Morning Market Report, Jun 18, 2008

The market is doing OK – up 14 – not bad considering Wall Street fell over 100 points overnight. It has been down 38 at worst. BHP and RIO add 10 points. Financials generally down. The SFE Futures expected a 10 fall in the market this morning.

The Dow closed down 108 – Up 54 at best. Down 119 at worst. Financials got hammered, although Goldman Sachs announced a better than expected result and said that US banks need to raise another $65bn in capital to strengthen balance sheets. All 23 banks making up the S&P500 Banks Index fell – lowest index level since 1996. Energy sector rallied– up 1.7% even as crude fell for the 3^rd straight day. Energy is the best performing sector over the past 12 months – oil has doubled and gas is up 60%. In economic news, May PPI up more than expected due to record high energy prices. Core PPI (minus energy and food) was in-line. Year-on-year, PPI is up 7.2% and core is up 3.0% something that is concerning policy makers and prompted debate about the onset of that equity market killer – Stagflation. May’s Industrial production also fell unexpectedly – but not to the levels witnessed in the 2001 recession. Production down 0.2% from April – economists had expected an increase of 0.1%. The NASDAQ down 0.7%.

The SFE Futures suggested a 10 point fall in the market this morning.
Both BHP and RIO up ADR form overnight, 3.3% and 1.6% respectively.
Metals mixed – Copper down 0.1% and Zinc down 0.5%. Nickel up 1% and Aluminium up 2%.
Oil price down 53c to $133.99 – Analysts expect oil inventories to fall by around 2m barrels from last week when the Energy Information Administration release their figures tomorrow morning.
Gold up 60c to $886.90
Bonds up with the 10 year yield down to 4.20%.

THE DEBATE ON INTEREST RATES is front and centre in the press and research post the RBA Minutes yesterday. Bottom line…the brokers are divided on whether we will see another interest rate rise or whether we are already at the top of the interest rate cycle. No one knows of course, not even the RBA who will watch the data come out before deciding. Either way, interest rates seem less likely to rise after the RBA Minutes yesterday.

Babcock & Brown stable recovering for a second day. BNB was up 13% yesterday and is up 13% today.

Babcock & Brown Power (BBP) up 10% today (up 16% yesterday) as Citigroup upgrades from SELL to HOLD with a 115c target price. They are confident asset sales will fund the $360m capex shortfall.

Cazaly Resources says it has found a way to gain control of the lucrative Rhodes Ridge from 50% owner Rio Tinto. RIO up 1.3% to 13879c despite the news.
Sims Group (SGM) up 10% on the back of an earnings upgrade. They say FY earnings could exceed consensus by 10-15%. A positive reflection on scrap steel prices.
OZ Minerals – (Oxiana and Zinifex combined – last trading day for Zinifex is Friday) deny that they are building a $4bn warchest to go and acquire something after comments from the Wizard of Oz, Andrew Michelmore (CEO) yesterday. OXR down 1c to 273c and ZFX down 9c to 864c.
Flight Centre (FLT) has announced a profit upgrade this morning and predicts further growth next year. FLT up 158c or 9.4% to 1797c.
Nufarm (NUF) up on a positive research response to their glyphosate announcement yesterday. NUF up 42c to 1745c.
AED Oil (AED) is in a trading halt pending an announcement regarding its transaction with SIPC. It will make a further announcement to the market within the next couple of days. AED down 4.15% in the past month but up 45% in the last Q. AED last traded at 277c.
Boom Logistics (BOL) has had a profit warning this morning – now expects a profit of $22m, down from $29m-$30m. BOL down 8.3% to 82c.
Macquarie Media Group (MMG) say they’re well placed to begin the new financial year and declared a final distribution of 22.5c. MMG down 6c to 343c.
Moody’s Investors Service has placed Babcock & Browns Infrastructures’ (BBI) Baa3 senior secured rating on review for a possible downgrade. Prior to this rating consideration, the rating outlook for BBI was negative due to liquidity concerns and its weak financial profile. BBI up 1.5c to 88.5c.
Westpac Bank (WBC) wants to raise $600m and has launched a new ASX listed hybrid Tier 1 security and has been set between 2.3% to 2.8% over the bank bill reference rate. They will be known as Westpac Stapled Preferred Securities (WSPS) and WBC says the capital raising isn’t related to its recent offer to buy St.George Bank (SGB). WBC up 1c to 2177c, SGB down 12c to 2945c.
Australian Worldwide Exploration (AWE) says it is targeting EBITDA and exploration expenses of $630m in 2008 and that it is entering a new growth phase. AWE up 15c to 411c.