Morning Market Report, Jun 12, 2008

The Market is down a whopping 126. Resources down 2.9% and financials down 3.1%. Responding to a bad night in the US.

Dow down 206. Down all session – down 210 at worst. Closed on its lows. SFE Futures down 90. BHP and RIO outperformed the falling market. Financials fell the most – down 3.3%. Analysts say major banks will cut dividends. 0.6% fall in the US dollar – gave support to commodities. Lehmans fell 14% on another downgrade, this time by Merrills. Washington Mutual down 9.3%. It hit its lowest level in 16 years. Oil well up – up 42% for the year, and 107% over the past year. Dow Jones Transportation Average down 4.7%. Amex Airline Index down 6.1%. Oil up due to supply concerns. Commodities up 2.7% and Grains up 5.5% (thanks to floods, supply disruptions, ethanol prices up, and fuel blends up). Retailers down. Metals mixed. Fed continues to telegraph it will raise rates.

BHP and RIO both down in ADR form overnight, 0.36% and 0.42% respectively. BHP down 158c to 4186c. RIO down 362c to 12848c.
Metals mixed overnight – Zinc down 0.7% and Nickel down 0.8%. Copper up 0.7% and Aluminium up 0.2%. Zinifex down 20c to 867c.
Oil price up $5.05 to $136.43 after the Energy Department’s Energy Information Administration said oil inventories fell by 4.6m barrels last week, analysts expected a much smaller decline of around 1.4m barrels. Woodside up 45c to 6203c.
Gold up $11.70 to $882.90. Newcrest down 111c to 2752c.
US Bonds up with the 10 year yield down to 4.07%.

BNB down another 15% to $8. Suggestions two “vulture funds” are shorting Babcock & Brown. Targeting the 750c level – price would have to stay below that price for 4 months to breach debt covenants and allow banks to renegotiate. Fell 8% yesterday to 952c (whilst Macquarie rose 4%). Calls for more disclosure on shorting. BNB is doing a “full review” of its listed infrastructure funds. Barclays Global Investors dropped their stake in Babcock & Brown yesterday. BNB spokesman says they want to lower the implied 750c loan facility covenant price (which suggests they think it could get there). Either way… it looks like they are going to be in discussions with their bankers again which is never a comfortable backdrop.

Babcock & Brown Power (down 30% today) is in the middle of a $2.7bn refinancing but tell us this morning that they will not suffer a material impact from the Apache gas line disruption. They will settle on the recently executed $2.7bn BBPF refinancing facility by early next week. Fitch assigns a BBB- credit rating to the $2.7bn secured facility. BBP say there will be some short term reduction to earnings during the period of disruption at Alinta, but shouldn’t have a material impact on FY08 or FY09 EBITDA. BBP previously announced an asset sale programme for some assets not secured under the $2.7bn facility. BBP down 41.5c to 89c – 32%.

BHP Billiton (BHP) has announced it is bringing forward the rebuilding of a furnace at its Kalgoorlie nickel smelter. Will take 4 months. Sales impact for FY09 is expected to be 25,000 tonnes of nickel. Likely to have a 28,000 tonne impact on the seaborne nickel market in 2009. LME 3-month nickel up 2.6%.
Lend Lease (LLC) completes the 2 year, US$183m US Army project. Will develop additional housing at Fort Drum. LLC down 50c to 1109c.
Macquarie Airports (MAP) says their core portfolio is “performing well”. Highlighted significant new aircraft capacity and retail expansions. Said it was looking at new “opportunities” despite recent record oil prices and airlines reducing capacity. MAP down 1c to 266c.
Origin Energy (ORG) said it is in talks with parties interested in their Coal Seam Methane (CSM) reserves, just two weeks after rejecting a $13.62bn bid from BG Group. ORG up 9c to 1559c.
Macquarie Media (MMG) completes the sale of Taiwan Broadband Communications. MMG down 3c to 357c.
Billabong (BBG) has bought the retail arm of Quiet Flight – a key retail partner in the US. Expected to make up circa 3% of BBG’s sales in FY09. EPS accretive in first full year. BBG down 49c to 1152c.
Oil Search (OSH) says drilling results in PNG showed mostly water and little oil – well to be abandoned. OSH up 5c to 590c.
Sigma Pharmaceuticals (SIP) signed an exclusivity agreement with IM Medical this week to purchase the Intelliheart cardiac risk assessment tests. SIP flat at 117c.
GSJB Were raise their long term price assumptions for coal and iron-ore. Says BRIC-induced elevated demand will support higher prices in these commodities for 10 years.