The market has started the week off promisingly – up 99 or 2.5% – despite the SFE Future suggesting a 21 point fall this morning after Wall Street struggled on Friday. Resources and energy outperforming. Both BHP and RIO both up 4%. Warren Buffett announced on Friday he was buying the US equity market for his personal account. Quiet a few companies continue to register fresh yearly lows: Clive Peters, McPherson’s, Photon Group, Pan Australia and Reece Australia.

The Dow Jones closed down 127 on Friday. Up 302 at best. Down 261 at worst. Another big range on the market. The main indexes had their biggest weekly rise since 2003 after the most volatile week in history. The NASDAQ closed down 0.37%. Volatility still extreme. Poor housing data outweighed some of the upside earnings surprises from Google, IBM and AMD. Financials fell the most. Major energy stocks up for the week. Metals had a terrible week but are up mildly this morning. Oil up $3 Friday, gold down $17, bonds up. The US dollar mixed against other currencies. The Libor (barometer of the credit crisis) eased slightly across all terms suggesting things are getting a bit better in the credit markets – first week the spreads have fallen since July. The 3-month loans fell to 4.41% Friday from 4.50% Thursday – the 5-straight day of reduction in the rate.

  • Both BHP and RIO down in ADR form on Friday, 2.61% and 1.74%. Both up around 10% in the UK.
  • Metals all up — Zinc up 4.32%, Copper up 3.38% and Aluminium up 0.89%. Nickel up slightly to 0.24%.
  • Oil price up $2.09 to $71.90 on talk OPEC oil producers will cut supplies in two rounds, one next week when they meet in Vienna and a second on a later date, to pump up the oil price.
  • Gold down $16.80 to $787.70.
  • Bond up with the 10 year yield down to 3.93%.

Deutsche Bank expects both the gold and the oil price to go backwards saying the gold price has been artificially supported “by substantial inflows into gold exchange traded funds”. They predict if the US dollar stays where it is, it implies gold prices moving back to around $700/oz. It also predicts oil prices to fall to $50/bbl in 2009 due to the quick deterioration of economic outlook and say, “We believe OPEC production cuts are inevitable in this environment”.

Fortescue CEO Andrew Forrest says major shareholder Harbinger Capital, run by billionaire Phil Falcone, is not intending on selling its stake in FMG saying, “I understand he has now taken it off the market”. Forrest told The Australian that demand for iron ore is still strong but customers are showing a preference for higher quality ore.

Making the news today…

  • Macquarie Group (MQG) has sold its Italian Mortgage Portfolio – it will book a net after tax charge of around $70m due to the write-off of loan acquisition costs and the loss on the sale of the portfolio which had a book value of $2bn.
  • The National Australia Bank (NAB) has taken ANZ Bank’s lead and cut its main mortgage rate, putting pressure on the Commonwealth Bank (CBA) and Westpac (WBC) to do likewise. The Reserve Bank is likely to cut interest rates at its next meeting on November 4th.
  • Babcock & Brown Power (BBP) announced it will change the terms of its management agreement with Babcock & Brown (BNB) to reinforce its existing structure and improve governance.
  • Atlas Iron (AGO) has received final government approval to begin mining ore from its Pardoo lode in WA.
  • Babcock & Brown Infrastructure (BBI) announce a Governance and Management Review – it will revise its base and incentive fee structure, wants to strengthen its board independence, and will redeem A and B Class convertible notes.
  • Macquarie Airports (MAP) announces September traffic figures – down slightly from August.
  • Pharmaxis (PXS) announces Aridol Approved for Sale in Switzerland.
  • Resolute Mining (RSG) is in a trading halt pending an announcement.
  • Sunland Group (SDG) has acquired a residential development at Royal Pines for $28m.
  • Wattyl (WYL) has provided a trading update. The stock is down 63.8% in the past year compared to the 39.5% fall in the overall market.
  • ABN AMRO says the government’s $10.4bn fiscal stimulus package could temporarily lift GDP growth by up to 0.4%, with most of the impact being felt late December 1Q09.
  • Australia’s 3Q PPI has come in at 2% – that’s 5.5% on-year. Economists were expecting a rise of 1% to $4.6%.

Broker talk today…

  • AXA Asia Pacific (AXA) has had its target price cut to 565c from 700c by Merrill Lynch after cutting their earnings expectations. Although it doesn’t expect any capital raisings, it does estimate AXA might be $300m short of targeted regulatory capital surplus.
  • Credit Suisse cut their recommendation on Sims Group (SGM) to Underperform from Neutral and their target price by 50% to 1600c from 3200c saying it expects weaker 2Q and 3Q forecasts by management when it announces its 1Q net profit.
  • Pacific Brands (PBG) has been downgraded to Underweight from Neutral and their target price cut to 175c from 240c by JP Morgan due to currency issues.
  • ABB Grain (ABB) was upped to Buy by Citi with a target price of 912c (up from 890c) saying ABB’s higher charges will help lift returns on supply chain assets.
  • China’s GDP figure is expected today. If any good, it could breathe some life into the China story.
  • The Dow Futures are suggesting a 52 point rise on Wall Street tonight.  

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