US Stocks had their biggest fall since the 1987 crash after the largest drop in retail sales for three years and a record low manufacturing number confirmed the worst fears for a US recession. The focus has moved from the financial stabilization packages to the first quarterly fall in consumer spending in 17 years. The US GDP number is two thirds comprised by consumer spending. Economic releases were compounded by a depressing speech on the outlook from Bernanke. Energy sector fell the most – down 15.5% - on a recession led fall in the oil price. Oil down 5%, gold down a touch. Bonds up. Resources down 12.1% and commodities down 4.5% overall. BHP and RIO hammered – down 17.15% and 20.48%. Exxon Mobil and Chevron both down over 12%. The defensive sectors outperformed relatively - consumer staples and healthcare were down only 6.0% and 6.7%. The A$ down against the US dollar. US dollar up against the Euro. JP Morgan, Coca-Colaand Intelall beat quarterly earnings expectations. CCL one of the only companies up – rose 1.1%.
Both BHP and RIO down significantly in ADR form overnight, 17.15% and 20.48% respectively.
Metals all smashed overnight – Copper, Nickel and Zinc all down over 7%. Aluminium down 5.04%.
Oil price down $4.31 to $74.38 – below $75 a barrel for the first time in 14 months – after OPEC cut its 2009 petroleum forecast.
Gold down 50c to $839.
US Bond up with the 10 year yield down to 3.97%.
National Australia Bank(NAB) will release its annual result earlier than expected (October 21) and says it expects a cash profit of close to the $3.9bn market analysts expect (down 11% on last year), and provided an indication that it is confident with its capital position by lifting its dividend to 194c from 184c. Management's outlook will be the key, but in this uncertain and unprecedented environment, don't be surprised if we don't get anything concrete.
Rio Tinto announced production numbers late yesterday – described as OK and in line with expectations. Management comments were most interesting. CEO Tom Albanese said the financial credit crisis had not only increased the cost of servicing its debt, but weakened its defense against BHP's 3.4-for-1 takeover offer. Current ratio between the two stocks is now 2.5-for-one. He also mentioned that China was taking a breather and that he would review capex spending on growth projects. Both stocks were smashed in the US and the UK overnight. GSJB Were say RIO is a quality company but has relatively high and meaningful debt.
Merrill Lynch says demand weakness in China is real – said steel makers are determined to have production cuts. Analysts talking to steel producers in China say they all point to weakness in demand for their products post the Olympics, reduced industrial activity and delays in government approvals. Jinan Iron & Steel told Merrills they will cut production by 20% to support prices. Brazil's Vale has apparently stopped iron shipments to Jinan until they accept a 12% hike in prices. Iron stocks getting canned today along with the rest of the market.
