The market is taking a breather after yesterday’s gain — down 56 — much better than the 99 point drop predicted by the SFE Futures this morning. Down 4 at its best, down 70 at worst. Property Trusts up 3.1% after underperforming the market yesterday. Stocks hitting fresh yearly lows today include Austar, BlueScope Steel, Fairfax Media, Qantas Airways and K&S Corporation.

Dow down 76. Up 406 at best. Down 302 at worst. S&P500 down 0.53%. Record high volatility levels still — 708 point trading range. US stocks fell after the biggest gain in 80 years the day before. The market responded well to the Treasury’s latest UK-style guarantee for banks, further capital infusions and the proposal to buy $250bn of preferred stock to support financial institutions with a three year investment time frame.

On the other hand, the reality about the unavoidable worsening of earnings in a real recession got investors looking past the circa US$2 trillion collective global bailout program. Consumer Staples signaled the recession would bite profits — PepsiCo down 12% on poor results and outlook. Coca-Cola down 7.5% — down almost every day in October. The Nasdaq underperformed — down 3.9% — as large tech companies signaled that lower consumer spending will crunch profits. Financials up the most — up 6.4%. Resources down 3.0% despite metals being mostly up. Gold down. Bonds down. Oil down. Aussie down slightly against the US dollar. US dollar down against the Euro.

  • Both BHP and RIO down in ADR form overnight, 3.48% and 4.67% respectively. Both up 3.46% and 1.04% in the UK.
  • Metals mixed overnight — Copper up 3.54% and Aluminium up 1.51%, Zinc down 4.86% and Nickel slightly lower.
  • Oil price down $2.48 to $79.69 — on recession concerns. The second highest oil consumer, China, said September crude imports increased 10% from last year.
  • Gold down $3 to $839.50.
  • US Bond down with the 10 year yield up to 4.07%.

Goldman Sachs JB Were have put out economic research saying entitled “Adopting a Recession as a base case”. They expect GDP growth of 2.0% in 2008 and 1.9% in 2009 down from 2.25% for both years. They say “The new forecasts explicitly incorporate a recession before Q1 2009”. They say they expect the RBA to cut interest rates another 50bp in November and a further 50bp in December before cutting a further 50bp in Q1 2009 down to 4.5%.

According to the AFR, Babcock & Brown (BNB) is close to announcing the overhaul of its funds structure. Likely to include lower or waived fees to the parent company. BBP, BBW, BBI paid $400m in fees to BNB last year. BBP is down 97.3% from its high, BBW 48.5% and BBI down 86.9%. May not be great news for Babcock & Brown.

Making the news today…

  • Stockland (SGP) has acquired an initial stake of 5% stake in FKP Property Group (FKP) at $2 a share and says it could lift its ownership to 14% for a total outlay of $80m via a rights issue. FKP said it will begin reviewing its retirement living assets.
  • CSL Limited (CSL) down as Chairwoman says CSL’s net profit may rise 44% to $1.01bn this FY, depending on the A$ fluctuations. Augusts’ earnings growth forecast was for between 15-20% with net profit to be up to between $810m and $850m.
  • Paladin Energy (PDN) announced 1Q production was up 14.4% on the 568,670 pounds of Uranium produced in the 4Q. Also its Langer Heinrich project in Namibia has achieved nameplate capacity.
  • Origin Energy (ORG) has annual general meeting and says that given current conditions it expects FY net profit to be up 30-40% on-year. 1Q performance was inline with expectations.
  • Westfield (WDC) has declined to comment on press speculation it will need to raise $300m-$500m to make acquisitions.
  • Perpetual (PPT) announce that funds under management as of 30 September were $29.4bn down from $31.4bn a month earlier. Standard & Poor Ratings Services today assigned final ratings to the residential mortgage-backed securities issued by PPT as trustee for SMHL Trust 20008-13.
  • AGL Energy (AGK) appoints Les Hosking as non-executive director.
  • Plenty of broker research on Wesfarmers (WES) this morning after its semi-annual strategy day. It provided an update on the Coles acquisition and its other businesses. Macquarie Equities maintained their Outperform recommendation and GSJB Were’s continue to say BUY. Merrill Lynch on the other hand disagrees and expects the stock to Underperform in the next year, as does JP Morgan. UBS Warburg remains neutral. Target prices ranged from 2200c through to 3596c.
  • Harvey Norman (HVN) also received some attention from brokers after reporting sales numbers. JP Morgan maintains their Overweight recommendation but say the stock lacks a short term catalyst. UBS Warburg maintains its Neutral recommendation but cut their target price to 285c from 330c, according to their figures, the stock is trading on 11x FY09 earnings. They will announce sales numbers on a weekly basis for the next month.
  • JB Hi-FI (JBH) was downgraded to Hold from Buy by GSJB Were and their target price cut to 1220c from 1370c saying the risk to JBH consensus EPS is on the downside.
  • Dow Futures suggest a 106 points fall on Wall Street tonight.

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