Australia Market Report of July 24: Overall Sentiment Fragile

Sydney, July 24, 2008 (ABN Newswire) - The US stocks rose modestly overnight amid another sharp decline in crude oil prices. Analysts said the market also got a lift from prospects for passage of a major housing relief bill after the White House dropped its threat of a veto.

Australian financial stocks is likely to continue gains on improved sentiment towards the sector in overseas markets, though weaker oil and metals prices may weigh on resource stocks. Analysts have cautioned that despite recent market gains, overall sentiment was still fragile and a further spike in energy prices or more bad news out of credit markets could trigger a fresh wave of selling.

The benchmark S&P/ASX200 index was 99.7 points, or 1.99 per cent, higher at 5105.3, while the broader All Ordinaries put on 85.7 points, or 1.69 per cent, to 5161.6. September share index futures stood 0.5% or 28 points higher at 5129.

Key Economic Facts and Figures

Figures released yesterday showed headline and underlying measures of inflation were above Reserve Bank forecasts for the June quarter. In its May Statement on Monetary Policy the RBA predicted the CPI would reach 4.25 percent in the June quarter and 4.5 percent in the second half before easing to 2.75 percent by the end of 2010. According to Australian Bureau of Statistics data however, the CPI reached 4.5 percent in the second quarter, with underlying inflation up 4.4 percent, above the RBA's peak of 4.25 percent. A Melbourne Institute consumer survey released earlier this month indicated an expectation for inflation to reach 5.9 percent.

After the Bureau of Statistics reported yesterday that consumer prices climbed 4.5% in the year to June, market economists agreed that while the numbers were bad, they were not so bad as to force the Reserve to change course.

In the June quarter, petrol shot up 8.7% in three months, and bank fees and charges increased 9.5% because of rises in lending margins and a correction by the bureau for undercounting in previous quarters. The bureau's detailed data, however, show that inflationary pressures are widespread, with 50 of its 90 product types recording price rises of 3% or more.

Australian exports are forecast to grow over the next financial year with rural commodities expected to be a strong player as world food demand soars. Last financial year Australia's two-way trade in goods and services was valued at $443.6 billion, or about one per cent of total world trade. The Australian Bureau of Statistics (ABS) has reported that slower global growth and the higher exchange rate is expected to subdue Australian exports of elaborately transformed manufactures and services in 2008-09.

M&A News

Citic Resources Holdings (HKG:1205) may offer as much as US$10 billion for the coal-gas assets of Australia's Origin Energy (ASX:ORG), highlighting the mainland's growing thirst for new energy sources. The sale is aimed at thwarting a US$13.4 billion hostile takeover of the firm from BG Energy, Britain's third-largest oil and gas company. BG offered A$15.50 (HK$117.86) a share for Origin and is trying to gain shareholder support after the bid was rejected on July 4 as too low.

Solomon Lew has offered the takeover target Just Group (ASX:JST) with a sweetened bid aimed at sealing the deal within a month. The new and final offer gives Just shareholders A$2.25 in cash and 0.25 shares in Premier for each Just share.

THE competition regulator has given tacit approval to the A$19 billion merger of Westpac (ASX:WBC) and St George Bank (ASX:SGB).

Important Corporate News

Brewer Lion Nathan Ltd (ASX:LNN) is confident of its ability to step up earnings in fiscal 2009 and expects net profit to be between A$295 million and A$315 million. The company also confirmed its profit guidance for the 12 months to September 30 will be A$265 million to A$275 million.

Newcrest Mining (ASX:NCM) has reported a slight fall in fourth quarter gold production from the previous quarter. The company said gold production in the three months to June 30 fell 1 per cent to 435,120 ounces compared to the third quarter.

Banks have permanently "decoupled" from the RBA and its interest-rate decisions, according to the National Australia Bank (ASX:NAB). Boss of retail banking Andrew Thorburn said that even if the central bank starts cutting rates, retail banks may not follow.