Australia Market Report July 22: Biggest Bounce In Four Months

Sydney, July 22, 2008 AEST (ABN Newswire) - Wall Street fell modestly on Monday. US investors consolidated gains from the past week's rally and mulled Bank of America's better-than-expected earnings. But it is predicted that the US growth will slow in the second half of the year as unemployment rises and stock-market declines erode household wealth, according to an index of leading economic indicators.

Yesterday, the Australian share market was 3.5 per cent higher to post its biggest single-day rise in almost four months as bargain hunters snapped up banks, property trusts and miners.

The benchmark S&P/ASX200 index jumped 171.4 points, or 3.54%, to 5011.8 and the broader All Ordinaries rallied 160.1 points to 5075.4, increasing the value of the market by about $US39 billion.
At 7.28am on the Sydney Futures exchange, the September share price index futures contract fell 32 points to 4970.

Key Economic Facts and Figures

Fresh hopes of an interest rate cut arose yesterday as strong evidence emerged that the economy and inflation may be slowing. The Producer Price Index rose by just 1per cent in the June quarter, well below expectations of 1.6 per cent.
The Australian Bureau of Statistics (ABS) said the producer price index (PPI) in the final stage of production rose 1.0% in the June quarter after jumping 1.9% in the March quarter.

Australia's annual inflation rate probably accelerated in the second quarter, reinforcing speculation the central bank will leave borrowing costs at a 12-year high. The Reserve Bank of Australia's measure of core annual inflation, the so-called weighted median, held at a 17-year high of 4.4%, according to the median estimate of economists surveyed by Bloomberg.

The chances of keeping inflation low over the medium term are good as higher borrowing costs cool the $1 trillion economy, which expanded at the slowest pace in almost two years in the first quarter, Stevens said last week.

New car sales took a U-turn to gain in June after falling in May, but grew at the slowest annual pace in 18 months, new figures show. New vehicle sales rose by 866 units, or 1.0 per cent, to a seasonally adjusted 88,917 vehicles in June from 88,051 in May, the Australian Bureau of Statistics (ABS) said yesterday.

Minister for Climate Change Senator Penny Wong today address the Australian Business Economists on the last week's Emissions Trading Scheme Green Paper. And Genworth Financial Mortgage will release its Trends Report for this year.

IPO and M&A News

Russian steelmaker Evraz is expected to launch a takeover bid for Cape Lambert Iron Ore (ASX:CFE) today, after buying a 19 per cent stake in the miner last week. Cape Lambert owns a 1.6 million tonne iron ore resource in Western Australia's Pilbara. It has already agreed to sell its project to China Metalurgical Group, which can only be prevented by Evraz launching a takeover bid.

THE chairman of BHP Billiton (ASX:BHP) has issued a veiled warning to the Australian government that its natural resources could end up being owned by the Chinese if regulators do not allow the miner to take over Rio Tinto (ASX:RIO).

Indophil Resources (ASX:IRN), under siege from of a $448 million hostile bid by its joint venture partner Xstrata Copper (LSE:XTA), has released an independent expert report deeming the offer neither fair nor reasonable. In the report Indophil is valued at $1.41 to $1.56 a share, compared with Xstrata's offer of $1.28 a share.

Important Corporate News

Murchison Metals (ASX: MMX) reported today it had mined 456,556 metric tonnes of ore in the fourth quarter, up 11 per cent on the March quarter.

Qantas (ASX:QAN) has failed to keep wage rises within its targeted range after agreeing to give aircraft engineers a rise of about 5 per cent per annum over four years. The airline's decision on Friday to slash forecast growth in flights and costs arising from 1500 job cuts has also forced many analysts to revise downwards their profit forecasts for the airline. Meanwhile, ABN Amro has been the most aggressive in hosing down its forecasts for Qantas profits in 2008-09, estimating a 40 per cent drop to just $377 million.

Orica (ASX:ORI) plans to spin off its consumer products business and has launched a capital raising of up to $900 million in a major effort to speed its transformation to a mining services company. After the demerger, mining services will account for 87 per cent of the company's earnings before interest and tax, based on pro forma 2007 earnings.

Property developer Mirvac (ASX:MGR) warned today fiscal 2009 operating earnings would fall by as much as 31 per cent. Mirvac also warned its fiscal 2009 distribution would decline by 39 per cent, dropping to an estimated 20 cents per security from an expected 32.9 cents for the last financial year.