The market is down 61 points. The Dow Jones finished down 170 on reasonable volume. It was down 181 at worst.

The S&P 500 closed down 26 to 1630 and below its 100 day moving average.

The threat of US military intervention in Syria remains the central issue. The US has four warships with cruise missiles in striking distance although there is some debate about whether they would be effective. The UK recalled parliament to discuss the military response.

The US 10 year bond yield was down 8 basis points (bonds up for the third day) to 2.712% (recent high 2.9007%).

The Case Shiller house price index came in a touch better than expected, up 12.1% on the year although the number was criticised in some quarters as representing a speculative bubble in some states and not representative of a housing market recovery in general.

Consumer confidence numbers came in higher than expected raising expectations of a tapering decision next month.

The newswires mention the threat of debt ceiling negotiations coming up — The debt ceiling will be hit mid-October and Congress has yet to begin budget negotiations ahead of the new fiscal year starting October 1st.

BHP was down 1.97% in the US on Friday. The stock closed in the US down 60c on the close here yesterday. RIO down 3.21% in the US.

Gold price up $27.10 to $1420 on the uncertainty of military action.

The oil price spiked 3.92% on the threat of military action.

The A$ is under 90c again at 89.75c having been below 89.35c. It is down from $92.34c a week ago. The lowest the A$ has been in recent history was 88.48c on 5th August.

European markets down. Greece down 4%. Most other markets down over 2%. UK the best down 0.79%. Italy managed to sell 4bn Euro worth of bonds.

The Japanese market was down 0.69% yesterday.

The Chinese market was up 0.34% yesterday.

The iron ore price is unchanged at $138.70.

Metals down — The LME opened after the holiday on Monday with all the major metals down small.

US performers — The Transport sector fell 2.6% as Delta Airlines fell 5.7% and United Continental Airlines fell 7.2%.

US Economics tonight — MBA Mortgage Index, Pending Home sales.

In Europe tonight — GfK German Consumer Climate and M3 money supply. Bank of England Governor Mark Carney will speak tomorrow in Nottingham.

US Economics last nightCase-Shiller 20-city Index: Actual 12.1%, consensus 12.0%, prior 12.2%

Consumer Confidence: Actual 81.5, consensus 77.0, prior 80.3 (revised 81.0).


  • (WTF) — Net profit of $51 million down 12% and below an expected $53 million. Final dividend of 11.5c. The Patersons analyst says “We strongly reiterate our sell recommendation”.
  • Woolworths (WOW) — Pre-items profit of $2.35 billion up 8% and in line with analyst expectations. Dividend of 133c. Revenue of $58.67 billion up from $54.92 billion last year. Financial year 2014 earnings to be up 4%-7% but retail conditions are expected to be subdued.
  • Transfield Services (TSE) — Up 5%$ on results first thing. Financial year net loss $250 million. Underlying net profit of $62.5 million down 41% and in line with the $63 million consensus. Revenue was up 9.8% to $3.451 billion. The company says they will not pay a dividend. They cut 359 jobs in financial year 2013 and plan to cut 180 in financial year 2014. They have also shelved the sale of Easternwell mining exploration unit.
  • Sandfire Resources (SFR) — financial year profit of $88 million up from a net loss of $23.8 million last year. Profit before net finance and income tax was $142 million. Sales revenue was $507 million. The company has a strong production and cost outlook for financial year 2014. Guidance of 65,000-75,000 tonnes of copper at a cost of $US1.05-$US1.15 per pound. Underground exploration set to accelerate in financial year 2014.
  • AGL Energy (AGK) — Profit of $388.7 million up 238.3%. Underlying profit of $598.3 million up 24.1% and above an expected $595 million. Revenue up 30.3% to $9.715 billion. Dividend of 63c. They booked an impairment charge on NSW Gas Assets of $284.3 million. Recommendation Consensus: 6 Buys, 7 Holds,  0 Sells.
  • Macmillan Shakespeare (MMS) — Had late results and have suspended their dividend pending the federal election and the threat of Fringe Benefit Tax changes to car leases.
  • Billabong (BBG) — Results yesterday — Down 9% in two days and down another 6% first thing. They have written down the value of the Billabong brand to zero. Having rallied from 12c (on fears of going broke) to 71.5c less than two months later (on a re-financing) the stock seems to be sobering up again … down 5.3% on results yesterday.
  • Tapering uncertainty — Ahead of the FOMC meeting on September 18 and the expected announcement on the tapering timetable for quantitative easing the market will remain volatile and risky and sensitive to any US economic release. The US jobs numbers on September 5 come into focus.
  • Earnings in a downgrade cycle — The results season is 90% over and while it provided some early positives (TLS, CBA) has failed to raise earnings forecasts in general or drive valuations. Earnings fell 1% on average and the general impression is that the 9.5% earnings growth penciled in for 2014 earnings growth needs to be downgraded further.
  • We are now worrying about the sustainability of dividends as the average payout ratio reaches 70% a level only beaten by the 72% in the 1992 recession which came on the back of a low earnings result rather than a high dividend payout. The implication is that dividends have been raised to pander to shareholder demands for income but it is not sustainable.
  • Good but Overpriced — ‘Quality’ stocks have been universally identified and to a man look overvalued.
  • Not cheap — “Safe income” stocks like the banks and Telstra are at the top of their historic PE and yield ranges. The banks are not far off the highs when the ASX 200 hit 5249 — at that level (in hindsight) everyone agreed the market had been overpriced. We are unlikely to get back there let alone exceed those prices easily.
  • The election may be a catalyst for the market but it’s unlikely to create an inflection point of significance.
  • Syria provides a new reason not to get stuck into equities … not until the uncertainty of military action is out of the way.
  • Risk to the US recovery — Rising bond yields threaten the US housing recovery. US July New Home sales came in significantly worse than expected on Friday causing a rally in bonds (less chance of a rate rise) and potentially delaying a September tapering decision. New Home Sales  fell 13.4%. It was the biggest fall since May 2010. The Fed have already highlighted their concerns about rising mortgage rates — they are concerned they could kill off the housing market recovery — they have certainly slowed its recovery already.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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