So what lies ahead in the coming year, and a bit more for the world’s major mining group? How does it see demand and prices, and does the company still believe as strongly in the commodities boom, especially where China is concerned, as it has done in the past few years? The above graph shows the Australian dollar and the Chinese currency and they tell two stories: the Aussie’s weakness in the past month reflects the new belief that the bloom is leaving the commodities boom; the Chinese currency reflects its appreciation, which now seems to have stopped as the Government tries to keep the economy growing strongly. If that works, then despite some slow growth in coming months, there will be a revival in the value of the Aussie dollar, and that will be reflected in the performance by BHP (and its share price). But has the recent rapid drop in commodity priced, led by oil, the company’s major profit centre in 2008, caused any second doubts? From BHP Billiton’s point of view the coming year has two major tasks to do. The first is to complete or abandon the huge takeover for rival Rio Tinto. There’s not much the company can do until the European Commission rules on its 3.4 share $160 billion offer, probably around November. BHP’s CEO, Marius Kloppers said in yesterday’s profit briefing that the offer was value accretive for both sets of shareholders. “We believe the deal that we have on the table is value accretive for both sets of shareholders,” Mr Kloppers said on a conference call. Mr Kloppers said that the combination of BHP Billiton and Rio made “more sense than ever”. Mr Kloppers said the company was focused on the Rio Tinto proposal and scotched speculation that the group might move into platinum following Xstrata’s $US10 billion bid for Lonmin. BHP can continue to campaign publicly in favour of its offer, but until the EC rules, its powerless. The second is to navigate the company through the rapids of what is looking like a volatile time, with oil prices down, along with gold, copper, lead, zinc and nickel. Iron ore and coal remain high, but that could change if the bloom goes out of China’s boom. BHP is confident that won’t happen in the short or longer term: it sees greater volatility in prices, but no collapse in global price levels, even with the softening we are seeing in major economies. But it does see periods of weakness: not a turnaround in belief, more an acceptance of the current realities. Belief in the commodities supercycle is alive and well in the boardroom and management offices of the company. The big realignment of commodities and the US dollar is based on worsening economic prospects outside America with Europe, Japan and possibly China weakening. But BHP is sanguine. The company sees the strong possibility of slow growth in many western economies in coming quarters, but is confident the emerging major economies of China, brazil, India and Russia will not succumb to the slowdown. “The global economy has remained resilient in the face of significant structural weaknesses in developed economies. The continuing massive industrialisation in China is providing solid support to the global economy. “Over the past financial year there has been considerable weakening in most major developed economies. “The deflation of asset values within these economies has led to a reduction in wealth effect for consumers. “This appears to have ended the past decade’s unsustainable consumer debt driven economic growth, particularly in the US.

 

“However, a direct spill over into emerging market economies has remained largely contained.

“Emerging market economies have contributed more than their industrial counterparts to global growth since the year 2000.

“Led by China and India, economic growth in these economies has been strong with solid support from growth in domestic demand and strong trading activity with other emerging market economies.

“We expect short term global economic growth to slow as developed economies experience further weakening in the coming quarters.

“Liquidity is likely to remain low, and risk premia high for some time into the future.

“Rising inflation, particularly in food and energy, alongside weakening economic growth has restricted the flexibility of central banks to inject liquidity and stimulate their economies.

“Higher inflation will also have a likely negative impact on emerging market economies through their adoption of tighter monetary policies.

“However, emerging market economies should remain relatively strong on the back of continued domestic infrastructure investment and regional trade.

“While short-term disruptions may occur, we expect that their long-term economic growth will remain robust as they continue on the path to industrialisation.

“The 2008 financial year has seen higher average prices for most of our major commodities, than in the prior year.

“Demand for raw materials in the emerging market economies has remained strong. In particular, China remains a key driver of global commodity consumption through its position as a net importer of raw materials.

“China’s competitiveness and ability to innovate in downstream processing has been demonstrated again with sustained nickel pig iron production.

“In light of differing activity for the developed and emerging market economies, there have been mixed spot prices for key commodities.

“In particular, bulk and energy related commodities have tended to outperform the LME traded metals.

“The effects of current weaknesses in the developed economies on demand for our commodities should be minimal driven by ongoing strong demand from the emerging economies. Meanwhile, supply side pressures remain high.

“This has led to overestimation of the supply side response, and thus, price outcomes regularly being underestimated by industry observers.

“In the short-term, we expect prices to remain high relative to historical levels, albeit with higher volatility.

Looking to the longer term, demand for our commodities is expected to remain strong.

“We expect that higher long-run raw materials and energy prices and stronger producer currencies should place upward pressure on industry supply costs, and hence, prices of minerals commodities.

“We continue to expect that commodity prices will be driven by long-run marginal cost of supply.

“The world is confronting supply constraints for energy and mineral resources.

“While there are enough resources to satisfy the world’s appetite, the industry has not moved quickly enough to meet the growth in demand.

“We are continuing our efforts to meet these needs through a deep inventory of growth options. We have an abundance of tier one resources in fiscally stable regimes that provide us with a unique set of options to deliver decades of lower risk brownfield growth.

“We also have an extensive experience operating in emerging resource regions and the capability to capture additional opportunities as they arise.

“This experience enables us to continue to build and strengthen our position for long term value creation.”

 

 

Another weekend and another announcement from Rio Tinto as it continues to blitz the markets with announcements about what it is and isn’t doing.

This time it revealed it was considering listing its North American coal assets on the New York Stock Exchange as Cloud Peak Energy Inc.

Rio said it had filed plans with the US Securities and Exchange Commission for an initial public offering worth up to $US1 billion ($A1.1 billion).

However, Rio Tinto indicated that this was only a preliminary move and that it might not move towards full listing, or pursue a different form of divestment.

A final decision would be made “once these options have been more fully explored,” it said in the latest statement.

Rio Tinto said in November it was exploring the possible sale of some or all of its US coal assets to help pay debt used to purchase Canada’s Alcan.

“We are in active discussions with a number of prospective buyers who have expressed strong interest in those coal assets,” chief financial officer Guy Elliott said in a statement.

The SEC filing did not reveal the number of shares the company planned to sell or their expected price.

Rio said that Cloud Peak Energy comprised most of the North American coal assets of Rio Tinto Energy America, and is the second largest producer of coal in the U.S. and in the Powder River Basin, operating three of the five largest coal mines in the region.

The Powder River Basin is a major thermal coal producing region in the US. There are around 35 major mining operations spreading through parts of Montana in the West of the country.

Cloud Peak’s Powder River Basin mines in Wyoming and Montana are huge: they supply 11.5% of the US domestic market for coal, generating 6% of America’s electricity.

Cloud Peak would exclude Rio’s Colowyo coal mine in Colorado and the Sweetwater uranium assets, which Rio has already said it would sell Sweetwater.

The lead underwriter for the offering is Credit Suisse Securities (USA) LLC.

BHP Billiton shares lost four cents to $37.15 in Australia on Friday, while takeover target Rio Tinto shares added $1.00 to $116.00.

 

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Westpac shares gained more than 1% Friday after it revealed it had escaped the worst of the credit crunch and was looking for a 6%-8% rise in earnings for the full year.

It’s now the country’s second largest bank by market capitalisation after the Commonwealth, which reports its full 2008 financial year results this Wednesday.

CBA shares eased on Friday ahead of the result and investors will continue to be uncertain until they see the actual figures from the bank. Expect a solid profit rise, even after a rise in bad debts. 

The CBA is a big lender to the Centro Properties group which is now in break up mode to try and restructure to repay debts.

Westpac said in a statement on Friday that full-year cash profit, which excludes income from derivatives trading, will increase up to 8% in the year to September 30, on revenue growth of up to 9%.

That’s in stark contrast to the lower profits expected from the ANZ and the National after both announced big write-downs.

Westpac said it will maintain a conservative risk profile and is on target to complete its planned takeover of St. George Bank which updates the market tomorrow.

Westpac CEO, Gail Kelly said the bank was continuing to do well despite the slowing growth now being reported across the economy.

“Managing risk remains a priority for us and we are maintaining our strong lending and credit risk disciplines,” she said in a statement.

“We are not distracted by problems in our credit portfolio, enabling to us concentrate on our strategic agenda.”

 

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And Telecom New Zealand, the country’s biggest Telco has forecast a second year of declining profits after full year earnings dropped 16% to $NZ713 million in the year to June 30.

Profit could drop by up to 30% this year as competition intensifies from the likes of Telstra and Vodafone.

The once dominant Telco is having to build new new broadband and mobile networks and cut prices to meet the rising competition from its rivals.

Telecom shares dropped more than 10% on Friday, the largest one day fall in 11 years.

The company says 2009 earnings will fall to between NZ$500 million and NZ$540 million in the 2009 year.

The company’s dividend payments will fall to 6 NZc a share in the first three quarters of fiscal 2009, compared with 7c a year earlier. All 2009 dividends will be paid without tax credits.

Telecom plans to increase capital spending to NZ$1.1 billion this year to finance the new networks.

It won’t be as dramatic a week this week as last week was with four leading central banks meeting; our bank’s signalling a rate cut as soon as next month, and then the Europeans ruling out a rate rise sparking a major rise in the value of the US dollar, which was already on the turn.

Our dollar was pummelled, which will be a major theme here this week, along with June 30 companies reporting season hitting full speed. 

Oil prices should be watched closely to see if the fighting in Georgia and South Ossetia involving Russian troops, stops the recent fall in world prices (it had no impact Friday).

And, as usual, there will be some important statistics to worry about, including US consumer price inflation, European economic growth and here the third Statement on Monetary Policy from the RBA, which is out later today.

It will be be watched closely for more clues about how strong the Bank’s new found rate easing bias is.

The Bank will flesh out last Tuesday’s post rate decision statement from RBA Governor, Glenn Stevens.

The AMP’s chief economist, Dr Shane Oliver says “Our assessment is that the RBA is likely to indicate increasing downside risks to its growth forecasts and increased confidence that inflation will fall which will help reinforce expectations for interest rate cuts in the months ahead, albeit maybe not to the same degree as that already priced into the money markets”.

Of interest to the RBA will be this week’s wages price index and average weekly earnings figures for the June and May quarters respectively.

The consumer confidence figures from the Westpac-Melbourne Institute will be released and the latest monthly survey on business confidence from the National Australia Bank. Both should show a small gain perhaps in confidence on the back of the downturn in oil and petrol prices and last week’s talk about lowering interest rates.

The June half profit reporting season will also start to gather pace with stocks such as Cochlear, the Commonwealth Bank, Computershare, Telstra, Leighton and Stockland due to report.

The CBA, Telstra and Stockland will be the most watched: the CBA for banking and if it has missed most of the bad news, like Westpac revealed on Friday; Telstra because it has so far escaped most of the chat about poor results as it is not in finance, or resources; and Stockland which, of the major property investors, has so far been silent on what’s been happening to its business from the slump in financial engineering and geared property sectors.

The AMP expects profit growth for 2007-08 to have come in pretty weak at around +3%, down from +15% in the previous financial year.

According to Dr Oliver the economic backdrop to this reporting season is the toughest since 2000-01 as growth has slowed sharply and costs have picked up.

“All sectors, including resources which have been hit by rising costs, are likely to report soft results for 2007-08.

“However, while the results are unlikely to be the disaster the market is currently priced for after its 30% slump from last year’s high, the focus is likely to be on the outlook statements from companies and these are likely to be disappointing.

“While market expectations for 60% growth from resources in 2008-09 are reasonable given the latest surge in coal and iron ore prices, consensus expectations for 5 to 10% growth in the rest of the market are likely way too strong and will be revised down.

“The Commonwealth Bank’s result will likely be a key focus given the increase in debt provisioning at NAB and ANZ recently.”

In the US, data for the trade balance, retail sales, consumer prices, consumer sentiment, industrial production and a couple of business surveys are due for release.

The retail sales figures will be watched closely to see if the spate of disappointing reports last week from leading chains on July growth reflects the entire retailing sector’s performance for the month.

Wal-Mart’s latest quarterly earnings and more retailed commentary also leads off a string of financial reports from the sector, which will help reinforce the message from the retail sales numbers.

US consumer prices rose 5% (annual rate) in June. Any advance on that will get markets a bit anxious, even though the Fed ruled out a rate rise (while warning of the risks from higher inflation).

It also ruled out a rate cut to further soften the downside risks to growth, which in the minds of many analysts, remains the bigger of the two dangers to the US.

Reuters and Bloomberg polls top a US CPI headline rate of 0.4% for July, compared with June’s 1.1% for June alone.

The CPI is out Thursday night in the US, our time. Tuesday sees the US trade deficit for June, Wednesday retail sales and import prices and business inventories (for June) and on Friday consumer confidence and industrial production.

 
MONDAY:

The Reserve Bank releases its third Monetary Policy Statement of the year at 11.30 am; The Australian Bureau of Statistics (ABS) releases Lending Finance figures for June. Final profits from United Group, Crane Group, Bendigo Bank; Dexion interim; Housing Industry Association (HIA) June quarter national and state outlook

 
TUESDAY:

Final profits from Bradken, Cochlear and Worleyparsons; interims from APN News and Media and Australian Agricultural Co; National Australia Bank monthly business conditions survey; St George Bank briefing; Singapore Telecom/Optus first quarter results.

 
WEDNESDAY:

The ABS releases the Labour Price Index for the June quarter; final results from Telstra, the Commonwealth Bank, Fletcher Building, Computershare, Specialty Fashion group, Talent2, Boom Logistics and Pharmaxis; Westpac/Melbourne Institute consumer sentiment survey.

 
THURSDAY:

The ABS releases Average Weekly Earnings figures for the May quarter; final results from Leighton, ASX, Stockland, PMP, Futuris and Reverse Corp; David Jones full year sales figures.

 
FRIDAY:

Final results from Biota, IDT Australia and SAI Global; Babcock and Brown Japan Property Trust annual results; June quarter housing affordability report from the HIA and Commonwealth Bank.

Australia stock market news

Market Roundup 08/08/08

 

The market is down 25 (down 72 at worst) following the Dow wiping-off nearly an entire week of gains. Seems the credit crisis is not over after all. Financials underperforming – down 1.3% following the 5% drop in the US financial sector. Resources down 0.4% after significant 3% falls in BHP and RIO in the US last night. Most of the big industrials struggling – down 0.8%. SFE Futures down 58. 

Dow down 225. Down all session – 239 at worst. AIG posts massive loss, Citigroup caves in to fraud allegations and announce they’ll buyback debt securities sold to the public, jobless claims way up, Wal-Mart sales poor and outlook soft, and crude jumped. 

All 10 industry groups down. Indices still shaping up for a gain this week post the 331 point rise on Wednesday. Financials down 5% - AIG fell 18% (largest one-day decline ever) on a $5.4bn 2Q loss – posted $0.51c per share short of the expected profit of $0.63. Pandora’s Box opens – Citigroup has agreed to buy back $7.5bn of auction-rate debt securities from 40,000 retail clients and pay a $100m fine for misleading investors about the risk. After hours the Bank of America has received subpoenas and requests for information about its auction rate securities – could follow the way of Citigroup – other banks being investigated too. Citigroup down 6.24%, Merrill Lynch down 8.42%, BoA down 5.77%. S&P500 retailing Index down 2.1% - July numbers of 21 of the 31 retailers posted same-store-sales short of consensus. Wal-Mart said outlook is soft. Techs down 0.1% - outperformed relatively – semiconductors up 2.3%. Intel up 3.8% positive comments from Citigroup. Crude prices up 1.2% - broke the 3-day dive of $5.00. Resources down 0.3%.

 

CNBC adjectives of the Day - “Nosedive” – “Reality check” - “Sell the rallies”

• Both BHP and RIO down in ADR form overnight, 2.98% and 3.16% respectively. BHP and RIO dragging on the market, down 0.9% and 1.3%.
• Metals mostly up – Nickel the big mover up 6%, Lead up 3.29% and Copper up 0.55%. Zinc down 1.14%. Oz Minerals up 2.3%. Panoramic Resources up 8.4%, Minara up 7.1%.
• Oil price up $1.27 to $119.84 after Kurdish rebels claimed responsibility for a fire at key Turkish pipeline that supplies Western countries. Woodside up 2%.
• Gold down $5 to $873.80. Newcrest up 0.3%.
• US Bonds up with the 10 year yield down to 3.93% from 4.05%.

Iron ore stocks underperforming the resources as China’s trade surplus narrows by 17% YonY and posts its 4th monthly consecutive fall as their economic growth drops down a gear – FMG down 2.2%, PMM down 1.0% and MMX down 1.4%.

 

WESTPAC TRADING UPDATE(WBC) – Well received - Main point is that there is no need for an ANZ or NAB style profit warning – they say they are not at risk “from the types of significant write-down in securities portfolios that have impacted some other financial institutions“. FY08 cash earnings growth on track for 6-8% growth on-year – revenue forecast to rise by 8-9% and expense growth of 6-7%. Lending growth has slowed but housing growth has been strong. WBC expects margins to be stable. Provisions expected to be at similar levels to 1H08 - don’t expect significant writedowns. WBC outperforming its peers – up 1.4%. Three other big banks down – CBA down 0.8%, ANZ down 3.0% and the NAB down 2.5% taking the ASX200 index down 12 points on their own.

 

Property Trusts underperforming all sectors– down 2.1% on news that even LPTs that haven’t had profit warnings like Westfield (results on the 29^th) face an evaporating credit market and may have to sell assets rather than raise capital through the market. WDC down 2.5%.

Apart from that not a lot of news:

 

Newcrest (NCM) have announced they have increased their 30% stake in the PNG Gold Morobe JV to 50%. NCM up 4c to 2525c despite the $5 fall in the gold price overnight.

Boral (BLD) and Adelaide Brighton (ABC) are rumoured buyers of Cemex Australia’s concrete pipes and products assets. BLD up 3.1% and ABC down 2.3%.

UBS say Constellation Brands are unlikely to bid for Foster’s (FGL) wine business. FGL down 2.0%.

Tabcorp (TAH) down 2.1% after yesterday’s better-than-expected results and today’s broker research – there was some relief they weren’t a disaster with one broker saying they did well to meet guidance.

Connect East (CEU) up 1c to 86 after a big fall on their disappointing Eastlink traffic numbers yesterday. Rumour has it broker analysts are ripping up and down the link as we speak to justify their BUY recommendations.  Goldman Sachs JB Were cut to HOLD this morning.

CSR up 3.98% today as Goldman Sachs JB Were ups their recommendation on the stock from HOLD to BUY with a 271c target price. Now 236c. They have also upgraded their Boral recommendation to BUY from HOLD and the stock is up 3.14%. 688c target price. Now 592c.

Monadelphous Group’s(MND) results on August 19. UBS Warburg cut their target price to NEUTRAL from BUY due to recent share price appreciation, up nearly 20% in the past 6 weeks.

MQG – Macquarie Group– Credit Suisse cut their target price to 6500c from 6800c but maintain their OUTPERFORM recommendation after MQG released their specialist fund quarterly report for the 1Q. Total assets under management fell 3% over the past quarter to $225.4bn.

Goldman’s analyst comments on Vale’s (Brazil) market update – Vale enthusiastic about long-term iron-ore pellet demand for steel production. Comment that stainless steel producers have been unwilling to restock nickel inventories in the face of a deteriorating economic backdrop. Copper and coking coal are its favoured commodities for future growth.

Banks Climb as Market Prices in Interest Rate Cut

For a start, everyone loves an interest rate cut. We don’t have one yet, but that doesn’t deter a horde of rampaging investors with a little bit of knowledge. So financials and retail stocks caught the buying bug.

The whole financial sector soard 5% in fact. Even the money markets are beginning to act as though the cash rate is 25-50 points lower. You’ll note the Bank Pain Index to your right has eased considerably this week. You can pretty much put that all down to traders’ expectations. They think a cut’s coming. They’ve moved early, pushing down short-term market interest rates.

What we want to know is whether markets rates will keep dropping.

If so, banks earnings will benefit. If not, they’ll continue sliding. We’re going for option B. And if their costs stay high, there’s every chance the Big Four will keep their rates up if the RBA cuts. But that isn’t a good thing. It means they’re running faster to stay in the same place. They’d be keeping prices high to maintain earnings, not grow them.

For Australia’s central bank meanwhile, things are way off the charts. It used to have a nice, easy formula of raising or lowering rates in response to consumer inflation. That plan’s holding up like a pavlova under an elephant. If it cuts rates this year, it’s basically admitting that.

We see the big drivers of inflation coming from gaps in supply (think oil) in the near future. That makes the RBA’s economic policy far less relevant than it used to be. Petrol prices are the new Reserve Bank of Australia.

Aussie Dollar Pushes Up Two Sectors

One of the victims of interest rate speculation has been the Aussie dollar.

Our falling currency might’ve helped push the miners up yesterday. Some of them (notably Rio and BHP) report their earnings in US dollars. Most commodities are traded in greenbacks. It makes sense. But this means that a rising Aussie D reduces earnings from the Australian shareholder’s perspective.

Manufacturers too. Our blazing currency hasn’t helped them sell anything overseas.

But while our dollar takes a rest, both of these types of companies could turn out to be short term trades.

Three Surprisingly Good Bottom Lines

As for Earnings results…the market got a bunch of good ones yesterday. But it was the most surprising, wacky collection of winners you’ve ever seen. Imagine Willy Wonka and a handful of Oompa-Loompa’s taking out the men’s 4×400m relay gold medal. Now you’re getting close.

The oddities began with this: online ticket portal Webjet (ASX:WEB) increased its profits by 134% last year. Airline prices are soaring. Yet this company managed to profit from that somehow. Its share price added 11%.

The only thing more Australian than a backyard clothesline is a football player being remanded in police custody. Hills Industries (ASX:HIL), the firm responsible for the Hills Hoist clothesline, somehow pulled off a 16th straight profit record.

That’s not bad. Especially when you consider how it must be hurting from steel prices.

And sleep specialist Resmed (ASX:RMD) added 66% to its net profit. Actually, that’s not surprising at all. This market’s enough to give anyone insomnia.

And as for the latest on Energy.

The market is up 132. Financials rocketing – up 4.2% after the strong lead from the US. The main theme has changed in the last 24 hours from inflation fears and pressure on interest rates to lower inflation and interest rate cuts. It is a very important change in market thinking and at the risk of crying “Wolf” is a significant foundation for a market rally from here….whereas other rallies have been little more than a thrashing herd changing direction. 

RBA set to cut rates in September with a 68% chance of a 50bp point cut factored into Futures markets. Property flying – up 3.8%. Building stocks strong.  SFE Futures were up 88 this morning. Resources also up 2.0% but getting left behind.

Dow up 331. Up 332 at best. Gradually rose all session and closed on high. Dow up the most in four months. All 10 sectors up. 7 sectors up more than 2%. 91% of S&P500 components up. FOMC leave the Fed funds rate unchanged at 2.00%.Key point: Oil fell to a 3-month low and resources fell - the talk on CNBC this morning is that the Fed expect commodity prices to fall allowing them to ease up on the prospect of interest rate rises. Some signs of growth - July’s ISM non-manufacturing index up more than expected. Crude down another 2.4%helped oil-sensitive stocks. Consumer discretionary sector up 4.4% (steepest advance in 5-years), Retailers up 5.3%, Airlines up 9.4% and Transportation up 4.9%. Commodities CRB Index lost 10% in July – steepest decline in 29-years as oil, copper and wheat prices plummeted. Energy underperformed on falling oil prices – only up 1.1%. Financials up a whopping 5.1% - helped by a rise in European banks after Paris’s Societe Generale posted better-than-expected earnings. AIG led the jump – up 12% on an upgrade to BUY at UBS. Mortgage related stocks jumped – MBIA up 8.79%, AMBAC 12.89%, the 2F’s (Fannie and Freddie) up 14.96% and 6.91%.

• Both BHP and RIO down in ADR form overnight, 2.09% and 2.42% respectively. BHP up 93c to 3675c. RIO up 311c to 11390c.
• Metals mixed overnight – Copper up 0.44% and Aluminium up 0.64%. Zinc down 1.31% and Nickel down 2.31%. Oz Minerals up 6.1% or 10c to 173c.
• Oil price down $2.74 to $118.71 on belief that a slower US economy will reduce demand. WPL up 69c to 5189c.
• Gold down $21.70 to $881.80. NCM down 71c to 2560c.
• Bonds down with the 10 year yield up to 4.02% from 3.97%.

Gold stocks getting belted again today - as a hedge against inflation Gold will struggle with the lower inflation theme.

Stocks that struggle with a higher A$ doing well today on hopes that interest rates and the A%$ have peaked. Talk of the A$ going under 90c.
 

Australian Housing Finance slumps 3.7% in June- more than the 2.0% expected – investor housing finance also down 0.3%. Weak numbers will support the RBA’s bias towards cutting rates.

Most Oil stocks up despite an overnight fall in the oil price.

Asciano (AIO) up 6c to 501c on results and comments that they have had approaches for their assets. The company rejected a private equity bid on Monday at 440c.

News Corp’s (NWS) up 4Q results see a 27% jump in net income. Said their pace of growth will ease and that more challenging economic conditions are ahead. Well received in the Us and here and benefiting from the fall in the A$. NWS up 3.84% or 62c to 1672c.

Corporate Express (CXP) half year results not flash and contains net profit guidance of $61.7m-$66.1m. CXP negotiating with possible acquisition targets. Weres think result disappointing and they are reviewing forecasts. CXP flat at 560c.

ResMed (RMD) announced 4Q net profit grew by 7% and FY08 earnings up 66%. CEO says well positioned to deliver strong growth in FY09. RMD up 13.65% or 55c to 458.

NAB announced the first phase of its Next Generation Platform initiative to replace core banking systems over the next 5-years. Up 90c to 2565c.

Beach Petroleum (BPT) announced substantial coal seam gas reserves upgrade – 282% jump in probable reserves at Surat Basin. BPT up 4c or 3.85% to 108c.

Newcrest Mining (NCM) says partial gas from Varanus island now flowing to Telfer mine – 50% of gas to Telfer under contract with Apache will now be possible. NCM down 2.7% or 71c to 2560c.

Tower Australia (TWR) said St George Bank’s switch to AIG Life as favoured new life insurance partner will impact around $60m on TWR’s $700m in-force book. No impact on FY08 with slight profit impact in FY09. TWR up 4.62% or 7.5c to 170c.

Tabcorp (TAH) tipped by Weres to spend $400m in capex for its Star City casino. TAH expected to write down the value of its Victorian gambling license in FY results tomorrow. Analysts consensus for net profit before one-offs is $515m, up 14% on last year. TAH up 21c to 877c.

PanAust (PNA) confirms high-grade Copper-Gold at Puthep, Thailand – project study at feasibility stage and to be completed 1H09. PNA up 1.5c to 70.5c.

Seven’s (SEV) FY year results yesterday sees brokers holding or cutting target prices this morning – acquisitions seen as the key to unlocking value - buyback to support share price. SEV up 11c to 850c.

PaperlinX (PPX) being tipped by JP Morgan to report FY08 net profit of $50m, 32% down on FY07 on August 21^st. PPX up 12.44% or 25c to 226c.

WA News (WAN) tipped by JP Morgan to post FY profit of $126m later today. WAN up 2.57% or 23c to 919c.

The US Federal Reserve left interest rates steady at 2% this morning and softened its stance, leaving analysts to forecast no change for the rest of the year at least. The decision came after oil prices fell under $US120 a barrel, gold shed more than $US20 an ounce to around $US887, copper lost more ground and US stockmarkets jumped more than 2.8%. The Dow was up more than 300 points in the market’s strongest showing since April. The Australian dollar lost more ground as well, falling under 92 US cents to take its losses in three weeks to more than 7%. But while the Fed warned that the inflation outlook remains “highly uncertain” it also indicated that problems in the credit and housing markets, as well as high energy prices, are likely to hurt economic growth over the new few quarters. “Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the committee,” the Fed said in a statement. It was a softer approach, although the comments on inflation indicate there’s still concerns about cost pressures. But the Fed was still conceding that the US economy is now stagnating. Here in Australia there will be a change next month as we look like getting our first rate cut in seven years, with next month the most popular pick. At this stage the cut, when it comes, will be 0.25%, but if the domestic economy shows further signs of slowing, with more negative reports for the retail and housing sectors, the Reserve Bank could double its cut to 0.50%. There was no change in official interest rates yesterday afternoon, with the Reserve Bank revealing that it had left the cash rate unchanged at 7.25%, but the central bank sent a huge hint that a rate cut is coming. Next month is a big tip from the markets. Macquarie Bank’s Rory Robertson last night said a September cut was a ‘given” and the National Australia Bank brought for ward its rate cut time table and suggested one could happen on September 2. Rory Robertson said it could be 0.25% or 0.50% and reckons we will now see rates back at 6% by the end of next year, while the NAB agreed, with it now looking for 1.25% of cuts. The RBA is now more confident inflation is on the way down. That growing confidence about falling inflation, plus the sharp and accelerating slump in domestic economic activity produced this significant change of heart in yesterday’s statement from RBA Governor, Glenn Stevens. “Weighing up the available domestic and international information, the Board judged that the cash rate should remain unchanged this month. Nonetheless, with demand slowing, the Board’s view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing.” After the RBA switched to a definite no rate rise stance at the July meeting and let the world know through different wording for the post board meeting decision and then in the minutes (where there was discussion of the extra impact of high oil and petrol prices on consumers), the chances of a cut have swelled as poor retail sales and building approvals for June were released last week, along a further contraction in credit growth in the same month. Lending for housing, credit cards and other personal credit and for business all showed a noticeable slowing in June and added to the sense that the slowdown in domestic activity the RBA had sought, had accelerated in June. Anecdotal evidence suggested that the same happened in July. The RBA said in its post meeting statement that it now believes inflation will drop below 3% “during 2010″.  That’s after being more equivocal in its July statement when it said: “Looking further ahead, inflation in both CPI and underlying terms should decline over time, provided demand continues to evolve as expected”. It didn’t nominate a figure or a time for the fall. In its latest statement the bank indicated that “it is looking more likely that demand will remain subdued, and economic growth will be fairly slow, over the period ahead.” For that reason, the RBA is more confident inflation will fall over the next two years.  In fact with oil prices down and the way economies seem to have peaked around the world, there’s every chance the inflation cycle peaked at an annual 4.5% in the June quarter. The change of approach came a year to the day after the RBA began the final round of four rate rises just two days before the credit crunch broke over world markets. Since then those four rate rises, plus the surge in oil prices and non official rates caused by the crunch, have slashed demand in Australia and many other economies.  Here, retail sales and building approvals are now flat to negative, compared to a year ago.

 

Figures were released yesterday showing that car sales fell in July, but are up of where they were a year ago, despite the record level of petrol and oil prices so far in 2008.

In the latest VFACTS sales bulletin released yesterday, the Federal Chamber of Automotive Industries (FCAI) said 83,976 new vehicles were retailed last month compared to 86,291 in the same month last year.

But the market was still ahead on a year-to-date basis with total sales to the end of July still 2.6% ahead of the same period in 2007.

But commodity prices are now falling: July saw oil prices peak at over $US147 a barrel, and then help pull all commodity prices down by the largest amount in 28 years; that’s a fall that has continued this month with another sharp decline Monday night and yesterday. 

Oil was trading at a three month low of just under $US120.overnight.

That has pushed Australian sharemarkets down to a two year low this morning, and the Australian dollar down to a new three month low. 

The Aussie dollar weakened to 92.40 US cents after the RBA decision was announced, a new 12 week low; and fell further to 91.54 US cents this morning in New York.

The Aussie dollar is now more than 5% off its peak last month at just over 98 US cents. 

If the currency continues to weaken with the rate cut speculation and lower commodity prices, it will start cutting the flow on effects from the falling world oil prices.

But we will get another update on the state of the economy with the July employment figures, due out late this morning.

Macquarie Bank interest rate economist, Rory Robertson said before the RBA decision

“My thinking is that if the RBA doesn’t cut today, then it very likely will cut next month. The RBA is set to respond to the fact that extremely tight financial conditions are bringing the Australian economy to a screeching halt.

“Yet it is the RBA’s worry about the growing risk of recession that will drive its first cash-rate cut in seven years.

“The RBA’s initial cut - whether today or next month - should be read as an acknowledgement of the growing risk of recession, driven by financial conditions that have tightened more than the RBA ever planned or anticipated (via market-driven interest-rate “top ups” and a sharp tightening of lenders’ credit standards).”

He later firmed up his forecast.

Besides the fall in July car sales (and local production, which was also down noticeably), the service sector further contracted last month according to a survey from the Australian Industry Group.

The Australian Industry Group-Commonwealth Bank performance of service index fell 2.6 points to 42.8 points, from 45.4 points in June - the lowest on record since the index began in February, 2003.

July’s reading was the fourth consecutive reading below the 50 point level that separates growth from contraction.

”The combination of the credit crunch, consecutive official and market based interest rate increases and high petrol prices are hitting services sales hard, while weak readings for new orders, inventories and employment paint a less than rosy outlook for the sector in the months ahead, the AIG said in a statement.

The AIG said the weakness was seen across most sectors and most states.

The RBA is now more certain about the future direction of inflation than it was a month ago, and more confident the slowdown in domestic demand is cutting inflationary expectations and that inflationary pressures will ease.

It is important to understand that the bank still sees inflation as its major concern, not the current sluggish state of the domestic economy.

Because the resource sector, especially coal mining and exporting and the iron ore sector are still doing well, with more income to arrive in the economy in the next few months, the RBA remains wary of any possible inflationary rebound.

The headline Consumer Price Index rose 1.5% in the June quarter, for an annual rate of 4.5% (the same as the RBA’s more favoured measures). 

That was higher than expected and conditioned the bank into not cutting rates yesterday, judging from market chat.

That’s why rates were not cut yesterday, but will almost certainly be trimmed next month to 7%.

The RBA board will next meet on September 2.

Then we have to ask, will the banks follow?

The market is down 57. Financials down 1.6% and resources down 1.1% on renewed credit crisis concerns and stagflation in the US. SFE Futures down 88. 

Dow down 220 (down 1.8%) - down all session. Down 245 at worst. Dow down 3.1% for the week - down 5.9% month-to-date. Down 10.3% year-to-date. Options expiry partly to blame. Heavy volume. Financials down 2.5%. Moody’s follows Fitch and Standard & Poors cutting credit ratings on Bond Insurer MBIA and Ambac – assigning them a negative outlook. Merrills reduced earnings for a bunch of banks – sited credit risk, capital raises, and possible dividend cuts. Auto sector down 7.6%. Tech stocks down. Resources down. Nasdaq down 2.7% - large cap tech stocks down with Apple, Microsoft and Google all down. Automobile Manufacturers down 7.6% on outlook downgrades from ratings agencies. Fed policymakers expected to take a tough line on inflation – the FOMC meet this week - they are not expected to move interest rates – 10% chance of a meeting. 30% chance of a rate rise next meeting.

• Both BHP and RIO down in ADR form on Friday, 3.63% and 0.10% respectively. BHP down 75c to 4390c. RIO down 315c to 13545c.
• Metals all up on Friday – Copper up 1.2%, both Nickel and Zinc up 0.9% and Aluminium up 2.1%. Zinifex flat at 820c.
• Oil price up $2.90 to $134.78 – The US and other consuming countries say that oil production is not keeping up with oil demand, Saudi Arabia and other OPEC countries say there is no shortage of oil and that speculators are the ones driving the price higher. Woodside up 122c to 6415c.
• Gold down 50c to $903.70. Newcrest up 15c 2736c.
• US Bonds up with the 10 year yield down to 4.16%.

Valad Property Group (VPG) joins property and infrastructure companies in announcing earnings downgrade and adjusting business model. Underlying EPS to be down 11.1c for the year. Will change policies so as distributions come from cash earnings not underlying earnings. Is a warning sign for the whole property trust sector coming into results season. VPG down 5.4% to 79c.

 

 

• Babcock & Brown (BNB) – rumors that KKR and HSBC have been eyeing off BNB and satellites, given their sharp falls in market prices the last few weeks – no party making comments at this stage. BNB down 22c 620c.
• Babcock & Brown Infrastructure (BBI) reported by Sydney Morning Herald to be looking at outside financing for part of its GBP335m Northern Gateways Container Terminal – BBI looking to reduce its debt-to-equity levels. BBI down 3c to 77c.
• Indophil Resources (IRN) has been surprised by Xstrata’s turn around yesterday at 8am, deciding they would match the $1.28 per share bid from the Richard Laufman/Crosby/Alson’s consortium Friday. Under its pre-bid agreement with Lion Selection (who meet this morning to vote on the sale of their stake in Indophil), Xstrata will seek to acquire Lion’s 17.8% blocking stake. IRN up 1.5c to 140c.
• Tatts (TTS) and Tabcorp (TAH) face possible competition for Victoria’s gaming license with JV partners UK group Ladbrokes and Irish group Paddy Power potentially looking to bid for the $700m wagering and betting license. TTS down 2c to 246c. TAH down 44c to 1028c.
• James Hardie (JHX) disputes a proposed US tax authority ruling saying JHX needs to pay $49m for withholding tax rates payments from the US to the Netherlands in 2006 and 2007. JHX down 25c to 447c.
• Macarthur Coal’s (MCC) major shareholder Ken Talbot resigns from the board, giving him more flexibility over his 19.8% stake – trading halt remains.
• Tatts Group (TTS) will write off the value of its Victorian gambling license in FY08 – said the write off won’t affect the consolidated profit or balance sheet.
• Ramsey Health Care’s (RHC) maintains FY core EPS guidance of 10-12%. RHC down 33c to 939c.
• Charlie Aitken at Southern Cross Equities tells us in his daily email that the next credit market fall out will come from Private Equity not meeting interest payments and revaluing assets and the uncertainty of which banks have exposure to those funds.
• Perilya and CBH Resources in a trading halt. Perilya expected to reduce the terms of the merger for CBH shareholders.