Sydney - Friday - March 7: (RWE Aust Business News) - The Australian sharemarket posted its sixth fall out of seven today, more than wiping out yesterday's gains and posting another slide for the week. At week's end, the ASX 200 was 308.1 points in arrears at 5264 after adding today's deficit of 171.5 points points. The broader All Ordinaries slumped 163 points to 5368.9 today and retreated 305.8 points over the five trading days. Even yesterday's 59-point advance was not without its volatility with mixed movements as the major banks announced follow-throughs to the RBA's move on Tuesday in lifting the official interest rate 25 basic points to 7.25 per cent. Some banks have already signalled increases in rates on loans to customers above the central bank's rise. Although the RBA's remarks were more benign, many analysts are expecting another rate hike next month. On the other hand a number of economists and analysts, including former Reserve Bank Governor Bernie Fraser, are suggesting the RBA has gone far enough. Public companies growth is already more difficult as they face rising energy costs along with the credit market upheaval and sharp currency movements which has made it harder for exporters. However, domestic demand has started to decline as the previous rate rises begin to bite while oil is ready for another surge, which will hurt retailers that have already been pressured in the current quarter. According to Stephen Walters, chief economist of JP Morgan Australia, the significant deterioration in the domestic inflation outlook in recent months, means a second 25bp tightening in May is expected after the release of the 1Q CPI data in late April. This tightening will come just a week before the release of the new Federal government's first Budget, which probably will include measures to cool the pace of growth in the domestic economy. Indeed, the tone of the RBA's statement still implies that it retains a very clear bias to tighten policy again. Officials again highlighted the strength of domestic demand, skill shortages, capacity constraints, and the ongoing stimulus to national income from the terms of trade. On Thursday the Bureau of Statistics reported a trade deficit of $2.723 billion seasonally adjusted for January, up $786 million from December. Officials did, however, also highlight the existence of tentative evidence of a moderation in growth in household demand. The RBA's recent rises in interest rates seem to be gaining traction in slowing growth in demand. Indeed, there already are signs of mortgage distress, partly due to the disproportionately large increases in market interest rates by the Australian banks, relative to rises in the cash rate. In particular, a record number of homes are now in mortgage stress, and this is likely to become materially worse in coming months. The negative impact on the economy, though, will be cushioned by the fact that the households in mortgage stress typically are at the lower end of the income spectrum, and do a disproportionately low share of consumer spending. Also, the jobless rate remains at the lowest level since 1974, the government remains committed to paying another round of personal income tax relief from July, and house prices are rising strongly in most parts of the major cities. The latest rise in the cash rate is the third since November and the twelfth since 2002, and takes the cash rate target to its highest level since 1996. In the banking sector, one of the hardest hit has been Macquarie Group which on Thursday slumped $1.55 to $47 after the bank announced it was substantially winding down new lending. Macquarie pioneered the the use of securitisation to fund home loans in Australia and the withdrawal of the group marks a full-scale retreat from a model that has underwritten the rise of cheaper mortgages and a boom in on-bank lending. ABC Learning Centres experienced wild swings yesterday when it was reinstated to trading after announcing it will sell 60 per cent of its US business to Morgan Stanley Private Equity and use the anticipated $750 million proceedings to reduce debt. The stock initially surged 61c to $2.75 before reversing direction and finished 39c weaker at $1.75. Today it lost a further 28c to $1.47.
International scene -------------------
Wall Street has traded erratically over the last four trading days with the indices hitting 12-month lows. The trend was very much like our own market, with a rebound after three declining sessions and then a slide. It rallied on Wednesday. The Dow is currently trailing 226 points at 12,040 while the S&P 500 is 26 points lower at 1304. Technologies also lost grouond with the Nasdaq Composite 51 points in arrears at 2221 and the 100 index has lost 33 points to 1713. All the sessions moved in positive and negative directions during each day. The two most worrying factors in the market were indicators towards a recession and soaring oil prices. Early in the week data showed the US economy's factory sector contracted last month to its weakest level in five years. The Institute for Supply Management said on Monday its index of national factory activity fell to 48.3 in February from 50.7 in January. It was the weakest reading since April 2003, the month after the start of the Iraq war, and was also below the level of 50 that separates growth from contraction. US construction spending fell 1.7 per cent in January, led by a fall-off in private home building, government data showed in a report that marked a continued decline in the housing market. Taken together, the reports are likely to heighten fears that the US economy is heading for a recession, if not already in one. The ISM report contained some solace on the inflation front, with its prices paid index easing a touch to 75.5 in February from 76.0 in January. January's prices paid was the highest since July 2006. However, this was offset by new orders gauge slipping to 49.1 in February from 49.5. The measure of employment=home prices worsened in December, with declines in 20 of the top 25 metropolitan areas and nine markets posting double digit losses, according to a report just released. The global scene has also been unpredictable as European markets retreat, tracking Wall Street as the credit crunch batters the banking sector and new write-offs come out of left field The banking and credit woes were underlined by concerns that the largest US banking company, Citigroup Inc, needs $15bn more capital after already raising $30bn from investors including Abu Dhabi, Kuwait and Saudi Prince Alwaleed bin Talal. In addition, Citigroup and Wachovia face lawsuits from a hedge fund in a dispute over insurance derivatives contracts. The US dollar is still on the ropes against all major currencies. Federal Reserve chairman Ben Bernanke has warned that US mortgage delinquencies and foreclosures are likely to rise while home prices decline further, adding to fears of a US recession. The Fed's Beige Book seems to confirm that the US economy is in a serious downturn. The rescue of Ambac Financial Group Inc, the mortgage loan insurer, did not do much to lift confidence. Financial markets showed nervousness with erratic movements in both equities and bonds. Federal Reserve Bank of Dallas president Richard Fisher said US growth is likely to remain "sub par" through to the end of June and he isn't certain such a slowdown will curb inflation. Mr Fisher, who votes on rates this year, called his growth forecast one of the most bearish of all the Federal Open Market Committee members, who are estimating 1.3-2pc for this year. On Wall Street overnight banks, mortgage lenders and real estate investment trusts saw sharp drops in their shares. The US central bank may need to keep interest rates low for some time if extreme stresses in financial markets persist, threatening the economy, according to New York Federal Reserve President Timothy Geithner. Carlyle Capital added to worries about forced liquidations of residential mortgage-backed securities after failing to meet margin calls on its $21.7 billion portfolio. US home foreclosures hit a record late last year amid a shakedown in the sub-prime mortgage market that is taking its toll on the broader economy and forcing many of the nation's unemployed to remain on jobless benefits, data. The Mortgage Bankers Association said that the delinquency rate hit its highest since 1985 in the final three months of 2007. While the rate of failing loans swelled across most mortgages, it was led by a growing wave of sub-prime borrowers unable to make payments. In addition, The National Association of Realtors Pending Home Sales Index, based on contracts signed in January, held steady at 85.9. Economists were expecting pending home sales - which are a key gauge of future home sales activity - to fall by 1 per cent. On the brighter side, some US retailers held up better than expected in February amid a slowing economy. Wal-Mart led the way, beating its own forecast with a 2.6 per cent increase in same-store sales. Initial state US jobless insurance benefits claims tumbled by 24,000 last week to a much lower-than expected 351,000, but the number remaining on jobless aid stood at the highest level since the aftermath of Hurricane Katrina in 2005, the Labor Department reported. Economists were expecting initial jobless claims to fall to a seasonally adjusted 360,000. The number of workers staying on the jobless rolls rose to 2.83 million for the week ended February 23. In Europe, the Bank of England and the European Central Bank left interest rates unchanged at 5.25 per cent and 4 per cent respectively. ECB President Trichet cited inflationary pressures and asserted that the bank's rate is appropriate both now and in the future. In volatile currency markets, the dollar tumbled to a record low against the euro after the ECB President Jean-Claude Trichet said euro zone inflation risks were on the upside, dashing hopes of an interest rate cut in the near future. By contrast investors are expecting the US Federal Reserve to cut interest rates further as data continues to point to a deteriorating economy. Gold has been volatile on the week, almost reaching the magic $1,000 oz but later easing back to $977.10 oz on the COMEX April contract after an overnight loss of $11.40. Oil added another 83c to a record $105.47 barrel as the AUD came off to US92.65c after almost reaching US95c, a 12-year high.
Movers and shakers over the week --------------------------------
One of Ferret's most successful market movers would have to be Incitec Pivot which yesterday hit $160.50 after an 83c rise. It also posted a record of $174.01 at one stage on news it expects 2008 earnings to be up 135 per cent. The Ferret drew investors' attention to the stock back in May when the price was $55.38. Today the shares lost $2.50 to $158 to be $10 higher on the week.
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Mining services group Monadelphous Group has been hot to trot this week and yesterday climbed 86c to $12.86 after touching $12.97. This was in response to a letter of intent from BHP Billiton for a $290 million iron ore contract. Today's depressed market saw the shares decline 46c to $12.40 for a loss of 4c on the week.
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The bad news keeps coming for Allco Finance Group. Yesterday it announced the sale of most of its holdings in three Rubicon property trusts after Credit Suisse exercised its rights under a margin lending facility. Allco shares yesterday managed an 11c rise to 63c before being placed in a trading halt, but today headed south once more when major shareholder Allco Principal Investments said last night it was likely to go into voluntary administration after failing to seal standstill agreements with its margin lenders. They closed 10.5c lower at 52.5c today for a weekly loss of 34.5c. In February the shares were trading above $30.
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Another Ferret favourite has long been Sino Gold, the gold producer that was a pioneer in China. The company's resource estimate for Beyinhar is 51 million tonnes at 0.62 g/t gold, containing 1 million oz, including measured and indicated resources of 29mt at 0.63 g/t for 600,000 ozs. A mine development decision is expected in late 2008. The shares have risen strongly this week and today improved a further 5c to $11.25 - a gain of 12c for the week.
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The early market euphoria about Oxiana merging with Zinifex saw the shares jump $1.11 to $12.24 last Monday, but by the end of the week they'd fallen back to $11.25 - a rise of 5c today against the tide of selling and 12c in front for the week. Zinifex shareholders will receive 3.1931 shares in Oxiana, which rose 6c to $3.62 today but have lost 35c over the week.
