The market is down 34 points.Dow Jones closed up 111 closing on its high — US stocks rose 0.73% on Friday as Democrats and Republicans continued negotiations to resolve the budget crisis and end the partial government shutdown. No resolution has been reached but the risk of a default is seen as minimal. The credit swap market is pricing in less than a 2% chance of default.

Treasury will be unable to pay its bills after October 17 unless an increase in the ceiling is agreed.

Gold was down US$28.70 to US$1268.20 per ounce, extending recent falls. While no resolution to the US budget crisis has been achieved most market participants are confident of a solution, reducing the attractiveness of safe haven assets. Gold was down 3.2% over the week.

VIX volatility index down 4.61% (good news) to 16.7, reflecting the increased stability in the market. A high of 21 was reached last Wednesday.

US Consumer Sentimentdisappointed, falling from 77.5 to 75.2 in October, below expectations of 76.0. There are fears further delays in extending the debt ceiling will impact on sentiment going forward, flowing through to economic growth and company earnings.

Chinese trade data also disappointed with the trade surplus narrowing from US$28.61 billion to $15.2 billion in September, lower than forecasts for $27.7 billion. The fall in exports highlighted the challenges to the government expansion forecasts if global demand falters.

European bond yields fell with Greece the standout — Greek 10 year yields falling 22 basis points to 8.86%.

US Treasuries were flat — the 10 year yield was unchanged at 2.691% ahead of a holiday weekend in bond markets. Equity markets will still be open.

The US$ was unchanged against major currencies, up slightly against the Euro.

The Aussie dollar was slightly weaker, falling from US94.56 yesterday to US94.32 after trading as high as US 94.85.

Oil prices fell — WTI fell rose almost 1% on news non-OPEC supply would increase by 1.7 million barrels per day.

Base metal prices were stronger — Lead up 1.44%, Nickel up 1.26%.


  • AGM Season — We have Telstra’s AGM tomorrow along with Cochlear and CSL on Wednesday with ANN and QAN on Thursday and Friday.
  • Bank results — Expect the banks to be well supported running into the results. After a 6% jump in BOQ post last week’s results, the risks seem to be on the low side with dividends ahead as well. In an uncertain market investors will be simply holding the sector over results and dividends. Hard to see there is much upside in the sector on current PE ratings without upgrades to earnings … but we may just get those.
  • Production numbers — Also keeping us busy this month will be the quarterly production numbers from the resources sector for the first and third quarters. We have RIO tomorrow and WPL, STO, FMG, NCM and AGO. Production numbers are just that … production numbers not profit numbers and are often devoid of any other commentary so don’t tend to have a big impact on stock prices.
  • US third quarter results — We have some big ones this week from financials including Citigroup, Bank of America, Goldman Sachs and Morgan Stanley. Other notable results come from Coca-Cola, Johnson & Johnson, Intel, Yahoo!, IBM, eBay, Google and GE.
  • We have Housing Finance numbers in Australia today.
  • RBA minutes out tomorrow — they are unlikely to say much of interest after a very bland last RBA meeting.


  • OZ Minerals (OZL) — Has downgraded production. It has cut its forecast for annual copper production for the second time this year and now expect to produce 70,000-75,000 metric tonnes of copper, down from 82,000-88,000 tonnes. Earlier in the year it was saying production would be as high as 95,000 tons. The downgrades come on the back of a slippage in the overburden material. OZL left financial year guidance for gold output unchanged at 120,000-130,000.
  • Warnambool Cheese and Butter (WCB) — Has engaged KPMG Finance to prepare an Independent Expert’s Report solely in response to Bega’s offer. The report delivers an opinion on whether Bega’s offer is fair and reasonable to WCB shareholders. The panel says Bega’s Offer is neither fair nor reasonable and that the offer consideration is between 17.1% to 18.9% lower than its assessed valuation range for WCB shares. It assessed the value of WCB to fall within the range of $6.96 to $7.49 per WCB share. There is always an understandable cynicism about an independent valuation done on a company that is paying them to do the valuation. Of course the valuation is above what the bidder is paying. Bega Cheese (BGA) say it will not increase its takeover offer for Warrnambool Cheese and Butter for now, despite a higher competing bid from Canadian suitor Saputo.
  • iSelect (ISU – 126c) — Only a few months after its rather disastrous listing on the ASX (at 185c), boss Matt McCann has quit. The media says his resignation was the result of a difference of opinion with the board over the company’s direction. iSelect gave no reason for his departure. The news comes after the ACCC demanded that iSelect either clarify or retract a “potentially misleading” announcement about its earnings. Shares fell 15% immediately after the company listed. iSelect have also released a September Q trading update. It confirm it is on track to achieve EBITDA of $30 million but sales are a bit below prospectus. The share price has lifted … presumably on the hope that new management will bring improved performance.
  • WBC — Has announced that it has acquired Lloyd’s remaining Australian business units for $1.45 billion. Shares rose last Friday by 2.1% to $32.88 in early trade on Friday. The deal requires approval by the ACCC. WBC is well positioned to extract synergies for the lease books relative to the other banks.
  • OzForex Group (OFX) — Listed on Friday raising $440 million in the largest IPO this year. The stock price rose 30% in its debut on the ASX. The PDS forecasts a profit of $18.6 million in the year through March 2014 and the company says it can grow its online presence and further expand its business offshore.
  • Xero (XRO) — The cloud-based accounting firm has raised $NZ180 million by selling shares to Matrix Capital Management and other US investors to increase its cash reserves. The company has to fund sales growth as it targets 1 million customers. Its current customer base is 211,000. Shares in the company have more than doubled this year.

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Peter Fray
Peter Fray
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