Morning Market Report

The market is up 15 points. ASX 200 Futures were up 14 this morning. The Dow Jones finished up 2 on low volumes — it was up 32 at best and down 28 at worst.

About the only events of the night were a baby boy (8lbs 6oz) and a set of disappointing home sales numbers which fell 1.2% amid concerns that the mortgage rate is set to rise in the US. Some relief in Europe as Portugal’s said the government would remain and they would live up to the terms of their bailout conditions. The Portuguese 10-year bond yield dropped 41bp. The S&P 500 was up 3 and hit another new record closing high. 

Oil price down $1.14 to 106.91. Peaking a bit at last. A high oil price is not good for inflation, growth, profitability and markets. Spot iron ore was down 20c to $131.50. Gold price up $43.10 to $1336. It was up $21 by the close of our session last night so is really up about $20 from the close yesterday. 

Japan up 0.47% yesterday — a rather muted response to the Upper house election at the weekend. Abe Shinzo’s party needed a coalition to get a majority. China up 0.61%. 

Resources up — BHP and RIO up 2.24% and up 0.77% in the US overnight. BHP closing up 48c on the close here yesterday. 

US economics — existing home sales a bit below expectations: Actual 5.08 million, consensus 5.28 million, prior 5.18 million (revised 5.14 million). Tonight — FHFA housing price index.

US results — Apple results are tomorrow. Up 0.32% overnight. McDonald’s down 2.68% on results. Kimberly Clark down 1.82%. Google up 1.6%, recovering from its results fall on Friday. Results Tonight — Apple, AT&T, Juniper Networks, AK Steel, Altria, DuPont, Freeport-McMoRan, Peabody Energy, UPS


  • Incitec Pivot (IPL) — Profit downgrade — Will take a $23 million hit as a result of the temporary closure of a Queensland ammonia plant, which went offline in early July due to issues with its iso-thermal shift reactor. The plant is expected to ramp up production from next week. The outage will deliver a hit of around $23.5 million to the company’s earnings this year.
  • Oil Search (OSH) —  Quarterly report — Oil and gas output in the quarter fell 9.7% from a year ago to 1.63mboe. The company reaffirmed guidance of between 6.2m-6.7mboe. Revenue in the quarter fell 3% to $US204.9 million. The company also said they had discovered modest quantities of natural gas during a new exploration campaign in Papua New Guinea.
  • Yancoal (YAL) — Chairman Weimin Li resigns.
  • Western Areas NL (WSA) — Quarterly report– Says 2013 financial year nickel output was up 5% to 26,915 tonnes. The weaker Aussie dollar has helped moderate the hit from lower nickel prices.
  • UXC — Won a contract with the QLD Children’s Hospital to install ICT infrastructure. The contract is estimated to be worth $10 million to $20 million.
  • NZ earthquake — An article in the AFR talks about the cost of the 6.5 magnitude earthquake that hit Wellington over the weekend and the ramifications for ASX listed insurance stocks. The two stocks that are exposed are Insurance Australia Group (IAG 589c), which is New Zealand’s biggest general insurer (40% of the market), and Suncorp (SUN 1247c), roughly 20% of the market. So far reports indicate there has been no serious property damage. IAG’s reinsurance cover for NZ earthquake limits losses to $120 million and $45 million for Suncorp. Merrill Lynch has a buy recommendation on Suncorp this morning with a target price of 1400c. It prefers Suncorp to IAG because it’s cheaper, has more surplus capital that can be returned to shareholders. There is also upside in the underperforming Life company that is being turned around. Both stocks have very similar charts. Rather than one or the other it’s probably none or both.
  • Leighton Holdings (LEI 1632c) — Fell 5.12% yesterday on the back of no announcement. The media speculates that the company could be getting ready to confess a potential earnings downgrade just before they report. Other reports say the company was caught in the fallout from Orica’s (ORI) shock downgrade yesterday, over its exposure to Indonesian coalmines and the potential hit to earnings. Orica’s downgrade was partly due to a dispute between Leighton’s Thiess unit, which stopped mining at an Orica coal operation in Indonesia. Deutsche Bank downgraded its  recommendation on LEI last week to sell from hold with a target price of 1656c. Their revenue expectations were lowered for Australian infrastructure, contract mining, resources and Indonesian mining and Gulf construction markets. They expect the company to report revenue declines of 12% this year and about 9% next year. In May the company reaffirmed FY13 profit guidance at A$520 million to A$600 million.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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