Friday, May 02, 2008; Posted: 02:38 AM
There have been some jumbo takeovers during the week with British Gas, or BG Group, bidding $12.9 billion for Origin, Chinese company Sinosteel looking to have taken out Midwest Corporation and Insurance Australia Group having raiders knocking on its door.
The market absorbed it all calmly and clearly showed a flatter trend this week until today.
The ASX 200 was down a mere 1.5 points after four days, but today climbed 114.6 points to 5700.4 to make a gain of 113.1 for the week.
The broader All Ordinaries index advanced 101.7 points over the week after today's improvement of 107.7 points to 5760.4.
This was in contrast to last week when prices advanced more 150 points on the two indices.
Meanwhile, it's obvious that the US Federal Reserve is more concerned about growth, reflected by 0.6 per cent GDP, rather than inflation which the Fed believes will moderate as consumer strength weakens in the economic slowdown.
The FOMC meeting decision to cut rates again by 25 basis points to 2 per cent was pretty much expected and the subsequent statement for its action was more subdued than anticipated.
ANZ's Sally Auld, co-head of Australian Economics and Interest Rate Research, suggests the downward cycle is not finished yet, and the ANZ believes it could trough at 1.5 per cent, still above the end of the last down cycle which saw 1 per cent in 2004.
Why this is important to us is that the US dollar is sliding and the AUD is strengthening, widening the differential rate between the two.
It makes it that much harder for Australian exporters but good for Australians travelling abroad.
In contrast, Australian financial markets have faced a series of rate rises to keep inflation under control.
At this stage inflation is still above the target range of around 3 per cent, but the RBA seems to be having some success in getting on top of it when data released mid-week showed private sector credit growth of 0.8 per cent in March.
It pulled the annual rate down 0.5 to 14.9 per cent - the lowest level in 12 months.
But any further increases in interest rates does not augur well for housing, which showed sales of new homes and apartments dropped by 6 per cent in March, the second consecutive decline, indicating that the higher rates are biting into the community.
The big jump in crude oil has also slowed consumer spending in the retail sector.
However, motorists have had a bit of a break this week from a peak of a near $120 barrel to see the price back to around $110 barrel, equating something like $1.40 a litre.
Stock market investors are starting to show more caution ahead of the Labor Party's first budget since gaining office
But as usual a lot of the unpalatable parts are leaked to the media to get a reaction and if the clamour is too much the offending portion can be excised by the Treasurer before the Budget is brought down on Tuesday week.
Already the media has labelled it a Robin Hood Budget, taking from the rich to give to the poor.
In the market the the ATO's Wickenby investigation is gathering pace and should put the frighteners on a number of personality names involved in schemes to avoid tax.
International scene -
In one session Wall Street has switched into positive territory after trailing for much of the week.
On the four trading days, the Dow is up 118 points at 13,010 while the S&P 500 is 12 in front at 1409, the Nasdaq Composite is ahead 58 at 2481 and the 100 index has gained 62 points to 1980.
The previous session saw the cut to interest rates by the US Federal Reserve fail to inspire investors and Wall St finished in the red.
Earlier in the day trading had been bouyant but fell back following the announcement.
Analysts detected hints in the statement that the Fed's rate-easing cycle may be coming to an end.
The Fed statement said in part: "The Committee expects inflation to moderate in coming quarters, reflecting a projected levelling out of energy and other commodity prices and an easing of pressures on resource utilisation.
"Still, uncertainty about the inflation outlook remains high.
"It will be necessary to continue to monitor inflation developments carefully," the statement said.
Despite the rate cut, financial markets still continued to worry aboout the housing market and weaker consumer spending.
Gross domestic product grew at a 0.6pc annual rate in the first quarter, the Commerce Department said.
Whilst it was better than forecasts of 0.2pc growth, it came largely on the back of a build up in inventories.
The report from ADP Employer Services and Macroeconomic Advisers showed jobs growth in the US is at a standstill.
Data revealed a rise in private sector employment of only 10,000 jobs in April.
Manufacturing and construction employment continues to be weak. Adding to the industrial gloom the National Association of Purchasing Management Chicago's business barometer continues to show contraction, being below the benchmark of 50 which separates contraction from expansion.
The measure edged up to 48.3 in April from 48.2 in March.
A 9.4pc rise in General Motors helped the Dow minimise its fall.
The Fed has cut rates by 200 basis points so far this year to try and prevent the credit market crisis from spreading to the wider economy.
Overnight, the Institute for Supply Management said US factory activity declined in April but retrenchment levels remained steady.
Its index of national factory activity was unchanged in April from March at 48.6.
US construction spending fell 1.1pc in March, the Commerce Department said, with private home building suffering a record decline of 4.6pc.
Construction spending is at its lowest level since June 2005.
Personal spending rose by 0.4pc in March, twice as much as forecast by analysts and despite the economic problems.
The Commerce Department said that personal income was up 0.3pc in March.
The number of workers filing initial claims for unemployment benefits rose 35,000 last week, and the number of workers remaining on jobless benefits climbed to a four-year high, the Labor Department said.
Initial claims for jobless benefits increased to a seasonally adjusted 380,000 in the week ended April 26, from a revised 345,000 the previous week.
In the market Mars agreed to acquire Wrigley for $80 a share, or about $23 billion.
Financing for the transaction will be provided by Goldman Sachs, JP Morgan and Warren Buffett's Berkshire Hathaway.
Mr Buffett, speaking in an interview with CNBC, expressed his doubts about the extent of the looming US recession.
"My general feeling is that the recession will be longer and deeper than most people think," he said.
In other aquisition news Kirk Kerkorian's Tracinda investment firm said that it would make a tender offer to buy up to 20 million shares in Ford for $8.50 a share.
Ford shares jumped 9.5pc with the greatest turnover on the day.
General Motors reported a quarterly loss that was less than expected amid increased sales Asia and Latin America.
Commodities have had a bad week with grains falling including wheat with a stronger greenback triggering a major selloff on the London Metals Exchange.
US gold futures ended sharply lower overnight after briefly trading below $850 an ounce due to a big rally in the dollar and a surge in selling by the trade and short-sellers.
The COMEX June contract settled down $14.20, or 1.6 per cent, at $850.90 an ounce.
The June contract has now erased all its gains year to-date.
Movers and shakers for the week -
The engine room to build up the revs in the Coles Group to head rival Woolworths has now been finely honed and managing director Richard Goyder of Wesfarmers is confident of winning the race with a new team on board and justify his new $18 billion acquisition.
Mick McMahon, currently chief operating officer of Coles, will take up a new senior position after Ian McLeod starts later this month as managing director of the Coles division of Wesfarmers.
Shares of Wesfarmers rose 45c to $37.20 today, lifting the gain for the week to $1.11.
Telstra shares moved 9c higher on the week after the G9 consortium which is supposed to build the Government's $8 billion-plus national broadband network, begins to unravel.
It is reported that the consortium might not even tender.
Telstra is now making noises about going it alone and most analysts believe it is the only company that could do the job.
Its shares edged up 1c to $4.63 today, adding to yesterday's 6c advance.
Gail Kelly, the new boss of Westpac Banking Corporation has started well with the bank yesterday reporting a 34 per cent rise in net profit to $2.2 billion in the half year to January 30, but this excludes gains from the Visa and BT Investment IPOs.
Cash earnings rose 10 per cent to $1.84 billion.
Ms Kelly is expecting slower profit growth but says her bank is on track to increase earnings 10 per cent this year to $3.8 billion.
But the market seemed a little sceptical and at one stage the shares were down 35c after initially surging 61c after the profit announcement.
Today they climbed $1.30 to $25.85 to be 96c firmer on the week.
Atlas Iron, one of Ferret's favourite mining explorers, saw a flurry of action during the week with the price surging to more than $3 and triggering a please explain from the ASX.
The company put the market interest down to a review by investment bank Merrill Lynch which put a $6 price tag on the stock.
In the meantime Atlas has joined the rail access debate in Western Australia's Pilbera by lodging a submission in favour of third party access to the Goldsworthy railway.
The shares have risen every day this week and at today's closing price of $3.37, up 21c, they are $1.05 ahead of last Thursday's close.
Sometimes share market movements are a bit puzzling. AGL Energy has sold its Chilean gas distribution business for $90 million and should pocket a net figure of $74 million but its shares fell 38c to $12.12 yesterday on the news.
On the week the shares have fallen 33c after rising 31c to $12.40 today.
rweabn.com.au
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