Morning Market Report

The market is down 2. ASX 200 Futures were down 6 this morning. The Dow Jones finished down 32 – it was up 14 at best and down 69 at worst. The intra-day all-time high of 15542 was hit in May. Now 15452. 

CPI number above expectations at +0.5% versus consensus at +0.3% after a 6.3% jump in the gasoline price. Industrial production numbers in line with expectations. The NAHB Housing market index was stronger than expected at 57 versus consensus of 52 up from 51, but the home builders sector closed down on the day by 0.14%.

US$ fell again — The A$ has jumped to 92.39c from under 90c at the weekend and a low of 90.86c yesterday. The RBA Minutes from yesterday have reduced the chance of a rate cut next month boosting the A$. 

European markets down — UK FTSE down 0.45%, Germany down 0.41% (disappointing ZEW economic sentiment survey), France down 0.71%, Spain down 0.72%, Italy down 0.43% ) S&P downgraded credit ratings for seven Italian cities), Greece up 2.21%.

Resources up — BHP and RIO up 2.83% and 3.93% in the US overnight. BHP closing up 43c on the close here last night. Generally good production numbers from RIO bounced the RIO share price $1 in the last hour of trade in our market yesterday. 

US results overnight

Goldman Sachs down 1.69%. Johnson & Johnson unchanged. Mosaic down 3.58%. Coca-Cola down 1.98%. Results tonight — Intel, Bank of America, BNY Mellon, Abbott Labs, US Bancorp, American Express, eBay, IBM, MB Financial, Noble Corp.

ANNOUNCEMENTS & STORIES

• The Westpac Melbourne Institute Leading Index was 4.9% in May, above its long-term trend of 3% but lower than its April reading of 5.4%.
• BHP Billiton (BHP) – Fourth quarter 2013 production — Overall was a solid result. They reported strong production growth across its coal, iron ore and copper assets. Iron ore produced — 47.7 million, tonnes above an expected 43.6 million tonnes. Copper produced was 333kt above an expected 313kt. Deutsche Bank says copper output was 7% better than their estimates. Metallurgical coal came in 15% better than their estimates and thermal 10% better. Petroleum was also slightly better coming in at 59mboe above consensus 57mboe. Coking Coal produced a very strong result at 10.8m tonnes above an expected 9.0m tonnes.
• Insurance Australia Group (IAG) — Revenue and margin update. It upgraded financial year guidance after paying out less for natural disasters than it anticipated. Insurance margin for the year to June 30 are now expected to be between 16.8%-17.2% above previous guidance of between 12.5%-14.5%.
• Wesfarmers (WES) — Quarterly production report — Says contract prices for their premium coking coal have fallen as steelmakers continue to switch to cheaper, lower quality coal. Contract prices are now expected to be 15% lower in the 3Q. Prices for hard coking coal were down $US27 a tonne to $US140. 
• Iluka Resources (ILU) — Quarterly production report — Revenue from mineral and sands fell 42% after lower prices forced them to cut production. Revenue for the six months to June 30 was $382 million, down from $663 million in the previous six months. Combined production rose 14.7% in the June quarter. The company said Zircon prices appeared to have stabilised and had even increased slightly towards the end of the financial year. Rutile and synthetic rutile prices continued to fall.
• Billabong (BBG 25c) — Rescue package — Has agreed to a rescue deal to resolve its debt problems once and for all. The deal was made with a consortium comprising of private equity firm Altamont Capital Partners and The Blackstone Group LP’s credit arm GSO Capital Partners. Boss Launa Inman will depart the company after 13 months to be replaced by Scott Olivet. Altamont will provide Billabong with a $US294 million bridge loan facility and is expected to take a 36%-40% stake in the company. Citi has upgraded its recommendation to a buy with a high risk rating; target price 33c. It says last night’s update is a big sigh of relief as insolvency was avoided.
• The automotive industry, which is already challenged, has been dealt a severe blow yesterday when the government announced cuts to fringe benefit tax concessions designed to save $1.8 billion for salary-sacrificed vehicles to help pay for the $4 billion lost by switching the carbon tax to a floating price. The media says by forcing people to use the old log book system, it will reduce the leasing of cars, both locally made and imported. Toyota has warned that the decision will have a “devastating effect” on local operations. McMillan Shakespere (MMS — salary packaging and fleet management services) closed down 14.67% before the stock was put into trading halt following proposed changes to the fringe benefits — it is expected to have a material effect on the demand for novated leases. The stock is in a trading halt at the moment. Automotive Holdings (AHE — auto retailer and logistics) was also hit by the announcement and fell 7.55%. AP Eagers (APE) fell 4.76% yesterday, they operate motor dealerships.