WASHINGTON - The US trade deficit soared in July to the highest level in 16 months, as oil imports hit an all-time high, offsetting strong export growth.

WASHINGTON - New applications for unemployment benefits fell less than expected last week, the US government said Thursday, as the struggling economy continues to take a toll on workers.

NEW YORK - The US dollar rose to its highest level in nearly a year against the euro today, even as the US trade deficit for July soared. Falling oil prices helped support the battered buck.

MOSCOW - Russian President Dmitry Medvedev has ordered the Government and central bank to boost funds flowing into financial markets to curb a four-month slump which has seen stock prices fall by nearly half.

NICE - EU finance ministers will try to figure out ways to lift a European economy flirting with a recession when they meet for two days of talks starting Friday, even though some won’t even mention the word “recession”.

NEW DELHI - India’s inflation rate has slowed for a third consecutive week, official data showed Thursday, but remained above the 12 per cent mark.

WELLINGTON - Dual-listed shopkeeper The Warehouse Group has posted a 21 per cent fall in annual net profit to $NZ90.8 million ($A74.63 million), hit by economic slowdown and pressure on household budgets.

WELLINGTON - The New Zealand dollar dropped to a two-year low against the greenback in the aftershocks from yesterday’s half a percentage point cut in official interest rates.

WASHINGTON - The US Treasury has moved to quash rumours that Congress could overturn the Fed’s pledge to bail out Freddie Mac and Fannie Mae.

DETROIT - Ford Motor Co said it wants to cut its blue-collar work force by another 4,200 employees, as the struggling automaker offers redundancy packages at manufacturing operations in Ohio, Michigan, Kentucky and Indiana.

TOKYO - The world’s largest financial institutions are getting healthier, with credit-related losses expected to ease over the next year, the head of an international banking group said Thursday.

FRANKFURT - Deutsche Bank AG, confirming market rumours and conjecture, said it is advanced talks with Deutsche Post about taking a stake in Postbank, Germany’s biggest consumer retail bank.

WASHINGTON - Federal regulators said they were unable to quantify the number speculators in oil markets, as the US Commodity Futures Trading Commission released a much-anticipated report calling for new rules to curtail swap dealers.

PARIS - French outdoor advertising firm JCDecaux SA says it is negotiating to buy Russian rival News Outdoor Group from global media giant News Corp.

LOCAL NEWS

BRISBANE - About 500 workers on a large Gold Coast construction site now in the hands of receivers are concerned their entitlements will not be fully met. The Raptis Group’s Southport Central project, which is about eight storeys from completion, was placed into receivership on Wednesday.

MELBOURNE - Packer-controlled Publishing and Broadcasting Limited (PBL) pays rent of just $1 a year for its Crown casino complex in Melbourne, according to a Victorian Commission for Gambling Regulation report tabled in parliament yesterday, Fairfax newspapers said.

PERTH - Perilya Ltd will take a 73 per cent interest in Chalice Gold Mines Ltd, after the junior gold explorer agreed to issue the lead and zinc miner with 200 million new shares as consideration for Perilya’s Mount Oxide copper and cobalt project in Queensland.

STOCKS TO WATCH ON THE AUSTRALIAN STOCK EXCHANGE TODAY:

RPG - RAPTIS GROUP LTD - in trading halt at 40 cents
About 500 workers on a major Gold Coast construction site now in the hands of receivers are concerned their entitlements will not be fully met.

WHS - THE WAREHOUSE GROUP LTD - opens at $2.62
Retailer The Warehouse Group has posted a 21 per cent fall in annual net profit to $NZ90.8 million ($A74.63 million), hit by economic slowdown and pressure on household budgets.

CWN - CROWN LTD - opens at $8.81
The Packer-controlled Publishing and Broadcasting Limited (PBL) - pays rent of just $1 a year for its Crown casino complex in Melbourne.

NWS - NEWS CORPORATION - opens at $17.50
NWSLV - NEWS CORPORATION NON-VOTING - opens at $17.03
French outdoor advertising firm JCDecaux SA says it is negotiating to buy Russian rival News Outdoor Group from global media giant News Corp.

CHN - CHALICE GOLD MINES LTD - opens at eleven cents
PEM - PERILYA LTD - opens at 20.5 cents
Perilya is to gain a 73 per cent interest in Chalice Gold Mines after the junior gold explorer agreed to issue the lead and zinc miner with 200 million new shares as consideration for Perilya’s Mount Oxide copper and cobalt project in Queensland.

LNC - LINC ENERGY LTD - up one cent to $4.15
Linc Energy has signed a deal with Xinwen Mining Group to develop underground-coal-gasification (UCG) and gas-to-liquids (GTL) projects in China.

OZL - OZ MINERALS LTD - down eight cents to $1.27
Oz Minerals has temporarily shut down its Prominent Hill site in South Australia after a contracting firm employee was killed.

PMM - PORTMAN LTD - up $3.40, or 19.21 per cent to $21.10
Cleveland Cliffs Inc, the largest iron ore producer in the US, has launched a bid to buy the 14.81 per cent of Portman that the company doesn’t already own.

RIO - RIO TINTO LTD - down 48 cents to $101.55
Rio Tinto Ltd, the world’s second-largest iron ore producer, has agreed to further discussions with the Guinea government to resolve issues threatening its Simandou mining concession.

AWB - AWB LTD - down four cents to $2.95
Agribusiness AWB has been accredited to export bulk wheat.

AHI - ALLCO HIT LTD - down 0.5 cents to 1.6 cents
Strategic Finance investors are going to have to wait for interest and dividend payments as the company works on a capital restructure proposal.

All Roads Lead to Beijing

Section One:
We all know the China story. We see the consequences of it on our stock market five days each week, BHP and Rio Tinto rise and fall as commodity prices rise and fall. Even when the US market is rising and falling there is the tendency to draw everything back to China and its economic prospects.

All roads lead to Beijing.

The question which everyone wants answered is ‘Will China continue to grow?’ The Chinese government enforced the closure of many industries leading up to the Olympic Games as it attempted to improve the air quality for athletes. Now the Olympics are over it is game on again for China and for its industry.

The amount of construction in China cannot be overstated. It only took watching the Olympic road cycling races or the marathon on TV to see the sheer number of uncompleted building projects in Beijing.

Today in Shanghai, China’s tallest building will be officially opened. The 492 metre, 101 storey Shanghai World Financial Center is the worlds third largest building after the Dubai Tower and Taipei 101. According to the owner of the building, Minoru Mori “total office space in Shanghai is not so large, there is not enough taking into account the business potential of the city. If you supply a good space, then the demand will follow.”

We admit that a statement like that sounds like a property bust waiting to happen. But not yet. And possibly not for a long time yet.

One thing that is often overlooked is that China still has an enormous rural economy. A rural economy where the average annual income is little more than $600. Even in the urban areas the average wage is only about $2,000 per year.

China isn’t standing still. The wages growth for Chinese farmers was 10% for the first six months of this year. Rural wages will need to grow too.

The last thing that the Chinese government would want is for the countryside to be emptied. Now, that’s the extreme and in reality it isn’t going to happen, but the point is that rural wages cannot afford to be left behind. Rural Chinese citizens will need an ever greater incentive to stay rural as the cities become bigger and richer.

That among others is one of the next big challenges for China.

The Most Important Story This Week:
The gold price has rebounded recently following a brief period under USD$800. It wasn’t that long ago that it was trading above USD$1,000, so which way is the gold price going to go next? Money Morning technical analyst Gabriel Andre gave his view on that during the week. Gold to Test Support

Monday: Rule 1. When taking over as CEO of a company make sure that you shift the blame for all the bad stuff on the previous mob. ANZ in Denial

Tuesday: With net profit totaling just $556 million, down from just over $1 billion the previous year, Suncorp has maintained its dividend payment at $1.07, which means that it has a dividend payout ratio of 183%. Financials, Is It Safe?

Wednesday: just like the BHP Billiton results, much of the earnings increase has come as a result of commodity price increases. While that is fine, and it deserves it having suffered through periods of low commodity prices, there is little in the results that would convince BHP that it needed to pay any more than is already on the table. Rio Tinto Releases Results

Thursday: Macquarie may not have the same exposure to leveraged funds that Babcock & Brown [ASX:BNB] has, but it is still being dragged down nonetheless. It is going to take a complete cleanout of this sector before investors can start to have any confidence in companies that have any association with leveraged infrastructure funds again. Not So Big Macq

Rio Tinto (ASX:RIO) unveiled a monster profit yesterday. Half-year underlying earnings grew by 55% compared to the same period last year. The figure over at BHP for full-year growth was around 22%.

Is this a cannonball through the port bow of the SS BHP Tinto? Is the bid sinking?

Well, in the last week three things have happened. Rio has clearly been the better performer this year. The ACCC has shaken its finger at BHP for trying to corner the iron market. And Wayne Swan opened the front gate, allowing Chinalco to take an 11% overall blocking stake in Rio Tinto.

None of those things scream ‘merger’. And judging by the ratio of Rio to BHP shares, the market doesn’t think it’ll happen. Anything above 3.4 means investors see one new mega-miner on the horizon. Anything below means investors see two old mega-miners on the horizon.

We’re deep in the red zone. Deeper now that Gumshoe ACCC is on the case.

That raises one more question. What happens if the bid falls through? Does Rio’s share price collapse?

That was BHP’s latest suggestion in a string of marketing angles to keep the bid alive. I made you, Tinto. You need me. Dump me and your share price goes down too.

We’ll get to that issue further down. First let’s look at Rio’s report card.

There’s really only one thing to take notice of. Rio did better from the boom in iron ore contract prices than BHP. Iron made up over half of Rio’s underlying earnings for the first time.

If you buy a Rio share for $120, you’re paying $60 for an iron company and $60 for a diversified miner.

The iron domination is probably going to keep dominating. Rio’s planning to divest US$7 billion in assets this year. You can bet it’ll be holding on to its darling iron assets. And buying more, probably. Rio’s capital expenditure is at a record. The main target? Iron. Again.

And again, a lot of sectors had record production. Rio’s producing more iron ore, bauxite, alumina, aluminium, borates, titanium dioxide and thermal coal than ever. But the biggest driver of this year’s result was commodity price gains. Mostly in iron and coal.

This is not a financial recommendation. But if you need more iron in your diet, buy some Rio Tinto.

Now. What are the implications of all this?

One. Rio has enjoyed the iron boom more than BHP. If it keeps booming, that won’t change much. If it goes bust, Rio stands to lose a lot more.

Personally, we don’t see it going bust yet. That could be decades away. But Rio is leveraged now. It’ll gain more from Asia’s iron addiction. It’ll have worse withdrawal when it’s all over.

Two. Rio’s share price isn’t likely to collapse if the bid does. We’re not saying that it won’t happen. Anything is possible. The argument here is that BHP’s bid has inflated Rio’s shares past where they would otherwise be.

But consider the ‘before’ and ‘after’.

Before the bid, a dollar of Rio earnings cost $45. Today, it costs $23. One iron boom makes a big difference to earnings. But by that measure, Rio hasn’t inflated. It’s deflated.

The share price hasn’t kept pace with earnings. Slacker. Then again, most share prices haven’t.

On the whole, it was a less-than-inspiring week for merger enthusiasts. We still like BHP’s chances if it adds a little bit of cash to the deal.

Meanwhile, people are getting what they deserve, not what they expect. And it seems that the march of skeletons out of closets across Australia is still in full swing.

St George (ASX:SGB) was probably the least exposed to the initial shock-wave of the credit bust. But that doesn’t mean it indulged in it any less. Bank Number Five is now ruing a $458 million loan to Centro (ASX:CNP).

Rio Tinto is nothing but optimistic about its future and the future for China, much like the way BHP Billiton management is optimistic about its future and the future for China.

A week ago it was BHP meeting expectations with a huge $US15.4 billion, late yesterday it was Rio reporting a record interim profit which was up 112.5% at $US6.91 billion ($A8.01 billion in current exchange rates), compared with the $US3.25 billion ($A3.77 billion) earned in the first half of 2007.

Rio said that underlying profit, or earnings before interest and tax (EBIT), rose 55% to $US5.47 billion ($A6.34 billion) which was broadly in line with analysts’ forecasts.

“The group continues to perform strongly, and the outlook remains positive,” Rio Tinto chairman Paul Skinner said in a statement to exchanges in Australia and London.

BHP CEO, Marius Kloppers voiced optimism about China’s growth and how it would continue at high levels, despite fears that it was slowing. And hours before the Rio result was released, the Financial Times in London reported optimistic comments from Rio’s chief economist about China.

“A surge in demand from China could cause a bounce in commodities prices as restrictions on industrial activity around Beijing are eased after the Olympics.

“Vivek Tulpule, chief economist of the mining group Rio Tinto which is due to announce half-year results on Tuesday, said the region affected by the restrictions, which were introduced to try to improve air quality, contributes more than a quarter of China’s gross domestic product.

“The Olympics have accentuated the usual summer slowdown in commodities demand,” said Mr Tulpule in an interview with the Financial Times. “When activity is allowed to start around Beijing, there will be a post-Olympics jump.”

That’s just what some in the markets want to hear, including BHP.

Rio shares rose $1.76 to $124.06 ahead of the results in Australia; BHP’s shares were up 75 cents at $40.75.

Rio said that first half earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 73% to $US11.41 billion ($A13.23 billion), with Rio Tinto’s iron ore division the biggest earner for the group, contributing underlying earnings of $US2.88 billion ($A3.34 billion), a rise of nearly 162%.

Rio said it saw a 145% increase in underlying earnings from its aluminium division to $US995 million ($A1.15 billion) after the $US44 billion Alcan acquisition last year.

Underlying earnings at Rio’s energy division, (which comprises its coal and uranium assets) rose 83.5% to $US679 million ($A787.34 million).

But Rio copper division suffered a drop in earnings to $US1.69 billion ($A1.96 billion).

Rio Tinto said it was on track to divest $US10 billion ($A11.6 billion) in assets this year to help pay-down debt after the Alcan purchase.

“We continue to make good progress with the integration of the Alcan assets that we acquired in 2007,” chief executive Tom Albanese said in a statement.

“We are on track to deliver annual synergies of $US1.1 billion ($A1.28 billion) after tax from the end of 2009, considerably higher than our initial estimate of $US600 million ($A695.73 million).”

Rio Tinto said it had the capacity to grow the company from its existing base and saw modest impact on the business from the global slowdown.

The company declared a final dividend of 68 US cents per share, up 31% on the first half of last year and the company promised shareholders this payout would rise this half and in 2009..

The federal government this week cleared the way for Aluminium Corporation of China Ltd (Chinalco) to increase its nine per cent stake in the dual-listed Rio Tinto to 11 per cent.

In a statement accompanying the results, Rio chairman Paul Skinner said, “The 55 per cent increase in the Group’s half year underlying earnings to $5.5 billion clearly demonstrates the quality of Rio Tinto’s portfolio and the strength of our existing markets, operations and management. The Group continues to perform strongly, and the outlook remains positive.

“The benefits of the Alcan acquisition in 2007 continue to show through in line with the investment thesis supporting this strategic move to create the global aluminium leader. Rio Tinto Alcan’s large source of secure, hydro-based power supply is a major competitive advantage given emerging energy shortages around the world, including China.

“We continue to develop our strong pipeline of growth projects, which remains a significant competitive strength. 

“During the year we have announced further expansions of our iron ore operations in the Pilbara region of Western Australia, expansions of our Brazilian and Canadian iron ore operations, and funding for the pre-feasibility studies for our Resolution copper project in Arizona in the US.

“Unlike many companies in the resources sector, we have the capacity to grow strongly from our existing base and create added value for shareholders over the decade ahead.

“Although we have seen some moderation in global growth rates from tightened availability of credit, the impact on our markets has been modest. 

“The driver of demand for our products is urbanisation and industrialisation in heavily populated countries like China and India, and these economies continue to grow strongly. Prices for our products remain high by historic standards.

“While the equity markets are currently focused on downside risks, we believe there are potential offsets on the upside based on continued strength in commodity demand, low inventory levels and a supply side which continues to face multiple constraints.

“We increased our 2008 interim dividend by 31 per cent in line with our policy of paying an interim dividend that is half of the total dividend (expressed in US dollars) for the previous year. We are committed to increase the full year dividend by at least 20 per cent in 2008, and again in 2009.

Rio Tinto’s chief executive, Tom Albanese said that the company’s earnings performance in the first half of 2008 “easily eclipsed the same period in 2007, which was itself a record. 

“There is no question that we are living in an era of unprecedented demand for minerals and metals, and we believe rapid demand growth and supply side challenges will be maintained.

“In this environment, the importance of having long life reserves and resources is critical, and Rio Tinto is particularly advantaged in this regard. When demand and prices are strong, growth options become increasingly valuable, and we have these in abundance.

“The Group set a half year production record in iron ore of 79 million tonnes on an attributable basis, as we deliver on our capital investment plans. Half year records were also established for bauxite, alumina, aluminium, borates, titanium dioxide and thermal coal (on a like for like basis).

“We continue to make good progress with the integration of the Alcan assets that we acquired in 2007. We are on track to deliver annual synergies of $1.1 billion after tax from the end of 2009, considerably higher than our initial estimate of $600 million. 

“As we have now become more familiar with the company, I am delighted by the quality of Alcan’s assets and its people. “We have created an aluminium industry leader with an outstanding bauxite resource, a competitive refining position, sustainable hydro power, and industry leading smelting technology.

“We are currently studying a doubling of our bauxite production at Weipa in Australia, we are expanding our refinery capacity and examining a number of exciting smelter expansion opportunities in Canada and around the world. The Sohar smelter project in Oman was recently completed on time and on budget.

“Globally, the Group has plans to increase iron ore production to over 600 million tonnes per annum, including growth in Canada, Brazil and Guinea. While there has been a challenge to Rio Tinto’s tenure of the Simandou project in Guinea, we believe our legal title is clear and we and our partner the International Finance Corporation (a division of the World Bank) are working with the Guinean authorities to clarify the situation. We believe there is no better company than Rio Tinto to deliver this project for the benefit of all parties.

“In copper, we have announced additional resources of 628 million tonnes at Kennecott Utah Copper and substantial resources of over 1 billion tonnes at Resolution in the USA and 2.8 billion tonnes at La Granja in Peru (refer to press releases dated 16 May 2008 and 29 May 2008). 

“Rio Tinto is in great shape, and is getting stronger. My personal commitment is to drive the business to deliver all the shareholder value of which it is capable, based on its outstanding assets, growth options and people.”

The market is down 20. That comes on the back of a 27 point rise on Wall St and a 6 point rise in Futures this morning. Pretty quiet day today. Hard to find a feature other than the fact RIO hasn’t done much on the back of what looked like great results (see below). Resources flat and financials down a touch. We are awaiting Woodside’s results.

Pretty quiet night on Wall Street – Dow closed up 27 - Up 50 at best. Down 46 at worst. Financials up a touch on an FDIC report saying 98% of companies were well capitalized. Homebuilders down on poor housing data, oil up and energy and resources up. Lehmans speculated to be planning to set up a company funded by third party investors to take on some of its mortgage assets to dispel the fears around its debt and one analysts said Fannie Mae and Freddie Mac had enough capital to last the year – the duo up 8.3% and 20.67%. Energy stocks up 1.8% - up for the first time in 3-days on higher oil prices and Anadarko Petroleum announcing a confident buy-back of $5bn in shares. In economic news, July new home sales were up 2.4%, economists had expected 525,000, and August consumer confidence was up 9.6%, beating analysts’ expectations. The NASDAQ closed down 0.15%.

Wall St has a long weekend this weekend for the Labor Day holiday.

• The SFE Futures suggested a 6 point gain in the market.
• Both BHP and RIO up in ADR form overnight, 1.93% and 0.66%. BHP goes ex-dividend 46.9c on Monday.
• Metals all down – Nickel down 4.06%, Zinc down 2.37% and Copper 1.29%. Aluminium down 0.88%.
• Oil price up $1.46 to $116.31 as Hurricane Gustav threatened the oil infrastructure in the Gulf of Mexico.
• Gold up $2.50 to $824.20
• Bonds up with the 10 year yield down to 3.78% from 3.79%

Rio Tinto announced their 1H result late yesterday – They were written up on the website yesterday. The price performance in the US was less than exciting…up 0.66% in the US in ADR form and down 0.5% in the UK. Made US$5.474m against forecasts of $5.133m. Up 55%. EBITDA up 73%. Cash flow up 54%. Capex up 91%. Jury still out on the success of the Alcan acquisition (Aluminium price have been falling since the acquisition) but they say “Rio Tinto Alcan integration is making good progress and remains on track to deliver $1.1 billion of after tax synergies from the end of 2009”. Dividend up 31%. They talked about a positive outlook, strength in commodity demand, low inventory levels and constrained supply. They continue to tell us the BHP offer is too low. RIO down 0.25% today.

Results out today…

• WPL – Woodside– Results just out. NPAT up 67% to $1.016bn – at first sight its ahead of analyst forecasts of $955m. Expect stronger production in H2. Will meet production targets. Revenue up 45%. Of course they are reporting for six months in which the oil price went up from $60.85 to $139.96 so the results should be good. Since the end of the Financial year the oil price has fallen 17%. WPL up 1.15%.
• WDC – Westfield Group – IN LINE - Net profit down 55% to $1.29bn mainly due to property revaluations - Analysts’ on average expected between $983.8m-$1.004bn. Operating income up 14.7% in constant currency terms to $928m, brokers predicted operating profit of $940m on average. WDC down 20% so far this year, outperforming the REIT sector by 12%. WDC down 1.7%.
• TCL – Transurban – BELOW EXPECTATIONS - Underlying earnings up 19%. Posts a FY net loss of$142.8m. EBITDA up 19% to $489.6m, up from $419.9m last year – analysts’ expected EBITDA of $543m ranging from $492.2m to $573.2. Revenue up 30% to $1.02bn. TCL down 0.7%.
• TPI – Transpacific Industries – UNDER - Report a FY net profit of $175.3m, up 70% after a distribution to step up preference security holders. Analysts’ on average expected $179.5m. GSJB Were expected $174.8m. Declare a final dividend of 10.1c. TPI down 3.3%.
• MMG - Macquarie Media Group– FY net profit up to $273.8m from $37.8m on the back of acquisitions and asset sales. Declared a final distribution of 22.5c, down from 24.5c last year. MMG up 0.5%.
• CEU – Connect East – Announce a FY net loss of $13.6m. Intends to declare a distribution for the period from 1 April to 30 September of 5.25c. Says the EastLink average daily trips in the first month came in at 135,555. While marginally ahead of the 133,722 trips during the first week, it was still well below the company’s forecasts of around 186,000 daily trips during the first month of operations. CEU down 4.6%.
• AIX - Australia Infrastructure Fund – FY net profit up 23% to $206.5m. Final distribution of 8.5c. Expects a satisfactory performance in 2009. AIX down 3.6%.
• MCW - Macquarie Countrywide Trust– Net profit down 79.7% to $100.4m from $493.3m. FY total income down 76% to $150.7m. Declare a final distribution of 7.2c, down from 7.8c. MCW unchanged.
• Gloucester Coal (GCL) – IN LINE – FY net profit up 30% to $23.4m and expects further profit growth this year. Big increase in contract coking coal prices in the 2H helped lift profits. Declared a final dividend of 16c. GCL down 1.3%.
• AUW - Australian Wealth Management – said its net profit was up 13% to $65.2m and said it was well placed for further acquisitions. AUW down 6.9%.

In other news…

• Babcock and Brown Infrastructure looking for investment partners to buy stakes in three of its core assets. BBI down 10.75%.
• Babcock & Brown Communities (BBC) has requested a Trading Halt as it finalizes its response to the previously announced strategic review. Its board expects various agreements to be conducted with Babcock & Brown (BNB). 
• Record Realty (RRT) has provided an update on record Realty Property Transaction loans. Down 2.5%.
• According to Australian Broadcasting Corp.’s 7.30 TV program last night, we can expect some bad news from ABC Learning (ABS) – which remains suspended for a third day ahead of its FY result. The show detailed questionable accounting practices.
• Lots of broker stuff on Woolworths this morning – Merrill Lynch say BUY with a 3500c target price, Citi HOLD, Credit Suisse cut their recommendation to NEUTRAL from Outperform and Macquarie Equities upped their recommendation to Outperform. WOW up 1.42%.
• The response from Brokers on Foster’s Group post results is also mixed – Macquarie expect it to Underperform, Credit Suisse says it will Outperform and JP Morgan have labeled it as Neutral. Fosters up 3.1%.