The market is up 24, below futures expectations - SFE Futures were up 72 this morning. Financials strong – up 1.9% after strong rise in US financials on Friday. Resources down 2.1% following falls in BHP and RIO in the US. The property sector is up 1.7%. Results season going OK– United Group up 4.5% on results. Crane Group up 3.2% on results, Bendigo & Adelaide Bank up 3.16% on results. Profits warning –Babcock & Brown have issued a profits warning this morning and fallen 9.41%.

Dow up 302. Up 329 at best. Down 43 at worst. Main factors behind the rise in the Dow on Friday include falling oil prices and a rapidly appreciating USD (A$ down to $88.85). Dow up 3.6% for the week – S&P up 2.9% and the Nasdaq up 4.5%. Oil down 4% on Friday - down 8% for the week – still up 20% year-to-date. Energy sector fell 0.6% on falling oil and rising USD. Resources and metal prices sold off as USD rose (makes commodities more expensive and reduces demand). Euro weak on European Economic growth concerns. Financials up 3.5% although Fannie Mae posted a wider-than-expected 2Q loss – down 9%. Homebuilders and retailers well up – 7% and 4.3%. 2Q unit labour costs were up just 1.3% - easing inflation concerns and boosting bonds.

• Both BHP and RIO down in ADR form on Friday, 1.83% and 3% respectively. BHP down 49c to 3666c. RIO down 333c to 11265c.
• Metals all down on Friday – Nickel down 3.59%, Zinc down 3.46% and Copper 3.67%. Aluminium down 2.41%. Oz Minerals down 3% or 6c to 178c.
• Oil price down $4.42 to $115.42 despite concerns of a sabotaged oil pipeline in Turkey. Woodside down 7c to 5143c.
• Gold down $13.10 to $860.70. Newcrest down 178c to 2461c.
• US Bonds down with the 10 year yield up to 3.95% from 3.93%.

RBA impending rate cuts, falling oil prices and weaker AUD lifting consumer and industrial sectors– up about 2% each – DJS up 5.0%, ANN up 4.4%, WOW up 2.1%, HVN up 3.9%. Healthcare flying– CSL up 4.7% ahead of results this week, SHL up 5.1% and COH up 2.9%. Big industrials benefiting from lower oil price – exporters benefiting from lower AUD – WES up 2.0%, BXB up 2.1%, QAN up 2.4%. TOL up 2.4%. Nickel stocks falling over on a fall in the nickel price – WSA down 1.3%, MRE down 9.1%, PAN down 7.1%, and MCR down 5.6%.

RBA’s Statement on Monetary Policy is out– Main message: Inflation in Australia still high - in other words the same message as last week’s statement….interest rates have peaked and cuts are on the way.

NAB comment on the oil price – “markets are in for one of the most amazing turnarounds ever seen…entire commodity boom looks like busting… this is just the start of a pullback. It is very feasible to get downside targets into the $70-$65 zone”.

• Bendigo and Adelaide Bank(BEN) up 5.1% on results roughly in-line with consensus.
• United Group (UGL) up 4.3% on full year profit. Described as a strong underlying result. 
• Crane Group (CRG) up 3.8% on solid result - net profit in line with expectations and guidance.
• Babcock and Brown (BNB) down 7.8% early on profit warning – says interim net profit to be down 25-40% below that of $250m 2007 interim result.
• Felix Resources (FLX) down 7.36% after putting construction on hold at its key Moolarben thermal coal project while awaiting NSW court of appeal who Friday upheld Xstrata’s case about the validity of the two mining leases.
• Macquarie Airports (MAP) down 6% as Sydney Airport approach banks to refinance $762m of debt, probably at much higher rates than current levels.
• Credit Suisse tip Cochlear (COH) to post FY08 net profit tomorrow in middle of analyst’s consensus range – up 2.63%.
• JP Morgan predicting Bluescope Steel (BSL) to post FY08 normalised earnings up 22% on FY07 and 4% above consensus and BSL’s guidance. Despite that the price is down 5.13%.
• AGL Energy (AGK) up 2.07% as UBS cut AGK’s target to 1590 from 1640 due to the fall in Queensland Gas price in which it has a 28% stake.
• UBS have cut their target price on nickel stock Minara (MRE) by 50% from 370c to 185c and their recommendation to NEUTRAL from BUY – down 7.3%.

We await CBA results on Wednesday– a bellwether for the bank sector. Hard to believe they won’t be good….otherwise why haven’t they let us know in the wake of the NAB and ANZ profit warnings. Telstra results also on Wednesday. Guidance of 6-8% growth…consensus is 9.5% growth.

The Materials Sector of the S&P/ASX 200 (ASX:XMJ) has experienced a strong correction over the last 2 months, between May 23 and July 25.

Between the high of May and the low of July, the XMJ index declined by more than 24%. Currently the index is trading on the edge. The next few weeks should deliver clues regarding the future direction of the global equity markets.

Today the RBA is expected to leave interest rates on hold, despite signs the economy is slowing. But if it gives any clues as to an interest rate cut, investors may soon be running to their brokers.

In other words, it’d be bullish for shares. And the market could very well favour the Materials Sector.

That wouldn’t mean much to us…but the charts show the index is ready for a bounce. Have a look at a weekly chart.

The price action has reached the long-term support line. That’s academic. This support line has been tested and validated several times (points B, C and D).

Let’s switch to a daily short-term chart now.

The technical indicators argue for a bounce back…and hey… it has probably already started.

Between July 25 and July 31, the price action rebounded to the 23.6% retracement ratio (point H on the chart) of the downtrend occurred between G and D. Point H acted as an initial intermediary resistance, but it should be cleared soon. The near-term oscillators and momentum tools have just triggered bullish signals.

The 9-day MACD and the 20-day Stochastic Momentum Index have each bottomed on very low levels (similar to those when the Index price fell in last January, point C on the chart). They’re now curving upward and crossing above their signal lines.

A further rebound is likely to occur then. In this scenario, the 50% retracement ratio of the previous move may be the main target. It would drive the XMJ to 15,300 points. Yesterday it closed at 13,524 points.

On the downside, the long-term support currently stands around 13,300 points. Only a break of this support would cancel the rebound scenario and would be a new clear bearish signal.

Milton/Lihir

Listed investment company Milton Corporation seems to have done a bit better than its rivals, like Australian Foundation Investment Co. Milton said net profit after significant items for 2007-08 was $122.02 million, up from $85.73 million the prior financial year. Milton said that operating profit excluding realised gains (underlying profit) on investments was up 17.4% to $82.8 million. Rivals like AFIC reported increases in bottom line profits after significant items, but on an operating or underlying basis, the profits were lower than 2007’s outcomes. AFIC on Monday for example, revealed an 8.5% drop in earnings before gains to $205.05 million, down from the $224.40 million earned in 2006-07. AFIC said that annual profit after investment gains jumped 60% to $416.10 million, from $259.341 million in the previous year. Milton said realised gains on investments surged 193.7% to $34.7 million, driven by corporate activity (which was the reason for AFIC and others reporting higher net profits after significant items). Milton declared an increased fully franked final dividend of 45c per share after growth in investment revenue lifted underlying earnings from 91c to 98.5c per share. This brings the 2008 full year ordinary dividend to 88c per share, an increase of 8.6% from 81c. And the company expects to maintain the full year dividend of 88c per share this year. And the company declared a fully franked special dividend of eight cents per share to mark the company’s 50th year of listing. Chairman Robert Millner boasted in a statement that none of Milton’s full year ordinary dividends had ever been less than the previous one. “Even in a period of economic uncertainty in which the market value of many companies has been adversely affected, Milton has been able to increase the ordinary dividend paid to its shareholders,” he said. But Mr Millner acknowledged market conditions would continue to be challenging in 2009. “We expect many of the market issues that have become apparent during the past year will continue to be concerns throughout the coming year,” he said. Milton has included an LIC capital gain distribution of 12c per share as part of the final dividend. Individuals, trusts and superannuation funds that receive distributions of LIC capital gains are able to claim deductions in their income tax return, in the year of receipt. Milton’s managing director Frank Gooch noted such gains were “likely to fluctuate each year as these are largely driven by corporate activity”. “Whilst Milton does own low yielding resource companies such as BHP and Rio, the investment philosophy has resulted in a portfolio of largely higher yielding industrial and financial companies,” he said. “The value of the market as a whole, but particularly the industrial and financials sectors, has fallen due to concerns regarding credit, energy costs and an uncertain outlook for both international and domestic economies. “We expect most of the companies in the portfolio to at least maintain their dividends in the 2009 financial year and over the longer term they will provide increasing returns to their shareholders.” Milton’s net assets before provision for tax on unrealised capital gains stood at $1.6 billion at 30 June 2008, or $19.03 per share. Milton shares fell 15c in early trading to $17.70 but then bounced in the upbeat day’s trading conditions to close 35c higher at $18.20. Milton said its Total Portfolio Return, for the year was negative 15.3%. This Return compared with the pre expenses and pre tax Accumulation Return of the All Ordinaries Index of negative 12.1%.

During the year the acquisition of an unlisted investment company increased investments by $27 million and direct investments added a further $71 million to the portfolio.

New additions to the portfolio in excess of $0.5 million included Axa, Billabong, Cabcharge, Caltex, Essa, Goodman Fielder and Service Stream.

Cash from disposals, including acceptances of merger and takeover offers, amounted to $33 million.

The Share Purchase Plan will be offered to shareholders on the register as at 19 August 2008.

This will enable shareholders to purchase shares up to the value of $5,000 at a discount of 2.5% to the ex dividend market price and without incurring brokerage. Further details will be sent to shareholders with the dividend advice on 3 September 2008.

Lihir Gold remains confident it can continue to finance its expansion program after reporting a 27% rise in second quarter gold production.

The company told the ASX yesterday that production rose to 177,000 ounces in the three months to June 30, taking production for the half year to 316,000oz.

But the June quarter output was 3% lower than the same quarter in 2007.

Lihir said group production in calendar 2008 was expected to be over 850,000oz, in line with previous guidance.

But some analysts, especially those at Merrill Lynch have doubts this can be achieved.

Lihir CEO, Arthur Hood told a conference call that the company is “quite capable, as we see things at the moment, of funding our growth profile into the next few years.

“We have very strong cash flow, we have a very high margin and we are very comfortable with being able to put those debt lines in place.”

Lihir is spending $700 million expanding output at its Lihir Island mine in Papua New Guinea by more than 1 million ounces a year. That’s a rise of more than 40%.

The company is reportedly to be after $400 million in funding from banks for the mine project.

Lihir shares rose to a high of $2.94 yesterday, before settling back at $2.81, down 8c on the day. A big overnight fall in the gold price took a lot of sting from the share price and the company’s optimism.

Managing director Arthur Hood said the merger with Equigold, which was completed in mid June, would help Lihir meet its annual production guidance.

“The successful completion of the merger with Equigold firmly establishes a strong growth platform for Lihir as the ongoing transformation of the company continues,” Mr Hood said.

Production from Lihir Island remained on track to produce between 700,000oz and 770,000oz in 2008, Lihir said.

An additional 40,000oz to 50,000oz would come from Ballarat, between 50,000oz and 60,000oz following the start-up of Bonikro, about 5,000oz from Kirkalocka and about 50,000oz from Mt Rawdon.

Lihir said that full plant commissioning at Bonikro in Ivory Coast, (bought in the Equigold transaction) is expected by next month and commercial production at Ballarat by the end of this year.

Mt Rawthorn near Bundaberg in Queensland was also picked up in the Equigold deal.

The Lihir Island upgrade of the operation is making good progress.

Lihir said unit costs increased across the mining industry during the June quarter due to increasing input prices, particularly fuel.

Unit costs at Lihir Island fell to $417 an ounce from $462, but the previous quarter was affected by a plant maintenance shutdown.

The average realised gold price for the second quarter was $900 an ounce, down from $928 in the first quarter.

Midday Market Roundup 28/07/08

Not a good start to the week – down 72 after an ANZ profit warning – the banks have knocked over 50 points off the index – that comes despite the SFE Futures predicting a 24 point rise in the market this morning prior to the warning. The ANZ has experienced its second worst day ever. Friday was its 3^rd worst. They have followed in the NAB’s footsteps and announced $1.2bn worth of provisions. Financials down 3.6%. Resources putting up a bit of a fight – outperforming +0.6%. Financials down 4.2%.

The Dow Jones closed up 21 on Friday - Up 95 at best. Down 24 at worst. The Dow closed down 1.09% for the week but is off 4.8% of its low last week. The positive session came on the back of upbeat economic data and mostly decent earnings reports. Financials down 0.6% after being down as much as 2.2% early on – concerns remain regarding the strength of the banks’ balance sheets. Congress working to push the enactment of the sweeping housing legislation which just passed by lawmakers this weekend. Bloomberg report that the ‘Bank of America, JP Morgan and US lenders may sign up customers backed by the government, and cast off bad home loans after Congress passed legislation to prop up Fannie and Freddie. Technology up 1.6% - Nasdaq outperformed after strong gains in majors – Microsoft up 2.83%, Yahoo! up 2.92%, Google up 3.44%, Apple up 1.94%, Intel up 1.57% - helped by Juniper Networks beating 2Q profits expectations.

• Both BHP and RIO up 2% in ADR form on Friday.
• Metals mixed on Friday – Copper up 0.7% and Aluminium up 0.65%, Zinc down 0.8% and Nickel down 1.72%.
• Oil price down $2.03 to $122.58 – down seven of the last nine sessions, and is down 16% from its $147 peak. Woodside down 179c to 5042c.
• Gold up $4.50 to $926.80. Newcrest up 23c to 2918c.
• US Bonds down with the 10 year yield up to 4.10% from 4%.

John Stewart (NAB CEO) was on TV at the weekend painting a pretty grim picture with the message that the NAB has taken the pain now, but everyone else has to follow. ANZ have obliged this morning with a profit warning of their own.They will announce 2H provisions of around $1.2bn due to ongoing deterioration in the global credit markets. 2008 Cash EPS expected to fall by 20-25%. CEO Mike Smith says, “ANZ’s underlying business is continuing to deliver a solid performance, and we expect a cash profit of over $3 billion in 2008…However we need to recognize where we are at with legacy issues in Institutional and the change in the economic cycle.” Dividend maintained. ANZ down 10% or 177c to 1598c.

It has been a busy start to the week…

• Lots of research this morning on the National Australia Bank(NAB) after its profit warning on Friday - ABN AMRO has a target price of 3496c down from 3746c. Were’s maintain their Buy recommendation but took them off the BUY conviction list. They have a 3333c target price and believe the stock was oversold on Friday. Merrill Lynch and Macquarie have UNDERPERFORM recommendations. NAB down 64c to 2592c.
• Macarthur Coal (MCC) has welcomed the formal approval by the board of South Korea’s Posco of its purchase of a 10% stake in the company. MCC up 79c or 6% to 1430c.
• Australand Property (ALZ) has announced a 79% fall in 1H profit to $25.6m due to a downturn in the residential market conditions, especially in NSW. ALZ currently in a trading halt ahead of a capital raising to strengthen its balance sheet. ALZ unchanged at 97.5c.
• Mirvac Group (MGR) MD Greg Paramor will be replaced with current Executive Director Nick Collishaw after delivering MGR’s annual result on August 26. MGR down 7% to 228c.
• Qantas Airways (QAN) has appointed Alan Joyce – current chief executive of subsidiary Jetstar – as CEO and will replace Geoff Dixon after the annual shareholders meeting on November 28. QAN down 4c to 345c.
• Atlas Iron (AGO) has announced a significant increase and update to resources estimates of its Ridley Magnetite. 52% increase in total resources to 1.32bn tonnes. AGO up 3c to 258c.
• Lend Lease (LLC) have won a $344m retail development contract. LLC down 1c to 978c.
• Equinox Minerals (EQN) has announced that the recent exploration drilling at its Kanga Prospect continues to intersect significant copper intercepts. Hasn’t done much for the price. EQN down 6c to 364c.
• Iron ore Peru project developer Strike Resources (SRK) up 4.3% after a $103m placement at a 39% premium to a Russian steel billionaire (who owns part of the Arsenal Football Club). SRK up 9.5c to 207c.
• Coal stocks blitzing it after Felix Resources (FLX) up 11.4% after it announced that it is now a takeover target. It has received takeover interest from a number of parties, but all talks are preliminary and no formal written offer have been made. FLX up 11% to 1957c.
• Orica (ORI) down 12% after raising around $600m through an institutional placement at 2275c to pay debt and fund growth. They will also have a 1 for 8 retail rights issues at 2250c.
• Chairman of soon to be listed BrisConnections Trevor Rowe says his company is a “natural short” (?!). It will be the biggest float for 2008 - $1.2bn. Lists this week.
• Revenue from Macquarie Infrastructure Group’s (MIG) France’s Autoroutes Paris-Rhin-Rhone increased 1.9% from last year in the last Q and 4.4% in the last half year. MIG down 12c to 253c.
• Merrill Lynch have upped their recommendation on St George Bank (SGB) to BUY saying there’s a higher chance that the St George deal goes ahead with ACCC basically giving the takeover the green light. SGB down 6% to 2686c.

NEW YORK - US stocks fell 0.9 per cent as financial shares were hurt after number one investment bank Goldman Sachs warned that US banks would have to raise as much as $US65 billion in capital to shore up their balance sheets.
In a positive development, Goldman Sachs posted an 11 per cent fall in quarterly earnings that exceeded expectations by avoiding major losses on assets linked to US sub-prime mortgage debt.
The Dow Jones industrial average shed 108.78 points, or 0.89 percent, to 12,160.30 and the Standard & Poor’s 500 Index lost 9.21 points to 1,350.93.
The Nasdaq Composite Index gained 17.05 points to 2,457.73.

LONDON - UK stocks rose after Goldman Sachs’s relatively strong result boosted banking stocks.
The FTSE 100 added 67.3 points to 5,861.9

FRANKFURT - The DAX index advanced 66.28 points to 6,796.16

PARIS - The CAC-40 index rallied 28.59 points to 4,686.33

TOKYO - The Nikkei stock average fell slightly as investors took profits after the previous day’s gains and ahead of crucial US inflation data.
The Nikkei edged back 6 points at 14,348.37.

HONG KONG - Stocks after a strong US lead but gains were pared by inflation worries on the mainland.
The Hang Seng Index firmed 28.30 points to 23,057.99

WELLINGTON - The NZSX-50 index slipped 1.7 points to 3,404.6.

SYDNEY - The Australian share market is expected to open lower after US stocks fell on a warning from Goldman Sachs that US banks will need to raise billions of dollars in capital.
On the Sydney Futures exchange, the June share price index was down 10 points at 5,409.
Today, the Australian Bureau of Statistics releases merchandise imports data for May.
The Australian stock market closed in positive territory yesterday, buoyed by strong gains in the resource and energy sectors.
The benchmark S&P/ASX200 index rose 51 points, or 0.95 per cent, to 5,422.7, while the broader All Ordinaries gained 49.6 points to 5,525.9.

NYMEX
Oil prices slipped from record highs on Tuesday on plans by top exporter Saudi Arabia to increase crude output to help curb soaring fuel costs.
The move by the OPEC kingpin came as American and British regulators imposed position limits on US crude contracts on the London-based ICE exchange amid concerns speculators are pushing prices above levels supported by supply and demand.
US crude settled down 60 US cents at $US134.01 a barrel after hitting a record $US139.89 on Monday. London Brent crude settled 99 US cents lower at $US133.72 a barrel.
United Nations chief Ban Ki-moon said over the weekend that Saudi Arabia was set to raise its oil output to 9.7 million barrels per day in July, up 550,000 bpd from May.
The plan comes ahead of a June 22 meeting between oil producing and consumer nations in Saudi Arabia as protests against high fuel costs spread across the globe.

LONDON METALS EXCHANGE
Copper prices were underpinned by a weak dollar and robust industrial production data from China, which boosted expectations of strong demand, traders and analysts said.
Aluminium touched its highest level in almost a month at $US3,046 per tonne, boosted by high oil prices and worries about supplies from China, while zinc hit $US1,850, its lowest in more than two years, on concerns about a surplus this year.
Benchmark copper on the London Metal Exchange ended at $US8,088 a tonne in open outcry trade, down $US12 from its close on Monday when it touched $US8,159, a high since May 28.
Aluminium rose to $US3,046 from $US2,975 a tonne.
The energy-intensive metal used in power, packaging and transport spiked back above the $3,000-level on worries about supplies from China, the world’s top producer and consumer.
Zinc ended at $US1,875 a tonne from $US1,880.
Lead finished at $US1,865 a tonne from $US1,811, nickel at $US24,150 from $US23,950 and tin at $US22,025 from Monday’s last quote at $US21,945/21,950.

COMEX
Gold ended a touch higher on Tuesday, recovering from session lows as buying increased after the dollar softened against the euro following disappointing US economic data.
The precious metal came under pressure in earlier trade as traders took profits after a strong session on Monday, when gold had risen to an intraday high of $US894.70 an ounce on the weaker dollar.
New York August gold on the COMEX division of New York Mercantile Exchange rose $US0.60 at $US886.90 an ounce.
July silver on the COMEX division fell 15.7 US cents to $US17.075.
At 0630 AEST, the spot price of gold was $US883.70, down $US1.90 on last night’s Sydney close.

ASX market overview

Over the past couple of weeks, the market has become more buoyant, the All Ordinaries (XAO) has risen 1.51%; the S&P ASX 100 has risen 1.29%. This is the second straight week of gains; however, the market is still down 10.3% from January’s high.

Banks appear to have stabilised during the past two weeks with NAB rising 5.3% to $31.60 and ANZ up 5.54% at $23.25. Resources, on the other hand, are finding things a little tougher. Newcrest Mining Ltd has dropped 9.7% to $28.30 and Zinifex Ltd shed 4.25%% to $9.91.

The performance of the sectors has generally been positive over the past two weeks. Energy, Financials, Telecommunications and Utilities continue to move upward.  After negative returns the previous two weeks, Consumer Staples (-3.61%) and Industrials (-6.51%) have made a positive turnaround. Consumer Discretionary has slowed in its negative run, falling only -0.81% compared to a fall of -8.70% the two weeks prior.  Materials, Healthcare and Information Technology have dropped slightly. 

At this time of year, a lot of commentators are talking about the Federal Government budget. The budget will be delivered on May 13. Changes in government policies can often have an effect on the health of the market overall as well as individual sectors.