Morning Market Report, May 13, 2008

The market is unchanged on the day having been up 14 and down 31. St George Bank has been bid for and has added 19 points to the ASX 200 whilst Westpac the bidder has dropped 2.8% and taken 7 points off the ASX 200. Today’s performance a little disappointing considering the SFE Futures suggested a 57 point gain this morning.

We also had a strong lead from Wall Street overnight – Dow Jones up 130 – up 158 at its best and down 5 at its worst. Biggest rise in a week. It was the slowest trading day of the year on NYSE. The Dow is now 11.88% off the bottom and 9.83% off the top. Financials had a good session – up 1.7% – for the first rise in four days on the back of comments from MBIA (up 4.5%) that they had “ample liquidity” despite announcing a $2.4bn loss. The sector was also helped by news from HSBC in London who saw Q1 profits up on a year ago despite a $3.2bn write-down against US subprime exposures. They also took a lower level of provisions against US exposures saying there had been a “lull in delinquencies”. JP Morgan up 1.44%. Citigroup up 0.04%. Bank of America up 2.16%. Retailers up on the back of the oil price fall. Wal-Mart up on a broker upgrade ahead of results tonight. VIX volatility index down 8.35% to 17.79 – now down 52.6% from its year high. 67% of companies have reported results ahead of expectations. The NASDAQ closed up 1.7%.

BHP up 0.4% in ADR form overnight, RIO down 0.32%. RIO down 111c to 14568c. Their all time high was 14999c. BHP down 70c to 4615c They are not far off their all time high of 4770c.
Metals mostly up overnight – Copper up 1.9%, Aluminium up 1.5% and Zinc 1.1%. Nickel down 0.5%.
Oil price down $1.92 to $124.02 – it hit a record price of $126 – but closed lower as traders took profits. WPL up 134c to 6043c.
Gold down 90c to $884.90. Newcrest down 29c to 3056c.
US Bonds down with the 10 year yield up to 3.79%.

Westpac Banking (WBC) have now formally bid for St George Bank (SGB). The offer is 1.31 WBC shares for each SGB share – Bid worth $19.09bn – 28% premium or 3402c a share against the previous last trade at 2665c. It is an agreed bid subject to independent expert approval. It will create the country’s largest bank with 10m customers (half the population). All the banks had a solid day yesterday on the back of the confidence in the sector shown by WBC and on the back of speculation that this might be the catalyst for a final fling of consolidation in the sector which may take in some of the other regional banks as well as some of the insurance companies. Bendigo Bank up 6.3%. Bank of Queensland up 4.6%. Suncorp-Metway in particular (which is down 2.4% today). SGB now trading again – up 25.4% or 675c to 3340c. It is not impossible that another bank will step in to bid. A few years ago the ANZ made a bid and the NAB bought a 10% stake to block it. Westpac down 2.8% or 72c to 2525c. ACCC unlikely to be an issue.

Federal Budget tonight. Main stock price sensitive issue appears to be in healthcare with the government raising the tax penalty salary threshold for private health insurance which is expected to cause a peak in private health earnings and usage. Some broker sell recommendations around in RHC and HSP. Not helping recently listed NIB (NHF). Otherwise infrastructure expected to do well. Spending likely to be restrained out of respect for the inflation pressure. ALP also expected to present an image of fiscal discipline rather than gay abandon.

Making the news today…

The Chinese earthquake has disrupted some small Aluminium production from China which is thought unlikely to impact the aluminium price on the LME.

BHP Billiton (BHP) announced it has agreed with Anglo Potash to acquire Anglo Potash for Canadian $284m. BHP down 1.7% to 4605c.
Woolworths (WOW) announce it will acquire a 19.9% interest Australian Leisure and Entertainment Property Group (ALH – no longer listed – was taken over) from Hedley Leisure Leisure & Gaming Property Trust (HLG) for $57m. WOW up 8c to 2831c. Separately from this, a stock with the code ALE is up 46% today to 2.2c from 1.5c as someone buys 50,000 shares. On the face of it they have nothing to do with ALH.
PMP expects FY EBITA of around $85m, $5m below the current market consensus. PMP down 3c to 124c.
IRESS Technology’s (IRE) wealth management software division has acquired TransActive Systems for $1.9m. IRE down 1c to 601c.
Super Cheap Auto Group (SUL) has bought Goldcross Cycles. SUL up 6c to 310c.
Zinifex (ZFX) has put out a profit warning in a presentation today. They expect lower earnings in the 2H of the year due to higher costs. ZFX is up 1c to 1043c – they are under offer from Oxiana at the moment.
Harvey Norman (HVN) 3Q sales numbers are out – up 6.4% from last year. Like-for-like sales up 2.5% on the year – ABN AMRO had expected sales growth of 6% and 2.1% for like-for-like. HVN up 6c to 365c.
Alumina has a US$300m convertible bond issue today to replace existing bank debt. AWC last traded at 642c.
BlueScope Steel up 1% in reaction to the profit comments yesterday.
Chinese inflation has hit the highest in 11 years up 8.5%.