Australia Market Report of August 18: Resource Sector Under Pressure

Sydney, Aug 18, 2008 AEST (ABN Newswire) - Wall Street ended a volatile week with a mixed showing on Friday as worries about credit markets and declines in most commodities, including oil and gold.

The Australian share market closed flat on Friday with the benchmark S&P/ASX200 index rising 0.6 of a point to 4,981.7, while the broader All Ordinaries index lost 0.1 of a point to 5,038.9.

Oil fell to its lowest price in three months and settled down $US1.24 to $US113.77 on Friday after the US dollar gained and OPEC predicted global demand for the fuel next year will fall to its lowest since 2002. Economists said resource shares are likely to remain under pressure, dragging the rest of the Australian share market down. The Australian dollar is likely to decline further as falling interest rates and commodity prices weigh on the currency.

At 0700 AEST, the Australian dollar was trading at $US0.8665/72, up from Friday's close of 0.8627/30.

At 0655 AEST, the Sydney Futures Exchange's September share price index futures contract was down eight points at 4,930.

Key Economic Facts and Figures

This week investors will also be focused on Tuesday's release of the Reserve Bank's minutes from its August board meeting. Other economic reports this week include Australian Bureau of Statistics (ABS) international merchandise imports data for July, the Melbourne Institute's quarterly wages report and Westpac and Melbourne Institute's leading index of economic activity for June.

Treasurer Wayne Swan said on ABC television that commercial banks should pass on any Reserve Bank of Australia cash rate cuts to mortgage borrowers as well as recent reductions in international borrowing costs. But Commonwealth Bank of Australia CEO Ralph Norris yesterday said the credit crunch will last at least another 12 to 18 months.

Profits at smaller companies are more likely to suffer from a slowdown in the economy, according to a UBS report. Earnings estimates have been revised an average 6.3% lower for small cap companies.

M&A News

Commonwealth Bank (ASX:CBA) will be expected to make a A$6 billion-plus bid at BankWest in the wake of its abrupt decision last week not to buy the Australian investment banking operations of ABN AMRO. BankWest could attract a price of between A$5 billion and $7 billion. There are understood to be few competition or regulatory hurdles to a bid by CBA.

Telecom NZ (ASX:TEL) might buy Perth Internet service provider Amcom (ASX:AMM) gained momentum last week after a big stake-holder in the ISP announced it would sell its shares. The sale, expected to be completed at the end of the financial year, would create an opportunity for Telecom to take a controlling stake in Australia's third-largest ISP iiNet.

Important Corporate News

Ansell (ASX:ANN), the world's top rubber gloves maker, reported a 2.6% rise in full-year net profit and predicted 6-12% earnings growth in fiscal 2009. Ansell posted a net profit for the year ended June 30 of A$102.6 million, compared with A$100.0 million a year earlier.

BlueScope Ltd (ASX:BSL) has reported a fall in annual profit after booking one-off charges, but its underlying result lifted as strong global demand for steel raised prices and offset rising raw material costs. Reported net profit for 2007/08 fell 13 per cent to A$596 million, from A$686 million in the previous year.

Seek Ltd (ASX:SEK) has lifted full year profit by 37 per cent, and says its confident of improving profitability further in the current year. Seek on Monday reported net profit for the 2008 financial year of A$76.3 million, up from A$55.5 million in the prior year.

Drilling services and products provider Imdex Ltd(ASX:IMD) has lifted its annual profit by 73 per cent and says it expects revenue in the new year to grow by up to 20 per cent. Reported net profit for the year ended June 30 was A$22.08 million, up from A$12.73 million in the previous year.