Australia Market Report on July 16: Market Absolutely Savaged

Sydney, July 16, 2008 (ABN Newswire) - The Australia share market plunged just over 2 per cent yesterday to close at its lowest level in two years, after the US reignited world economic jitters by proposing to bail out US mortgage giants Freddie Mac and Fannie Mae.

The benchmark S&P/ASX200 index lost 105.3 points, or 2.14 per cent, to 4815.7, marking its worst level since February 17, 2006. The broader All Ordinaries dropped 97.8 points to 4910.1.

Local energy stocks are expected to suffer from a large dip in the oil price. Particularly hard hit in yesterday's rout was the banking sector, falling more than 3.5 per cent. The market was 30 per cent below its peak in November. Investors and superannuation accounts have now lost $415 billion in the past nine months.

And the situation is likely to worsen with most market watchers tipping further falls over the next few months.

Key Economic Facts and Figures

The Westpac/Melbourne Institute leading index of economic activity for May is released.

Australia's massive terms of trade boost of $45 billion - the windfall from the higher iron ore and coal prices achieved earlier this year - will bring the equivalent to $2250 for every man, woman and child into the country.

If this helps stimulate domestic demand - as some economists fear - then a rate hike could be back on the cards for later this year.

It would take a huge jump in June quarter CPI figures, out next week, for a rise to be considered any time soon.

Experts say CPI, now at 4.2 per cent, would have to increase to almost 5 per cent for a rise to be considered.

However, the Reserve Bank is unlikely to consider a rate cut with such a focus on inflation and uncertain inflationary outlook, even though it has acknowledged the sharp slowdown.

Higher petrol prices and tighter financial market conditions are working to slow demand and restrain inflationary pressures, according to the minutes of the central bank's last board meeting.

Core inflation in the year to March grew by 4.25 per cent, which was well above the RBA's two to three per cent target.

Higher petrol prices were expected to contribute a quarter of a percentage point to CPI inflation in the June and September quarters. Conversely, the labour market was forecast to show signs of softening.

IPO and M&A News

Indonesia's PT Bumi Resources Ltd. seems set to win control of Herald Resources Ltd(ASX:HER). with a 563.5 million Australian dollar (US$547.7 million) bid, ending a six-month takeover tussle for the Australian base-metals group. PT Aneka Tambang and China's Shenzhen Zhongjin Lingnan Nonfemet Co. said Tuesday they will accept Bumi's A$2.85-a-share offer for the 38.3 million shares they own in Herald, representing a 19.4% stake. Antam and Zhongjin had also bid for Herald, through investment vehicle Tango Mining Pte. Ltd., but said they won't increase their A$2.80 a share offer.

Citic Resources Holdings (HKG:1205) lifted its stake in Macarthur Coal to more than 20 per cent, overtaking the world's top steelmaker ArcelorMittal(NYSE:MT) as the Australian miner's biggest shareholder. The move sends a clear signal that Citic Resources will not give up its influence over the coking coal company and underscores an increasingly tough battle to secure commodities in resource-rich Australia.

Phil Falcone's Harbinger Capital is expected to have dominated yesterday's frenzied buying of Midwest Corp shares in a move that will further dent Sinosteel Corp's hopes of securing more than a simple majority stake in the WA iron ore aspirant.

Important Corporate News

Westpac Banking Corporation (ASX:WBC) has lifted its standard variable mortgage rate by 14 basis points. The bank's standard variable rate home loan will rise to 9.61 per cent, effective from July 17. Westpac said its rate rise reflected volatility in global funding markets, which continued to affect the bank's average cost of funds.

Woolworths (ASX:WOW) today announced full year sales from continuing operations of $47.0 billion. This represents an increase of $4.6 billion (10.7%) on the previous year. 2008 has been an extremely rewarding year with our business performing well overall. The significant re-investment in each of the businesses will continue to drive future growth.

Bathurst Resources Limited (ASX:BTU) signed an Agreement to acquire 100% of C&R Holding of Eastern Kentucky LLC, a company with coal mining and exploration interests in the Appalachian Basin Coal Field in Kentucky, USA.