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Morning Market Report

Jun 18, 2014

Morning Market Report

A steady day on local markets following the latest news from the RBA.

The market is down four points.

The Dow Jones was up 27 points at 16,808 — the market was down as much as 48 points before strengthening through the day. Housing data was weak but a strong CPI was seen as good news, bringing inflation closer to the Fed’s target without being strong enough to warrant a rate increase. Consumer Discretionary stocks were the best performers, while Consumer Staples lagged along with Energy and Health Care. Volume was below average and the market traded in a 91 point range.

US bonds markets were weaker, with the yield on the 10 year bond rising six basis points to 2.653%.

European shares were mixed — The French CAC was up 0.58% and the German DAX was up 0.37% but the UK FTSE was down 1.14%.

The Aussie dollar was weaker and is currently trading at US93.33c.

Gold was down US$3.30 or 0.26% to US$1272.00 an ounce.

Oil was down US$0.54 or 0.51% to US$106.36 a barrel.

Base metals were mostly stronger — zinc rose 0.92% and copper rose 0.04% but aluminium fell 0.08%. Nickel was up 2.56%.

Iron ore rose US$0.30 to US$89.30 a tonne.

US Earnings — Adobe Systems — up 9.05% in after hours trade.

RBA Minutes — The RBA think interest rate policy is working and expect rates to remain unchanged for the foreseeable future. In terms of comments about the Aussie dollar, the RBA said “the exchange rate remained high by historical standards, particularly given the further decline in commodity prices over the past month.” Economic growth is expected to remain below trend for the rest of 2014, then pick up gradually. They also highlight the potential impact the tough budget and falls in mining investment could have on the economy.

Iron Ore downgrade — Deutsche Bank have downgraded iron ore price forecasts. The 2014 forecast has been cut $US3 to $US113.10 a tonne with a 10.3% drop in 2015 to $US89.30. But the Deutsche Bank analysts say the weakness is more than factored into current prices, with the Rio Tinto share price discounting US$65 a tonne being received. Goldman Sachs are more bearish. They have the price averaging $US80 per tonne next year.


  • David Jones (DJS 388c) — Solomon Lew has upped his stake to 9.8%, signaling a clear intention to block the $2.2 billion takeover by South Africa’s Woolworths Holdings. Last night shareholders in South Africa’s Woolworths Holdings have voted in favour of the takeover of DJS. The next step is at the end of the month where DJS shareholders will vote on the deal. DJS will need a 75% approval from shareholders for the takeover to pass. The major hurdle here is Solomon Lew or someone else gathering enough votes to block the deal.
  • Woodside Petroleum (WPL 4285c) — Shares have come out of trading halt after Shell completed its sell-down of more than 78 million shares. They raised $2.90 billion and have lowered its stake in WPL to 13.6% from 24.5%. Shell will sell another 78.3 million shares back to WPL which will take their holding to 4.5%. WPL share price is down 3.62% at 4131c. Institutional shareholders paid 4145c per WPL share as part of the sell-down. WPL shareholders will need to approve the buyback and there may be some shareholder disapproval. But Ord Minnett say a 75% vote in favour of the selective buyback is more likely than not as to defeat it would require 50% of local super funds to vote against it. International investors will also have little interest in the franking credits when it comes to the vote.
  • Metcash (MTS 281c) — Is due to report financial year profit results next Monday June 23rd. Ord Minnett expects underlying EPS to fall by 14.2% and EBITDA in Food and Grocery to fall by 0.7% and 22.5% respectively. Hardware and Automotive EBITDA tipped to grow 55.5%. NPAT is expected to be around $231.9 million which is in line with company guidance and a fully franked dividend of 9c is expected. The market will also be expecting an announcement on the execution of their transformation plan and how it’s progressing. Other things to keep an eye out for include fresh and dry food inflation, competition from Coles and Woolworths and any investment in IGA supermarkets or Mitre 10.
  • Orica (ORI 1851c) — Media sources say ORI management are quietly pitching their $1bn chemicals business to a handful of private equity buyers, testing the market to gauge whether they would be better off selling the non-core asset or going ahead with a demerger.
  • Osprey Medical (OSP 52c) — Shares closed up 15.6% yesterday after a new version of its main product received regulatory approval for use in the United States.

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