Australian Market Report of December 19: Pre-Christmas Not Really Quiet

Overnight Wall Street closed lower as investors sold off the stocks in the last two hour of the trading session after the sharp plunge in oil prices despite OPEC announcing a major production cut.

Yesterday the Australian shares ended flat as weaker Commonwealth Bank and energy stocks weighed on the market. The benchmark S&P/ASX200 index was up 10.6 points, or 0.3 per cent, at 3,581.2, while the broader All Ordinaries index gained 6.7 points, or 0.19 per cent, to 3,521.7. It could be fairly quiet during the pre-Christmas sessions. But the local market may be hit by the dropping commodities prices and the fears on US auto industry as US government has admitted that orderly bankruptcy can be one of the options for the troubled automakers.
At 0823 AEDT on the Sydney Futures Exchange, the March Share Price Index futures contract was down 37 points at 3,535.

The Australian dollar has opened lower after weak US equity markets and poor economic data caused investors to return to US dollar buying. At 7am AEDT, the dollar was trading at $US0.6943/49, down from Thursday's close of $US0.7039/45.

Oil prices tumbled to their lowest points for more than four years, diving under $US38 per barrel in New York, as traders suggested that OPEC would not fully enforce a record output cut. On the New York Mercantile Exchange, light sweet crude for delivery in January settled down $US3.94 at $US36.22 a barrel ahead of the contract's expiry overnight tonight.

Key Economic Facts and Figures

The total value of credit and charge card transactions, including advances, rose in October, figures from the Reserve Bank of Australia (RBA) show. Australians spent $19.418 billion on their credit and charge cards in October, compared with $19.191 billion in September, a rise of 1.2 per cent.

The Australian Chamber of Commerce and Industry and Westpac survey of industrial trends, released yesterday, showed pessimism among businesses had plummeted to 18-year lows, matching sharp declines in key economic indicators including demand, output, employment and investment. The survey predicted rougher times ahead, with weaker employment and manufacturers' profit expectations falling to a 20-year low.

M&A News

Qantas Airways Ltd(ASX:QAN) says its talks with British Airways (LON:BAY) about a potential tie-up have ended after the airlines were unable to agree on key terms of a merger.

Australia's biggest general insurer, Insurance Australia Group Ltd (ASX:IAG), has agreed to sell its mass market distribution business in the UK for STG73.5 million. IAG will sell its UK insurance branch network to Swinton Group for STG50 million and the Hastings and Advantage businesses through a management buy-out for STG23.5 million.

Broking analysts said Macquarie DDR Trust(ASX:MDT) may need to sell half of its total portfolio to avoid breaching any bank covenants, as the trust struggles with the problems gripping some of its US retail tenants, such as Circuit City, which recently filed for bankruptcy protection.

Wuhan Iron & Steel(SHA:600005) is taking a 15 per cent stake in Centrex(ASX:CXM) for A$9.7 million and will buy half of some of its projects in South Australia for up to A$180 million to secure future iron ore supply.

OZ Minerals Ltd. (ASX:OZL) says it's considering a potential sale of the company or a stake in any of its assets as it struggles to refinance debt with a consortium of banks.

Important Corporate News

AGL Energy Ltd(ASX:AGK) has upgraded its net profit guidance for the 2009 financial year following share and asset sales. AGL's revised guidance increases net profit by A$10 million, following the sale of its shares in Queensland Gas Company Ltd(ASX:QGC) and its oil and gas interests in Papua New Guinea.

Refiner Caltex Australia(ASX:CTX) has upgraded its guidance for operating earnings for 2008, due to a weaker Australian dollar. But its operating profit on a replacement cost of sales basis is forecast to be well down on 2007.

Ten Network Holdings(ASX:TEN) has slashed its dividend by 80 per cent, as it announced a sharp fall in first-quarter profit and a slashing of costs, including staff cuts.

ANZ(ASX:ANZ) has flagged a potential fund-raising to cushion worsening bad-debt levels as corporate defaults will increase next year. The ANZ board also said the bank has no plans to cut dividends but did not rule out such a move.


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


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