Australia Market Report July 29: A Tougher Week for Banks

Sydney, July 29, 2008 (ABN Newswire) - US stocks were pulled into a downdraught overnight as jitters re-emerged about the financial system after news of the closure of two regional banks by federal regulators. Wall St fell 2% on predictions the worst of the housing crisis was yet to come.

The Australian share market continued its losing streak yesterday, falling almost 1% after the financial sector fell on concerns about ANZ Bank's increased debt provisions. The biggest five banks have lost A$29.1 billion in market cap in two days, according to Bloomberg data. Australia's biggest banks may probably continue to suffer in the global economic gloom, while the bad news came amid another horror day for banking stocks.

Yesterday the benchmark S&P/ASX200 index shed 48.4 points, or 0.97%, to 4922.1, while the broader All Ordinaries dipped 39 points to 4989.9.

At 6.42am on the Sydney Futures exchange, the September share price index futures contract dropped 91 points, or 1.84%, to 4846.

Key Economic Facts and Figures

On Wednesday the Australian Bureau of Statistics (ABS) will release its estimate of building approvals in June. The May figures showed the lowest number of residential building approvals for a year, nine per cent below the past decade's average. The latest consumer price index (CPI) figures showed housing rents rose eight per cent over the year to June, nearly twice the rate of other consumer prices. There was a bounce back in the number of sales by big building firms in June, according to Housing Industry Association of Australia (HIA) estimates. But sales remained low - the four per cent rise in June failed to offset a five per cent fall in May and left the total down by three per cent from a year before.

The National Australia Bank business confidence expectations index slid by 4 points to -8 points, it has fallen to its lowest level since the 1991 recession as sharemarket turmoil and higher interest rates worry the captains of industry. Expectations for the September quarter fell as one-third of firms expected conditions to worsen, particularly in the building and property sectors.

The rout in sharemarkets and falling assets values helped push the median of balanced funds' losses to 3.9 per cent in June, says industry ratings firm SuperRatings. Superannuation funds have posted their worst performance since compulsory super was introduced in July 1992. The median loss for the year to June 30 was 6.4 per cent for balanced investment funds -- those funds that spread their investments around a range of different asset classes.

IPO and M&A News

Evraz Group, a mining firm part-owned by Russian billionaire Roman Abramovich, has failed to block acquisition target Cape Lambert Iron Ore (ASX:CFE) from selling a A$400 million project to China Metallurgical Group Corp. Shareholders in Cape Lambert, an Australian miner 19 per cent held by Evraz, approved the disposal, the company said in a statement yesterday.

US investor Philip Falcone is investigating offers for his stake in Fortescue Metals (ASX:FMG). Analysts believe that Falcone to offload some of his stake in Fortescue was not an indication of a swing away from the commodity. "We continue to be very bullish on commodities, both iron ore and coal, but we think there are better ways to capitalise on this other than by acquiring Alpha," Mr Falcone said.

Important Corporate News

Santos Ltd (ASX:STO) has appointed its current acting chief executive David Knox as CEO and managing director of the oil producer, effective immediately.

Due to the global economic downturn and turmoil in financial markets, ANZ (ASX:ANZ) will delay its strategy of becoming a super regional bank. ANZ chief executive Mike Smith revealed that a A$1.4 billion blowout in provisions would slice 2008 profit by up to 25 per cent, conceded yesterday that the depressed price of ANZ shares meant that "right now I can't afford Asian businesses".

The incoming Qantas (ASX:QAN) boss Alan Joyce yesterday pledged to continue the airline's strategy to cede more Qantas domestic routes to its low-cost carrier Jetstar. He also said he would not be afraid of converting Jetstar routes to Qantas routes in a bid to catch the business market.