Australia Market Report of August 22: Commodity Boom Not Over?

Sydney, Aug 22, 2008 AEST (ABN Newswire) - Yesterday, the Australian share market closed lower after falls from the financial sector, with Babcock & Brown (ASX:BNB) suffering a heavy loss amid a drop in interim profit. Analysts said that some of the reports out yesterday were slightly negative, despite some coming out with higher profit the forward earnings would be under pressure.

The benchmark S&P/ASX200 index was down 54.3 points, or 1.1 per cent, to 4875.2, while the broader All Ordinaries lost 47.9 points, or 0.96 per cent to 4949.6.

Today the dollar has opened higher, breaking through $US0.8800 for the first time in 10 days after rising commodity prices and further credit market concerns weakened the US dollar. At 7am AEST, the dollar was trading at $US0.8806/10, up more than half a US cent from yesterday's close of 0.8745/48.

At 7.12am, the Sydney Futures Exchange's September share price index futures contract was up 31 points at 4875.

Key Economic Facts and Figures

Academic and Reserve Bank of Australia board member Warwick McKibbin says fears that the commodity boom is ending are exaggerated, as growth in China and India will support demand despite a threat of recession in major developed economies. He also said slowing growth in Europe and Japan and a recession in the US should push the world oil price down to $US80 a barrel.

The Australian Bureau of Statistics (ABS) said Taxes and oil prices are in the mix somewhere, but the main reason vehicle sales are falling is that the economy is weak. Motor vehicle sales were down by 3.4 per cent, with other passenger vehicle sales down by 2.1 per cent and 4WD sales down 12 per cent.

Reserve Bank of Australia figures show annualised growth in credit card use has slowed to 4.7 per cent, the slowest in 14 years of recording data.

Home loan interest rates could sink to 8 per cent within a year as the Reserve Bank responds to a cooling economy with a new round of rate cuts. An economist of Macquarie Bank said he expected inflation to become less of a concern for the bank as the domestic economy cooled.
M&A News

Macquarie Infrastructure Group (ASX:MIG)(NYSE:MIC) will attempt to restore investor confidence with the proposed sale of a 50 percent stake in Sydney's Westlink M7 and a A$600 million buyback. Transurban (ASX:TCL) probably will be a contender for the 50 percent share of the asset, which has an A$800 million price tag.

By all indications, Indophil Resources (ASX:IRN) boss Richard Laufmann and Hong Kong merchant bank Crosby Capital (HKG:8088) have won the battle for Indophil, with Xstrata (LSE:XTA) announcing it will not extend its competing takeover bid. The recently improved bid from Stanhill Resources, which comprises Crosby, Mr Laufmann and other Asian and Middle Eastern investors, will be the only one standing after.

Important Corporate News

Caltex Australia (ASX:CTX) has reported a 33% fall in first-half earnings, due to lower refinery production, but says refiner margins are expected to remain robust in the future. Net profit excluding significant items and inventory gains was A$354 million, down from A$368 million.

Insurance Australia Group Ltd (ASX:IAG) has reported a A$261 million loss for the year, but says the current financial year would bring an improved performance. The net loss represents a drop of 147 per cent on the prior year's result of A$552 million the previous year, the bank noting that the result was in line with earlier guidance.

Kingsgate (ASX:KCN) has posted a net profit of A$36.2 million for the year ended June 30, turning around last year's loss of A$12.6 million. Its gold production for fiscal 2009 is now forecast to be between 100,000 and 140,000 ounces.