Australia Market Report of September 8: Growth Forecast Turnaround

On Friday, the Australian share market fell more than 2% as major banking and resources stocks felt the impact of renewed concerns about the health of the global economy. The benchmark S&P/ASX200 finished down 102.4 points, or 2.06% to 4877.1. The broader All Ordinaries lost 101.4 points, or 2.01% to 4949.5.

Last Friday Wall St closed higher with the US government bailout of mortgage providers Fannie Mae and Freddie Mac likely to calm investor nerves over global market turbulence. However, local resources stocks will be under pressure as the oil price fell on Friday and base metal prices also weakened.

At 0700 AEST, the Australian dollar was trading at $US0.8279/82, up from Friday's close of 0.8175/79. By 0747, it had risen further, trading at $US0.8332/8336.

Oil prices sank to a five-month low on Friday as a jump in the US unemployment rate signalled to traders that Americans might keep paring back energy use. Light sweet crude for October delivery fell $US1.66 to settle at $US106.23 a barrel on the New York Mercantile Exchange. This was its lowest settlement since early April. During the session, it fell as low as $US105.13.

Key Economic Facts and Figures

The Reserve Bank is tipped to increase its economic growth outlook today while still leaning towards easing interest rates, as the economy navigates strong business investment but tight domestic financial conditions. However, the financial markets are still strongly backing the chance of an October interest rate cut, with the futures market pricing it as an 80 per cent chance. The prospect of stronger growth comes after an unexpected surge in capital expenditure and plans by business to invest up to A$100 billion in the next year. A change to the growth forecast would be a turnaround for the RBA, which has predicted growth will remain under 3 per cent until 2010.

The Olivier Job Index declined 3.54 per cent, in line with worsening economic conditions, with 14 of the 16 industry sectors surveyed falling in the month. The survey indicated that the worst falls were in human resources, down 8.40 per cent, accounting down 8.24 per cent, IT&T which dropped 8.28 per cent and financial services and banking, down 7.92 per cent.

Today Reserve Bank of Australia Governor Glenn Stevens addresses the House of Representatives Standing Committee on Economics in Melbourne, and may comment on the US government bailout. ANZ Banking Group releases its job advertisements data for August.

M&A News
St George Bank's (ASX:SGB) board is expected to give final endorsement to Westpac's (ASX:WBC) A$18 billion-plus takeover offer this week. A report by independent expert Grant Samuel commissioned by the St George board will be lodged with the Australian Securities and Investment Commission. It is understood a draft of the report supports the deal.

ConocoPhillips (NYSE:COP) said Monday it agreed to pay up to US$8 billion for a half share in the coal seam gas assets of Origin Energy Ltd. (ASX:ORG) and an associated liquefied natural gas project in the Australian state of Queensland. Origin has rejected a US$13.83 billion takeover offer from BG Group PLC (LON:BG) and has been looking for another major player to buy into its coal seam gas fields and help drive its planned coal seam gas-fired LNG development.

Tower Australia (ASX:TAL) shareholders have threatened to stop an attempt by corporate raider Ron Brierley's Guinness Peat Group (LON:GPG) to sell its remaining 9.8 percent interest in the company. Japan's Dai-ichi Mutual Life Insurance Company plans to buy GPG's entire 29.7 percent stake in Tower.

Important Corporate News

City Pacific(ASX:CIY) risks losing control of its flagship A$1 billion unlisted fund amid fresh calls for First Mortgage Fund to cut its ties with the stricken property group, which it pays A$30 million a year in "management fees". City Pacific has blocked its 10,000 unit holders from redeeming deposits.

Grain trader AWB Limited(ASX:AWB) said the company can still make a profit from wheat trading despite having lost its export licence. AWB was stripped of its monopoly over bulk wheat exports earlier this year, after it was caught making illegal payments of almost A$300 million to Saddam Hussein's Iraqi government under cover of a UN humanitarian program.

Michelle Liang
Asia Business News Asia Bureau
Tel: +61-2-9247-4344


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