The market is down 5 but outperforming the 31 point fall predicted by the SFE Futures this morning. Resources and energy down 2.6% and 2.9% following the US lead on sharply lower oil prices and a higher US dollar. Financials outperforming up 1.8%. Property up 1.6%. Gold stocks down.

Dow down 27. Up 246 at best. Down 72 at worst. Main point: Oil dropped hard (down $9 or 8.5% initially) causing a near 250 point rally on the open. It then rallied and the market lost ground. Oil closed 4.5% lower. A jump in the US$ killed commodity prices and resource and energy stocks (-2.5% and -4.6%) with big falls in BHP and RIO (-8% and -10% – although half of those falls are a catch up on the falls whilst Wall St was closed on Monday). Energy and commodity stocks down sharply but offset by strong financials (+1.8%), retailers (+3.0%), airline stocks (+6.6%), and automakers (+3.1%). Manufacturing and construction data remain weak but in-line with expectations. CRB Commodities Index down 3.4% on the rise in the US$ and the fall in the oil price. Technology sector down 1.4%.

  • Both BHP and RIO well down in ADR form overnight, 8.17% and 10.46% respectively. BHP closed at 3867c equivalent compared to 3929c last night. BHP down 74c to 3857c. RIO down 426c to 11573c.
  • Metals mostly down overnight – Copper down 0.49%, Aluminium down 0.38% and Zinc down 0.06%. Nickel up 0.73%. Oz Minerals down 5c to 172c.
  • Oil price down $1.43 to $109.63 on reports that the Gulf Coast and its oil facilities were spared heavy damage from Hurricane Gustav. Woodside down 127c to 5723c.
  • Gold down $24.60 to $806.60. Newcrest down 177c to 2307c.
  • US Bonds up with the 10 year yield down to 3.74% from 3.84%.

Second quarter GDP data is out this morning. Weaker than expected. Q2 GDP up 0.3% and up 2.7% Year on year. We were expecting GDP growth of 0.4% versus +0.6% last Q and GDP on the year to be running at +2.9% versus +3.6% last quarter. The March Q GDP number has been revised up from +0.6% to +0.7%. Q2 Chain price index up 4.0%. Promotes rate cut expectations and validates the RBA’s 25bp rate cut yesterday amidst a slowing economy.

  • Major banks followed the RBA’s 25bp rate cut yesterday. ANZ’s Saul Eslake predicts another rate cut this year and three rate cuts next year. Bank sector up 1.7% today.
  • Citigroup have upgraded their recommendations on the ANZ and NAB to HOLD from SELL. Target price on ANZ of 1750c…up from 1400c and compares to current price around 1718c. NAB target price of 2550c versus 2530c now. They say “While we remain cautious on the share price outlook for the sector as a whole, we believe that the worst of the underperformance of ANZ and NAB is now past”.
  • Short selling in Fortescue Metals – In an attempt to stop traders from short-selling its stock and arrest its sliding share price, Fortescue Metals has asked its largest shareholder – US Harbinger capital Partners – who has been “unwittingly” lending out its stock to short sellers through its custodian, to stop lending out its FMG shares to shorters. FMG down 5.7% this morning.
  • BHP’s $130bn takeover of RIO has hit a snag as the European regulators suspended their antitrust review of the bid because BHP didn’t supply them with certain requested information – could push back BHP’s goal to have all the regulatory approvals secured by the end of the year. RIO down 3.6%. BHP down 1.8%.
  • Australian government set the deadline for tenders to build the $4.7 billion-plus broadband internet network for November 26th – Telstra maintains pole position in the bid already having a fiber blue-print in place.
  • The AFR reported that ANZ is planning a new corporate structure which could see 200 jobs being cut.
  • A few companies going ex-dividend today including RIO 77.35c, Aristocrat 14c, Origin 13c and Fleetwood 15c.

Company Announcements:

  • RIO signs a JV agreement with Codelco for copper exploration in Chile worth $20m.
  • Australand Property Group (ALZ) come off trading halt as they complete their $461m entitlement offer and forecast a 6-month distribution of 3c. ALZ up 0.5c to 61.5c.
  • Babcock & Brown (BNB) appoint John Fanning as their CFO. BNB up 11c to 246c.
  • Downer EDI (DOW) agreed to buy75% of NZ’s Excell Corp in conjunction with Transpacific Industries. DOW up 21c to 779c.
  • Kagara Zinc (KZL) in a trading halt ahead of a drilling result.
  • ING Industrial Fund (IIF) sells Acacia Park property for $26m. IIF up 1c to 159c.

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