The Australian market is having a horror day — down 288 or down 6.7% –– on the back of the heavy falls on Wall Street overnight. We are fairing much worse than the 180 point fall predicted by the SFE Futures this morning. It’s a sea of red. 202 stock in the All Ords have hit a fresh yearly low today. Energy and Resources down the most –10.8% and 8.3% respectively. Financials down 7.4%. Property down 7.3%. Industrials down 7.5%. Major banks down between 6%- 8%. St. George Bank down 10%. Macquarie Group down 11%. The sell-off in iron ore stocks is acute on further broker downgrades to future iron ore price assumptions. Fortescue Metals getting caneed – down 15.5%. All the metal stocks tanking despite the higher metal prices overnight.

The Dow was down 678. Up 190 at best early in the session. Down 678 at worst – closed right on its low. Fell rapidly in the last hour. Main Point: Dow under 9000 for the first time in 5-years. General Motors plummeted 31% to 1950 levels and stood as an example of how the market has begun to take the next step factoring in a global recession on industrial future earnings numbers — GM was put on credit-watch-negative by Standard & Poors. Other main factor — the US short selling ban was lifted — stocks affected fell on average 10%. There was heavy hedge fund selling. All were sectors down. Energy was down 11% on global recessionary fears. Resources down. Bonds down, gold down, and oil down. Iceland’s Prime Minister Geir H. Haarde said Iceland is at risk of “national bankruptcy” as it bails-out its biggest bank.

US Financials down 11.7%. Regional banks down 15.2%. Investment banks down 15.7%. Insurance companies down 16.8% – a 13-year low – fears investment losses will impact company results. The Libor – London Interbank Offered Rate – for 3-month loans rose to 4.75%, the highest level since December 28th. Credit markets still frozen. Investors withdrew US$72bn from US-managed stock and bond mutual funds in September – in a flight to the safety of government insured bank deposits. The first week of October saw an additional $49.3bn of outflows.

  • Both BHP and RIO down in ADR form overnight, 6.39% and 7.12% respectively.
  • Metals all up – Zinc up 4.7%, Aluminium up 2.22% and Copper 1.49%. Nickel up 1.66%.
  • Oil price down $2.44 close to a new 12 month low of $86.50 despite talk that OPEC would cut output to pump up prices.
  • Gold down $20 to $886.50
  • US Bonds down with the 10 year yield up to 3.75%.

Research Event of the Day – IRON ORE PRICE DOWNGRADES –– Patersons and a few other brokers taking on board the Mt Gibson news yesterday and downgrading iron ore price expectations as some Chinese clients delay iron ore shipments and some can’t pay for them. We have seen three brokers downgrade iron ore price expectation for this year so far – UBS have moved to down 15%, Goldman Sachs JB Were moved from +15% to excepting a roll-over of current prices and Patersons expecting minus 20%. Other brokers still expecting contracts to be up 30% to flat prices. Iron ore stocks have already been smashed so the iron ore downgrades are a bit harry hindsight but the trend is still in place and you have to worry about iron ore stocks in the short term despite recent falls.

CBA’s takeover of Suncorp is being speculated in the press to likely take place in weeks rather than months.

NAB Capital’s FX strategist John Kyriakopoulos says the Aussie is likely to resume falling against the US dollar after yesterday’s reprieve, as three years of a commodity-boom-driven rising AUD is unwound on global recessionary fears and a flight to the safety of US Treasuries.

In other News…

  • According to a Credit Suisse report, based on Alcoa’s 3Q result, one-third of the aluminium industry is unprofitable at current price. “This situation may be even worse in the Chinese industry, where on average input costs and at Shanghai Futures Exchange aluminum prices, some 80% of the industry may be under water”.
  • Crane Group (CRG) said its 1H net profit before significant items is likely to be down 12% on last year. Said NZ business conditions were more challenging than expected and said there were signs that Australian’s housing market was softening. CRG has acquired a further 20% interest in Mitchell Water Australia Pty. Said full year profit should be the same as last year. CGR down 10% to 916c.
  • ABC Learning Centres (ABS) said the ACCC will review its plans to buy the childcare recruitment business 123 Careers. “ABC will not complete this transaction until approval has been received from the ACCC.”
  • Linc Energy (LNC) have been placed in a trading halt pending an announcement on its Chinchilla coal-to-liquids facility — production of liquids from a demonstration facility has been slightly delayed on mechanical issue.
  • Australian Wheat Board (AWB) has refinanced $280m in a syndicated loan facility. AWB down 14.55% to 229c.
  • Ausenco Limited (AAX) has commissioned its Lumwana primary crushing plant. AAX down 14% to 655c.
  • Resolute Mining (RSG) announces it is finalising $50-60m of funding requirements to complete a re-development and ramp up on its Syama project. RSG down 42.6% to 60c.
  • Western Areas (WSA) released its quarterly activities report — said they made excellent progress. WSA down 20% to 369c.
  • United Group (UGL) down 14% to 966c on some broker downgrades.
  • Nexus Energy (NXS) continues to fall – nearly 15% to 53.5c – after its CEO yesterday said it was looking to sell up to 50% of Crux liquid project. NXS down 12% to 55c.
  • Tabcorp Holdings (TAH) hosts an investor and analyst tour of its $475m plan to refurbish Star City casino in Sydney. TAH down 9.55% to 701c.
  • UBS Warburg cut their target price on Bank of Queensland (BOQ) to 1250c from 1575c and maintain their NEUTRAL recommendation after BOQ’s FY result yesterday. It contained no nasty surprises and was in line with expectations. BOQ down 6.89% to 1108c.
  • BlueScope (BSL) has had its target price cut to 800c from 1190c by Credit Suisse despite them expecting the stock to OUTPERFORM. At 800c, it represents 8x earnings. They say, “Declining steel demand, prices and sentiment could see further share price pressure, but on normalized earnings, we think BSL is very attractively priced.” BSL down 5.25% to 578c.

MARCUS PADLEY is the Author of the MARCUS TODAY Daily Stockmarket Newsletter.

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