to BUY with a 271c target price. Now 236c. They have also upgraded their Boral recommendation to BUY from HOLD and the stock is up 3.14%. 688c target price. Now 592c.
  • Monadelphous Group’s (MND) results on August 19. UBS Warburg cut their target price to NEUTRAL from BUY due to recent share price appreciation, up nearly 20% in the past 6 weeks.
  • MQG – Macquarie Group – Credit Suisse cut their target price to 6500c from 6800c but maintain their OUTPERFORM recommendation after MQG released their specialist fund quarterly report for the 1Q. Total assets under management fell 3% over the past quarter to $225.4bn.
  • Goldman’s analyst comments on Vale’s (Brazil) market update – Vale enthusiastic about long-term iron-ore pellet demand for steel production. Comment that stainless steel producers have been unwilling to restock nickel inventories in the face of a deteriorating economic backdrop. Copper and coking coal are its favoured commodities for future growth.
  • Finance Minister Lindsay Tanner says the country’s insurers are well capitalized, although recent credit conditions have impacted on profits.

In the MARCUS TODAY newsletter today we have an Article about GIANT CHILDREN. We also have an updated list of all the PEs and Yields in the ASX 200.

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Peter Fray

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