chart for monday, page-19

From AAP:


June 22, 2008
AUSTRALIAN stocks are expected to open sharply lower tomorrow.

Wall St tumbled on Friday amid concerns a higher oil price would curb consumer spending and investors anticipated more losses in the finance sector.

Commsec chief economist Craig James expects the local bourse to start the final full week of the financial year 100 points down.

“It's likely to be pretty ugly on Monday,” Mr James said.

The Dow Jones industrial average fell 220.40 points, or 1.83 per cent, to 11,842.69 on Friday after oil jumped two per cent on tensions in the Middle East and a weaker US dollar.

Global ratings agency Standard & Poor's threatened to cut its ratings on Ford Motor Co, General Motors and Chrysler Llc, saying that higher fuel prices could reduce sales.

Merrill Lynch & Co shares fell 5.5 per cent on rumours that the investment bank was about to issue a profit warning and book more writedowns related to US sub-prime mortgage debt.

“Fear is well and truly back - fear about where oil prices are going and also about the financial sector,” Mr James said.

“Our financial sector's in very good shape with historically low bad loans and balance sheets that are quite strong.

“But this is very much a worldwide phenomenon at the moment.”

The benchmark S&P/ASX200 index has fallen 15.7 per cent since June 30 last year.

No major local economic data will be released this week apart from car sales figures.

Mr James said investors would be focused on US housing data and the US Federal Reserve's decision on interest rates, handed down 0215 AEST on Thursday.

While the Fed is expected to keep rates on hold, Mr James said everyone would be closely watching the accompanying statement to determine the possibility of future hikes.

Fed chairman Ben Bernanke is in the undesirable position of having to contend with rising cost pressures combined with slower economic growth.

“Given the economy remains soft at the moment, the Federal Reserve has to stay on the sidelines until stability returns,” Mr James said.

AMP Capital Investors (AMPCI) chief economist Shane Oliver said a slowing global economy, made worse by higher oil prices, inflation concerns and more corporate earnings downgrades would weaken the local market over the next few months.

“We still see shares rallying sharply towards the end of the year as the oil price falls back, the economic outlook starts to improve and investors start to take advantage of attractive share valuations,” Dr Oliver said.

AMPCI believes weak US economic growth will keep the Fed on the sidelines until the end of the year with a cut more likely than a rise.

Given Australia's strong terms of trade and relatively high interest rates, Dr Oliver said it was only a matter of time before the local currency reached parity with the US dollar.

-----------------------------------------