Jan 14, 2014

Morning Market Report

A fairly significant fall in the local market, but the Sensis sale announcement wasn't to blame.

  • The market is down 54 points. The Dow Jones was down 179 at 16,258. The market fell steadily throughout the day and the market traded in a wide 210 point range.
  • The decline was broad based and resulted from caution ahead of the fourth quarter earnings season which gets underway this week. Negative pre-announcements have exceeded positive ones by a record 10-to-1 margin. Atlanta Fed President Dennis Lockhart also gave a speech saying the Fed would continue to taper it monetary stimulus if things went as expected.
  • The S&P fell 23 points to 1819.
  • Oil was down 1.22% at US$91.59.
  • Gold rose $6.00 to US$1252.90 per ounce.
  • The US$ was weaker against most major currencies. The Aussie dollar was stronger and is currently trading at US90.57c.
  • VIX volatility index rose 10.46% to 13.41.
  • US treasury markets were stronger -- the yield on the 10 year bond fell three basis points to 2.827% as growth expectations are adjusted after the weak nonfarm payrolls (jobs) data.
  • European shares were stronger -- led by the banks which reacted positively to a softening of bank leverage ratios. The UK FTSE rose 0.26%, the German DAX was up 0.39% and the French CAC rose 0.30%.
  • European bonds were stronger -- the yield on the Euro 10 year bond fell three basis points to 1.816%. The UK 10 year bond yield fell four basis points to 2.827% and the French and German yields fell three basis points each.
  • Base metal prices were stronger -- led by nickel up 2.56%, lead up 2.29% and zinc up 1.89%. The rises follow the Indonesian ban on the export of mineral ores.
  • Iron ore was up US$0.20 at US$130.90 a tonne.
  • Another quiet day -- no major economic news.  Tonight in the US we have retail sales, business inventories and import/export prices. There are also a number of fourth quarter earnings results, including  from JP Morgan Chase and Wells Fargo.
  • New builds up during the week with a big day on Thursday -- Labour Force data and Dececember quarter production numbers from a number of resource companies including Rio Tinto (RIO), Woodside (WPL), Paladin (PDN), Carnarvon (CVN) and Iluka (ILU).
  • GPT Group (GPT) -- Has announced it will not increase the consideration under its off-market takeover offer (Offer) for Commonwealth Property Office Fund (CPA). The Offer remains open for acceptances until 24 January 2014 but will not be extended beyond that date. This means Dexus (DXS) is in box seat and marching towards victory.
  • Crown Resorts (CWN 1721c) -- James Packer has reportedly asked the Victorian government for a 60-year extension on its Melbourne Crown casino licence beyond the 2033 expiry in return for a new poker machine levy announced in December. The $22,715 per year levy on each of Crown's 2500 pokie machines will cost them $184 million over 3 years. The levy is subject to negotiations and mutual agreement between Crown and the Vic government. This morning Morgan Stanley have initiated coverage with an Overweight recommendation with a target price of 1900c.
  • BHP -- BlackRock has increased its stake in the company to 5%.
  • Forge Group (FGE 106c) -- Has opened down 20% after coming out of trading halt this morning and announcing a profit downgrade.
  • Job Ads down. The ANZ Job Ad series showed total ads fell by 0.7% in December and by 9% over 2013. Internet ads fell by 0.7% and newspaper ads rose 0.4%. Newspaper ads now make up less than 5% of the data. ANZ said there were some positive trends in the series, including signs of a pick-up in non-mining services. The unemployment data is released on Thursday, with economists expecting 10,000 jobs were created and the jobless rate to remain steady at 5.8%.
  • Housing finance hit another seasonally adjusted record in November. The number of new loans rose 1.1% for the month, above the 1.0% expected. The value of loans rose 1.7%. The good finance data adds to strong housing price data and an upward trend in building approvals, both positive for the housing market sector.
  • Tourist arrivals and departures data showed the trend in arrivals is positive at about 4% a year while the trend in Australian residents heading overseas have turned negative. There is still a gap of 186,000 each month, with more Aussies heading overseas, but the gap is closing as the Aussie dollar falls.
  • IMF adds countries to financial risk list -- the IMF has added Denmark, Finland, Norway and Poland to the list of countries that must have regular check-ups of their financial sectors. The new evaluations are a result of the prolonged sovereign debt crisis in the Eurozone. Under the new methodology released on Monday, the IMF said it would review not only how exposed one country's banks are to another's, but also consider sovereign debt exposures and the links between a country and its banks.
  • Telstra (TLS) -- Closed down 0.19% after announcing the sale of a 70% stake in its Sensis business to a US based private equity firm for just over $450 million. Pressure is mounting on the company to use the free cashflow to mount a large-scale acquisition or return funds to shareholders. The sale increases TLS' war chest of free cash to close to $6 billion. In 2005 Sensis was valued at close to $12 billion. Yesterday the total value of Sensis was just $649 million.

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