Morning Market Report, May 14, 2008

The market is up 12. The SFE Futures suggested a 1 point gain in the market this morning.

The Dow finished 44 points lower – Up 15 at its best and down 95 at its worst. Bernanke gave a speech saying that although some mortgage backed markets were improving things, financial markets remain unsettled and were still “far from normal” and it will “take some time” for financial firms to resolve the crisis. Treasury Secretary Paulson and the Citigroup CEO both said the worst of the credit crisis is over. The session was dominated by earnings results – Wal-Mart down on results, Toll Brothers down 0.43% on a statement its 2^nd Q revenues were down 30% in challenging conditions and AIG up 2.06% on news that its $12.5bn capital raising was being increased to $17bn. Resources mixed – BHP down 0.53% in the US and up 1.35% in the UK. RIO up 2.70% and up 3.68%. Anglo American down 0.36%. Xstrata up 0.60%. VIX volatility index up 1.07% to 17.98. Financials down as a broker downgraded most investment broker earnings numbers.

The Budget has been described as being “fiscally” prudent and reduces the need for a rate rise. Also labeled as a “Robin Hood Budget” – steals from the rich to give to the poor. Infrastructure spending a priority as expected. Good for the market in the sense that it reinforces the impression of “integrity” of Australia’s economy and economic management from the point of view of international investors.

Good performance from metals overnight. Westpac down on some talk they are overpaying, St George down on comments that a counter bid is not that likely. Other banks down on profit taking and concerns they may make an earnings damaging counter bid. Both BHP and RIO are both up – Talk overnight of a 3.8-for-1 shares offer for RIO from BHP. Current offer is 3.4-for-1. Marius Kloppers is on TV saying there is a long way to go on the deal and that with the oil price rise the relative value of BHP to RIO (who has no oil division) would suggest the bid is being raised in RIO terms anyway. There is also talk that a Chinese entity was looking at taking a stake. BHP flying, up 5% to 4805c and RIO up 3.7% to 14980c.

Making the news today…

CSR’s FY result is out – Slightly lower-than-expected. NPAT down 35% to $177.4m on the back of lower raw sugar prices and the housing slowdown – analysts’ expected $179.77m on average. CSR down 1c to 295c.
Fairfax Media (FXJ) is building its online division – it has set up a new search engine marketing JV with Melbourne IT (MLB). FXJ down 3c to 339c and MLB up 15c to 335c.
Leighton Holdings (LEI) has been awarded two contracts worth more than US$675m. LEI up 3c to 4988c.
Equinox Minerals (EQN) up 3.4% after it announced it has been granted the “surface rights” at Lumwana that covers the new and proposed business area. EQN up 4% to 495c.
Suncorp-Metway’s preference issue has been well subscribed leading to an increase in the size of the offer. It feeds confidence in the return of liquidity to the corporate credit market. SUN down 13c to 1558c.
Singapore Telecommunications (SGT) has announced better-than-expected 9.2% rise in 4Q profit to $796m. SGT up 1c to 292c.
Bid story – Talk of a wealthy developer tabling an offer for the troubled City Pacific. Not doing much for the price. CIY up 5.7% to 82.5c.
Arasor International (ARR) down 13% this morning as Macquarie sell an 8.7m share holding. They have another 7.756m shares to go.
The fairly universal recommendation on St George Bank is to hold on for the chances of another bid or an upped bid with minimal downside if neither eventuates. NAB seen as a more likely counter bidder than the ANZ who are more focused on international expansion although Goldman Sachs JB Were reckons the CBA and Westpac are the only banks capable of making the deal earnings accretive within three years although the “strategic value” of SGB may prompt a bank to put up with it. SGB up 2c to 3339c and WBC down 36c to 2475c.