* US stock markets traded lower throughout the session after early gains faded, snapping 3 days of sharp gains as concerns escalate that the US might be slipping back into recession.
* European stock markets closed lower, breaking a 3-day winning streak after sellers stepped in after a flurry of rumours about Germany.
* Asian stock markets ended mostly higher yesterday. The gains came as US traders provided a positive lead, but expect caution today.
* Commodities prices traded higher, but gold prices rose above $US1,1769 and while crude oil closed around $US85.
The SPI Futures is trading around the key pivot level of 4000, ending down -1.1% (or -46 points) at 4,168. The key levels for our index this week are 4200 to 4100. Overnight global stocks traded sharply lower as US and European investors chose caution ahead of the US economic summit at Jackson Hole, Euro banks remained under pressure.
Investors are keenly watching the recent lows for any sign of support near-term. Price action in the US sold down throughout the session as traders look for an announcement of further quantitative easing on Friday. The All Ordinaries (XAO) was up 1.1% at 4281 yesterday, the S&P/ASX 200 (XJO) also closed up 1.1% at 4213.
Our market is set to follow Europe and the US lower today, with mining and financial stocks trading lower overnight, providing a negative lead. There will be a flurry of activity on open due to the completion of options expiry.
See below for ASX listed companies in the news today.
Economics News Today
* RBA Governor Glenn Stevens appears before House Economics Committee.
US Markets
US stock markets traded lower throughout the session after early gains faded, snapping 3 days of sharp gains.
The Dow Jones Index declined as only two stocks finished in the green. Bank of America bucked the trend, jumping 9.4% after Warren Buffett disclosed a $US5 billion investment in the bank. In the broader market the S&P 500 stock index lost ground as all 10 sectors finished in the red, led lower by energy, industrial and consumer discretionary stocks. The tech-heavy Nasdaq Composite fell the most after the resignation of Apple Chief Executive Steve Jobs weighed on the technology sector.
Investor caution came as weekly jobs data disappointed and ahead of the Fed speech in Jackson Hole Wyoming and as European stocks underwent selling pressure.
Over the past couple of weeks the US markets appear to have been building expectations of a QE3 announcement at the Fed’s annual conference on Friday in Jackson Hole, Wyoming. However there is an increasing realisation that Federal Reserve Chairman Ben Bernanke will most likely not hint at additional forms of monetary support for the struggling US economy. The view that the economy might be slipping back into recession has sparked renewed demand for safe haven assets.
In commodities gold rebounded to around $US1,770 and crude oil remained around $US85.
All ten company groups that make up the S&P index traded lower: Industrials were down -1.9%, Materials were down -1.1%, Energy was down -2.1%, the Financials sector was down -0.3%, Technology was down -1.4%, while Consumer Staples were down -2.0%.
The Dow Jones closed sharply down -1.5% (or -171 points) at 11,150, the S&P 500 index closed down -1.6% (or -18 points) at 1,159, the Nasdaq ended down -1.9% (or -48 points) at 2,419, and the smaller cap Russell 2000 was down -2.6%.
European Markets
European stock markets closed lower, snapping a 3-day winning streak after sellers stepped in after rumours of speculation that Germany would introduce a ban on short-selling financial shares and their economy may be downgraded. The Stoxx Europe 600 index dropped 1.2%.
Investors remained on edge overnight when several rumours in Germany sparked selling. France, Italy and Spain announced they were extending bans on short-selling financial shares, while in Belgium the stock market regulator said it would lift the short-selling ban only when market conditions allow.
In London the FTSE 100 fell 1.4%, but banks found some support with Barclays and Royal Bank of Scotland jumping over 5.5%.
In Germany the DAX 30 index had slumped 4% at one point in the session, hit by several unconfirmed market rumours. The market finished well off its lows after German regulator Bafin later said that there are no planned changes to its short selling rules. There were also rumours that Germany’s credit rating may be downgraded, but credit-rating firms Standard & Poor’s, Moody’s and Fitch all confirmed Germany’s AAA rating.
In London the FTSE 100 index was down -1.4% (or -75 points) at 5,131, the German DAX was down -1.7% (or -97 points) at 5,584, while in France the CAC was down -0.7% (or -20 points) at 3,119.
Asian Markets
Asian stock markets ended mostly higher yesterday. The gains came as the US traders provided a positive lead on optimism that the Federal Reserve will take steps to stimulate the US economy.
In Japan the Nikkei Stock Index finished higher. In Hong Kong the Hang Seng Index advanced, while in China the Shanghai Composite Index rose nearly 3%, as energy and telecom stocks led the gains.
The Chinese SSE Composite was up 2.9% (or 74 points) at 2,615, in Hong Kong the Hang Seng Index was up 1.5% (or 286 points) at 19,753 and in Japan the Nikkei 225 Index was up 1.5% (or 132 points) at 8,772. The South Korean KOSPI was up 0.6% for the session, while the Indian market was down -0.9%.
Commodities
The Dollar Index was higher at 74.23 on a lower Euro, while the Australian Dollar last traded lower at 104.34. Commodities prices were lower.
For the session the benchmark crude NYMEX for August delivery was down -0.2% (or -$US0.18) to settle at $US84.98. Copper prices are still below key pivot level as Copper for August delivery was up 2.1% (or 8.2 cents) at $US4.0860. August gold was up 0.3% (or $US5.70) at $US1,769.80.
ASX News Today
AGO – Atlas Iron has declared its maiden full year profit of $169 million and had cash of $366 million at the end of June, and the company remains debt free. Cash operating costs for the FY11 year were within the targeted range of $40-43 a tonne. The company is looking to build its production to 40 million tons annually, on a par with Fortescue Metals Group’s 2011 production. Atlas Iron closed up 2.2%.
BHP – BHP Billiton has handed down the biggest profit ever delivered by an Australian company and almost double last year’s result. The result was a record breaking $22.5 billion profit but the CEO has given a blunt warning that rising wages are fuelling inflation and this will negatively impact Australia’s productivity due to rising cost pressures. The company reported its 2010-11 underlying profit was up 74 percent as Chinese demand continued to push up prices, offsetting a fall in production volumes and rising costs. The value of the company’s sales of iron ore, oil and gas, copper, coal and other minerals last financial year jumped 35 per cent. BHP Billiton shares closed up 1.1%.
COK – Cockatoo Coal, which is one of the few Australian listed miners with coal production, said it has held talks with South Korea’s SK Networks Co. and other companies on supporting the development of new mines. There is no certainty that an agreement will be reached, but SK Networks said it has reviewed a possible investment in Cockatoo Coal in order to boost its resource business. Cockatoo Coal shares closed up 27%.
DTE – Dart Energy said it plans a Singapore IPO for its international coal seam gas assets in a move to tap rising interest in unconventional energy as climate and safety concerns dent the appeal of rival fuels. Dart’s international assets are mostly concentrated in Asian markets such as China and India where energy demand is growing rapidly, and a traditional reliance on burning coal for power has made cities like Shanghai among the smoggiest in the world. Its current international reserves total 16.3 trillion cubic feet of gas in place, of which 43 billion cubic feet is in the proven and probable category that is a better indication of how much gas can be recovered profitably from the ground. Dart aims to sell its minority stake in the IPO by March 2012. Shares in Dart jumped 11%.
FKP – FKP Property Group (FKP) has delivered a solid profit result, with underlying profit after tax of $121 million for FY11 representing a move up of 11 percent. Earnings were in line with guidance but were underpinned by strong contributions from the Residential Communities and Retirement divisions. FKP’s future growth will be generated from the delivery of the existing development pipeline which is supported by the stability of the recurring income generated from the high quality retirement portfolio.
IAG – Insurance Australia Group Ltd has nearly tripled its full year profit to $250 million and the owner of NRMA and CGU expects insurance margin growth in the year ahead. They reported revenues grew 30 percent and insurance margins grew 9.1 percent. CEO Mike Wilkins has forecast gross written premium growth of between six and nine percent in the current financial year, and an insurance margin of 10 to 12 per cent.
IFL – IOOF Holdings has delivered a 29 percent rise in annual net profit of $99.5 million and flagged it is eyeing acquisitions. The company’s funds under management (FUM), administration, advice and supervision in FY11 rose $7.1 billion to $106.2 billion and its cost to income ratio was 51 per cent on an underlying basis. IOOF Holdings closed up 8%.
ILU – Iluka Resources the mineral sands miner, has reported a return to profitability in the first half of calendar 2011 with a profit of $146 million while revenues increased 45.3 percent and they expect pricing to be good in the period ahead. Iluka said higher sales volumes, higher product pricing and a full half contribution from new higher margin operations were behind the move into first half profitability. Iluka Resources shares closed up 5.5%.
MCC – Macarthur has recently booked a 93 percent jump in net profit for the FY11 financial year to $241 million due to record prices for metallurgical coal in the final quarter of the year. The bid for Macarthur Coal overcomes another hurdle as Japan’s Fair Trade Commission (JTFC) will not challenge a proposed joint $4.7 billion takeover, by a US miner Peabody Coal and the world’s largest steel maker ArcelorMittal, however approval from the Chinese Ministry of Commerce is still required. They already have Australia’s FIRB approval but Macarthur has said it is in ongoing discussions with several interested parties. Its shares closed down -0.3%.
MTS – The ACCC watchdog has lost its Federal Court bid to prevent Metcash Ltd from buying the Franklins supermarket chain. Metcash shares closed up 1.2%, while Wesfarmers closed up 1.7%.
RHC – Ramsay Health Care the private hospital operator, has increased full year profit to $198.4 million, with revenue up 9.4 percent and earnings per share up 31 percent, as it targets core earnings growth in the current year of 10 to 12 percent, barring any unforeseen circumstances. Ramsey remains well positioned to capture growing demand in the health care services industry.
TOL – Toll Holdings the logistics company said its annual net profit edged up 1% as acquisitions helped boost revenue amid challenging economic conditions and disruptive natural disasters. Net profit for the year rose to $281 million, as revenue jumped 18%. Toll said it expects domestic retail and industrial sectors to remain challenging, although conditions look to have stabilised. Investors were relieved by a lack of writedowns tied to the aggressive Asian expansion. The share price closed up 8.6%.
TSE – Transfield Services shares were trashed yesterday after the company booked an annual net loss of $19.7 million and shocked the market with a steep downgrade to its guidance. The company manages projects and provides maintenance to sectors including mining and transport, but it was the company forecast that sent investors scurrying for the exits as they forecast 5% growth in operating profit, pre-amortization, which compared to previous guidance of 30-35% growth in earnings before interest, tax, depreciation and amortization (EBITDA). Its shares plunged over 22%.
WOW – Woolworths, the owner of Australia’s largest supermarket chain has increased full year profit to $2.12 billion up by 5.1 percent with revenues up 4.9 percent, and says it is well positioned in all its market segments. They said they expected a year of further earnings growth in fiscal 2012, with profit growth of between 2 to 6 percent in FY12, due to the tough economic conditions they are currently experience. Australia’s retail sector has been hit by its slowest growth in 50 years as consumers are concerned over rising cost of living pressures, global economic uncertainty and high interest rates. Investors were unimpressed with their guidance and the shares slumped 5.6%.
VBA – Virgin Blue has reported a full year loss of $67.8 million, while revenues increased 9.8 percent, but the airline expects an improvement in financial performance in 2012.
Local Corporate Reporting
ACR – Acrux Ltd full year results
PPT – Perpetual Ltd full year results
LLC – Lend Lease full year results
GPT – GPT Group first half results
FXJ – Fairfax Media Ltd full year results
SKI – Spark Infrastructure first half results
Ex-dividend Date
COH – Cochlear Limited
WLL – Wellcom Group Ltd
Market Summary
ASX – to open lower
US & UK/Europe – lower
US ADRs – Broadly Lower
BHP down -1.7% & RIO down -2.2%; AWC down -1.9%
ANZ down -1.1% & NAB up 0.3%
NEM up 0.9%, JHX up 1.3%, NWS down -1.8%
Commodities Stock Index down -1.4%
Gold Stocks Index up 1.9%
Oil Stocks Index down -2.3%
By Michael Hevern
Head of Research
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