Australia Market Report of August 20: Commodity Prices Under Pressure

Yesterday, the Australian share market closed more than two per cent lower, dragged down by the resource and financial sectors and a weak lead from Wall Street. Banks and financials reacted poorly to news regarding troubled US mortgage lenders Fannie Mae and Freddie Mac.

The benchmark S&P/ASX200 was down 118.6 points, or 2.38%, to 4866.4, while the broader All Ordinaries dropped 113.1 points, or 2.24%, to 4930.4.

At 6.55am, the Sydney Futures Exchange's September share price index futures contract was down 35 points at 4827.

The Australian dollar has opened higher, climbing back above $US0.8700 as oil prices rose and the US dollar weakened. At 7am AEST, the dollar was trading at $US0.8718/22, up from yesterday's close of 0.8642/45.

Key Economic Facts and Figures

The Australian Bureau of Statistics (ABS) said merchandise imports into Australia rose five per cent in July in seasonally adjusted terms. In unadjusted terms, merchandise imports rose A$2.14 billion, to A$19.66 billion, from a downwardly revised A$17.516 billion in June.

According to ANZ Bank (ASX:ANZ), commodities prices may drop faster next year, pressured by slumping global demand and a strengthening US dollar. ANZ sees the price of iron ore, Australia's principal export to booming China, falling 10% in 2009 and again in 2010. Nickel is set to fall by one-quarter this year, then 9% in 2009 and a further 19% in 2010.

In the minutes from its latest meeting, the RBA said domestic demand had slowed in recent months due to rate increases and rising living costs, while household net worth had dropped almost 5 per cent this year due to sharemarket losses and flat house prices. The minutes also warned of a wages break-out, but a Melbourne Institute report released yesterday showed that pay gains had slowed to 4.9 per cent in the year to August after expanding 7.5 per cent in the year to May. The Housing Industry Association said interest rate cuts would not boost construction rates until next financial year.

In news today, the Westpac/Melbourne Institute leading index of economic activity for June will be released, and the Department of Education, Employment and Workplace Relations (DEEWR) will release its skilled vacancies survey for August.

M&A News

Commonwealth Bank of Australia (ASX:CBA) is close to buying a share of John Symond's Aussie Home Loans in a deal that would value the mortgage broker at more than A$200 million. CBA is reportedly considering taking a stake of up to 40 percent in Aussie.

Premier Investments has increased its stake in takeover target, Just Group(ASX:JST), to 68.4 percent. For shareholders to be paid an additional 15 cents per share, Premier Investments will need to acquire 90 percent of the clothing retailer by August 22.

British oil and gas giant BG Group (LSE:BG) says that its 8.2 billion euro ($A13.89 billion) hostile takeover bid for Australia's Origin Energy (ASX:ORI) represented "full and fair value." Origin had earlier urged its shareholders to reject the offer arguing that it had undervalued the company and its prospects.

Important Corporate News

Macquarie Airports (ASX:MAP) has delivered a half year net loss of A$274 million, but says the outlook for the rest of the year is solid. The company said that, despite poor economic conditions, long term traffic growth was expected at four per cent to five per cent.

AGL Energy Ltd (ASX:AGK) has posted a 44.2 per cent fall in its annual reported profit, but Australia's biggest gas and electricity supplier maintained its guidance for underlying earnings for this year. Net profit 12 months to June 30 fell to A$229 million, from A$410.5 million the year before, the Sydney-based company said in a statement.

Engineering contractor Macmahon Holdings Ltd (ASX:MAH) expects its profit for this year to grow at the higher end of its 20 to 30 per cent guidance range, after reporting a lift in full year earnings. Macmahon reported a net profit for the 12 months to June 30 of A$48.7 million, up 9.7 per cent on the prior corresponding period.


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