Our market is going OK today — up 28 — good result considering the heavy falls on Wall Street and our futures suggesting a 71 point fall in the market this morning. Our market has been inspired by Warren Buffett’s decision to invest at least $5bn in Goldman Sachs which jumped 8.5% in after-hours trading. Berkshire’s preferred stock in Goldman will pay 10% and can be bought back any time at 10% premium. The warrants also allow Berkshire to buy $5bn in common stock at $115 a share any time over the next five years. Goldman also announced it would raise another $2.5bn in its own public stock offering. It is a big vote of confidence for the markets and for Goldman’s in particular and that there is light at the end of the tunnel.

Dow down 161. Up 128 at best. Down 182 at worst. Closed on lows. Continued bailout anxiety as Bernanke and Paulson try to push the US$700bn bailout bill past the resisting Senate banking Committee. Financials down again. Energy and resources sector down on the back of a falling oil price. Reversal of investment dollars back into US treasuries from commodities. Gold down. US stocks have the worst two-day decline in six-years — has wiped off two thirds of the massive 8.5% run-up on Thursday and Friday last week when the bailout plan first got mentioned. Energy down 2.9% — oil down 2.3% after yesterday’s record 18% spike up due to a huge short squeeze from traders previously selling the commodity. ConocoPhillips down 4.04%. Newmont mining down 3.74%. The NASDAQ closed down 1.18%.

  • Both BHP and RIO down in ADR form, 5.23% and 12.91% respectively. Both fell 2.97% and 5.12% in the UK.
  • Metals all down overnight — Both Copper and Zinc down 3.9%, Nickel down 1.75% and Aluminium down 1.52%.
  • Oil price down for the first time in 5 days — if fell 12% or $14.76 to $107.85 — on the back of profit taking after a huge rally which the saw the price rise $30 in 4 days.
  • Gold down $17.80 to $891.20.
  • Bonds up with the 10 year yield down to 3.80% from 3.85%.

Federal Reserve Chairman Ben Bernanke testified before the Committee on Banking, Housing, and Urban Affairs overnight. He basically highlighted that the US economy will shrink if the government doesn’t interfere and hopefully steer the markets to functioning normally again. Federal Fund futures have now priced in a 66% chance of 25bp cut to 1.75% by the Federal Reserve when it meets on October 28-29th, up from 34% yesterday. Bernanke also mentioned that the Fed took action with AIG because the markets would have basically failed if they didn’t and that Lehman Brothers was allowed to collapse because the troubles at Lehman were well known for some time and was judged that investors and counterparties had time to take precautionary measures. The Dow Futures suggest a 104 point rise on Wall Street tonight at 11am.

GSJB Were has brought forward their expectations of when the RBA will cut rates. They now predict a 25bp cut in both October and December, when previously they thought a 25bp cut in November would do it. But they do mention that there are no guarantees as to whether the retail banks will pass on the rate cuts to consumers immediately.

Making the news today…

  • BHP Billiton and Rio Tinto will have to share their Australian iron ore rail networks with competitors after a high court ruling. Great result for Andrew Forrest’s Fortescue Metals (FMG) who initially took the matter to the courts. BHP and RIO down 1.4% and 2.7% this morning.
  • BHP Chairman Don Argus has warned that growth in Asia will slow at some point saying, “I have no doubt that economic growth in the Asian region will slow at some point but, if I look at China specifically, the slow down is concentrated in regions orientated to the light export sector”. He also mentioned that commodity markets will remain volatile in the short term.
  • ASX Ltd (ASX) has conducted its AGM today — not the best timing — is has seen IPO activity fall 70% from last year with secondary capital raisings also being more subdued but continue to be robust. It reiterated its defense as a market supervisor and CEO Robert Elstone said, “Our institutions are not immune from contagion risk”. ASX up 1.9% this morning.
  • David Jones (DJS) reported a FY profit that was in line with expectations. It announced a profit of $137.1m after significant items. Revenue was up 5.8% to $2.1bn and declared a final dividend of 16c, up from 13c last year. Up nearly 1% at midday.
  • Qantas (QAN) announced this morning it has deferred plans to list its Frequent Flyer business until the first half of 2009. QAN down 0.31% this morning.
  • PaperlinX (PPX) struggling — down 4.3% – after hinting it might consider an equity raising to reduce its debt. It also extended the maturity date of a one-year tranche of its syndicated multi-currency US$589m debt facility on the agreement it will pay $150m by May 2009.
  • Gunns (GNS) said it is in exclusive negotiations with an unnamed international forestry investor over the proposed sale of a standing forest. GNS up 2.5%.
  • TABCORP Holdings (TAH) said it will spend $475m upgrading its Star City Casino and as announced previously will complete a new 5 star hotel. The expansion plans have been lodged with the NSW Planning Department. TAH up 2.8%.
  • Healthscope (HSP) up 5.7% after the Health Minister made alterations (increase) to the Medicare Levy surcharge thresholds to $75,000 for singles and $150,000 for couples.
  • Coal of Africa (CZA) has upped the resources at its Vele Project by 63% to 721m metric tons. Up 7.2% this morning.
  • Macquarie Equities maintain their Outperform recommendation on Clough (CLO) and 79c target price saying, “CLO is set to benefit from existing client relationships, with major offshore oil and gas producers and surplus offshore construction support vessel capacity.” CLO down 0.7% at midday.
  • In the US tonight we can expect earnings result from Nike and digest Existing home sales.

MARCUS PADLEY is away on Holidays.

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