The market is having a horrid day — down 217 or 5.1% – on the back of heavy falls on Wall Street overnight. The SFE Futures predicted a 301 point fall this morning. All sectors well down, resources underperforming — down 9.4% — led by the big boys BHP down 9.8%, Rio Tinto down 13.7% and Fortescue Metals down 10.4%. 54 stocks among the All Ords have hit fresh yearly lows.

Dow down 733 — or 7.9%. Downward trend all session — down 780 at worst. S&P500 down 9.03%. Nasdaq down 8.5%. All gains from the massive rally on Monday 13th have all but been wiped out the last 2 sessions – the S&P500 is only up 1% for the week. The MSCI World Index down 7.3% – FTSE down 7.16%, DAX down 6.49%, CAC 40 down 6.82%, Nikkei up 1.06%, Hang Seng down 4.96%.

US Stocks had their biggest fall since the 1987 crash after the largest drop in retail sales for three years and a record low manufacturing number confirmed the worst fears for a US recession. The focus has moved from the financial stabilization packages to the first quarterly fall in consumer spending in 17 years. The US GDP number is two thirds comprised by consumer spending. Economic releases were compounded by a depressing speech on the outlook from Bernanke. Energy sector fell the most — down 15.5% – on a recession led fall in the oil price. Oil down 5%, gold down a touch. Bonds up. Resources down 12.1% and commodities down 4.5% overall. BHP and RIO hammered – down 17.15% and 20.48%. Exxon Mobil and Chevron both down over 12%. The defensive sectors outperformed relatively — consumer staples and healthcare were down only 6.0% and 6.7%. The A$ down against the US dollar. US dollar up against the Euro. JP Morgan, Coca-Cola and Intel all beat quarterly earnings expectations. CCL one of the only companies up – rose 1.1%.

  • Both BHP and RIO down significantly in ADR form overnight, 17.15% and 20.48% respectively.
  • Metals all smashed overnight — Copper, Nickel and Zinc all down over 7%. Aluminium down 5.04%.
  • Oil price down $4.31 to $74.38 — below $75 a barrel for the first time in 14 months — after OPEC cut its 2009 petroleum forecast.
  • Gold down 50c to $839
  • US Bond up with the 10 year yield down to 3.97%.

National Australia Bank (NAB) will release its annual result earlier than expected (October 21) and says it expects a cash profit of close to the $3.9bn market analysts expect (down 11% on last year), and provided an indication that it is confident with its capital position by lifting its dividend to 194c from 184c. Management’s outlook will be the key, but in this uncertain and unprecedented environment, don’t be surprised if we don’t get anything concrete.

Rio Tinto announced production numbers late yesterday — described as OK and in line with expectations. Management comments were most interesting. CEO Tom Albanese said the financial credit crisis had not only increased the cost of servicing its debt, but weakened its defense against BHP’s 3.4-for-1 takeover offer. Current ratio between the two stocks is now 2.5-for-one. He also mentioned that China was taking a breather and that he would review capex spending on growth projects. Both stocks were smashed in the US and the UK overnight. GSJB Were say RIO is a quality company but has relatively high and meaningful debt.

Merrill Lynch says demand weakness in China is real – said steel makers are determined to have production cuts. Analysts talking to steel producers in China say they all point to weakness in demand for their products post the Olympics, reduced industrial activity and delays in government approvals. Jinan Iron & Steel told Merrills they will cut production by 20% to support prices. Brazil’s Vale has apparently stopped iron shipments to Jinan until they accept a 12% hike in prices. Iron stocks getting canned today along with the rest of the market.

Other news today…

  • Coca-Cola Amatil (CCL) reiterated earnings guidance for the 2H 2008 and said the Australian division was on track to meet guidance. CCL said they expect 7% earnings growth before interest and tax and pre significant items for the 6-months to December 31.
  • CSR Limited’s (CSR) trading update showed earnings before interest and tax will be in-line with last year. 2Q building product results reflect patchy demand. Said the lower Australian dollar will assist its sugar and aluminium businesses, but due to hedging, the benefits will come next year.
  • Iluka Resources’ (ILU) quarterly production report showed higher mineral sands production in the September quarter. Total mineral sands revenue in September was $249.6m. Sales to China remain on trend.
  • Becton Property Group (BEC) released FY09 1Q update. Net tangible assets up to $297m from $283m in the June Quarter. Debt and other obligations have been reduced by $281m to $566m.
  • Arrow Energy (AOE) said it expects its agreement to sell its stake in its tenements to Shell to settle in November — should get a higher than expected initial payment of about $640m.
  • Queensland Gas (QGC) reaches 89.45% in Roma Petroleum.
  • Australian Pharma (API) doing well — after reiterating FY08 EBIT guidance of $49m-$50m.


  • Merrill Lynch cut their target price on Perpetual (PPT) to 3800c from 4000c and maintains their Underperform recommendation after announcing a 6% fall in funds under management in September. They cut their EPS expectations by 8% in FY10 and 10% in FY10 and predict, “Protracted market softness suggesting a rebound in fund flows may not occur until FY10.”
  • GSJB Were says Flexigroup (FXL) faces a number of challengers — a soft retail environment, weak credit markets and price deflation — but maintain their BUY recommendation and 194c target price. They point out that if FXL can retain funding, “the stock looks very attractively priced”.
  • Ten Network (TEN) is yet to announce its profit result which is due today. UBS Warburg expects a FY08 TV EBITDA of $212.2m, down 10.2% from last year.
  • The Dow Futures are suggesting a 101 point fall on Wall Street tonight.
  • The Aussie dollar continues to struggle against the US — now at 65.86c.

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

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