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RESEARCH SUMMARY & OVERNIGHT BRIEFS Thurs 25 July

  1. U.S.A. Equities


    * What a difference 24 hours can make! Buyers returned to the market
    in droves speculating that the worst for stocks has passed and in doing so
    rushed to cover bearish/short bets.


    * Whilst the thought that the worst has passed, and that in itself
    remains to be seen, the market was encouraged by several things. Firstly it
    was revealed that the Senate and House had reached an agreement on a pact to
    overhaul regulation of the accounting industry and implement new punishments
    on executives that commit fraud. Secondly the market was encouraged by the
    news that the authorities showed some mettle by arresting executives of
    Adelphia for fraudulent corporate activities. Finally investors were buoyed
    companies stepping up to the plate to buy their own stocks. Merck rallied
    more than 9% after announcing its US$10bn buyback yesterday.


    * The major industrial average dropped more than 150 points in the
    first five minutes of the trading session, then recouped the entire loss and
    tacked on a 200-point gain over the next two frantic hours. From there, it
    was up, up and away. The Dow Industrials finished 488.95 points, or 6.4%,
    higher at 8191.29 (52 wk High: 10673, Low: 7532), just short of their points
    largest gain ever. The Nasdaq soared 61.18 points, or 5%, to 1290.23 (52wk
    High: 2102, Low: 1192), while the S&P 500 surged 45.73 points, or 5.7%, to
    843.43 (52wk High: 1226, Low: 776).


    * The biggest question facing the market right now is whether the
    turnaround marks a bear market low or simply an intermediate-term low within
    an ongoing bear market. From a technical standpoint last night's trading was
    a key technical reversal with the market making a lower low and then a
    higher high to close at its peak.


    * Volume was huge with the NYSE setting a one-day record of 2.74
    billion shares. The Nasdaq saw 2.47 billion shares change hands. Market
    breadth was only marginally positive, however, with winners taking out
    losers by 20 to 13 on the NYSE and by 20 to 15 on the Nasdaq.



    1) Financials: J.P. Morgan Chase tried to live up to its famous name
    for once, as the big bank held a conference call to reassure investors that
    the deals it devised for Enron were entirely legitimate. Its stock led the
    Dow back from the abyss, rebounding from an 8% deficit to a 16% gain as
    buyers returned. But these days, a banker's word isn't enough of a bond.
    Investors didn't really rest easy until the Standard & Poor's rating agency
    confirmed that J.P. Morgan would not face a rumoured liquidity crunch. "J.P.
    Morgan is not currently having any difficulties meeting obligations or
    accessing capital markets. There are no stock price triggers in any debt
    covenants that would accelerate the need for funds." Top rival Citigroup,
    its stock discounted 25% over the last two sessions on similar concerns
    about its liability in Enron's collapse, bounced 10%.

    Other banks also contributed to the market's gains alongside energy
    suppliers, drug makers and retailers.

    2) Earnings: The bearish growl echoing in the early hours from
    exchange to exchange across the globe nearly drowned out unexpectedly strong
    earnings from blue-chip chemicals giant DuPont. Its pro-forma Q2 profit of
    71cps was 5cps above analysts' consensus and 15cps above the market's
    month-old forecast. Including one-time charges, the company still earned
    54cps, a vast improvement on the loss of 21cps a year ago. DuPont also
    raised its profit outlook for the balance of the year and was rewarded with
    a 9% share-price gain that fed fresh fuel to the rocketing Dow.

    * While many other beaten-up stocks rallied, shares of AOL Time Warner
    remained down 1.3%. After the closing bell the company posted a Q2 profit of
    $2.5 billion, or 24cps, on $10.6 billion in sales. Analysts had expected to
    see a profit of 22cps on sales of $10 billion. Separately, Chief Executive
    Richard Parsons disclosed that the SEC is conducting a "fact-finding"
    investigation into the way the company's America Online unit booked certain
    advertising transactions. The deals provoked questions after they were
    highlighted in the Washington Post report last week. Auditors Ernst & Young
    announced that they are standing by its accounting. The news of the probe
    was not well received by investors with the stock falling more than 7% in
    late trade.


    Treasury Market


    * Bonds fattened by stock-market misery slipped. The yield on the
    10-year Treasury note rose 8bp to 4.49% while the two-year note yield added
    6bp to 2.29%.


    European Markets


    * European stock markets recovered partially from an early tailspin as
    a volatile Wall Street reversed early falls. The major averages had crashed
    to multi-year lows on fears over financial stocks and the fragility of
    economic recovery.


    * Warnings by pharmaceutical companies Akzo Nobel and Serono, and a
    similar announcement from software maker Business Objects further undermined
    confidence as each one warned economic weakness was hitting earnings. Adding
    to the nervousness, German conglomerate Siemens said its markets were still
    extremely challenging.


    * Siemens added 0.8% after having fallen 9% after the company warned
    markets were still extremely challenging and saw the fourth quarter lower
    than the third. In the third quarter, Siemens posted net income of EUR725m
    against a EUR705m loss a year earlier but sales decreased 4% to EUR20.5bn
    and orders were down 20% in the quarter to EUR19bn.


    * UK life insurer Prudential attempted to bring some stability by
    reassuring investors over its solvency levels. The six-week fall on the
    equity markets prompted fears it, along with other insurers, had been forced
    to sell equities to remain within regulations. Prudential said it had not
    reduced equity holdings. However, it said first half pre-tax profits fell to
    £166m from £364m a year ago as it wrote off bond losses and falls in the
    value of its equity portfolio. The shares gave up gains to close 1.3 %, and
    the prospects weren't rosy for the rest of the sector. Allianz lost 2%,
    Aegon slipped 10%.


    * Axa tumbled 11.5%. The company denied a report that the insurance
    group would issue a profit warning for 2002, nor would it need to raise
    capital and it remained within solvency levels. It didn't help.


    * In London the FTSE 100 dropped 80.90 points, or 2.1%, to 3777.10.
    When London closed the Dow was up about 100 points.


    * In the telecom sector prices were a touch lower. British Telecom
    slipped 1.4%, Vodafone eased 0.5% and Cable & Wireless fell 2.9%.


    * Mining stocks closed broadly lower. Rio Tinto lost 3.3%, BHP
    Billiton 4% and Anglo American 4.2%.


    * Elsewhere Abbey National declined 2.9% on volume of 23.6mln shares,
    1.6% of its issued capital, Alliance & Leicester dropped 2.9%, Brambles slid
    2.2%, British Airways edged up 0.2% and BSkyB fell 3.5%.


    * In Paris the CAC 40 index fell 46.47 points, or 1.5%, to 3023.69.


    * In Frankfurt the DAX Index spiked 116.83 points, or 3.3%, to
    3632.66. Deutsche Telekom paced the gain with a rally of 14.5%.


    Commodity News


    * August crude rallied $0.60 to $26.91 a barrel.


    * August gold eased $2.00 to $310.60 an ounce.


    * LME base metal futures closed weaker. Copper lost 1.3%, zinc &
    nickel 0.8% apiece and aluminium 0.6%.


    Australian Stocks


    London
    AQP: Aquarius Platinum plunged 10.4%, or 32.5p, to 279p (A$8.06) from the
    Australian close of $8.41. Volume was 414k shares.

    BIL: Brambles Plc slipped 2.2%, or 5.5p, to 248p (A$7.16) to leave
    BIL Ltd at an 11.1% premium. Volume was 4.8mln shares.

    BLT: Billiton fell 4%, or 12p, to 290p which leaves BHP at a 13.2%
    premium. Volume was 23.2mln shares.

    RIO: RIO lost 3.3%, or 35p, to 1039p equivalent to A$30.02.

    New York
    BHP: In ADR trade BHP added 1.4% to A$9.61 from the Australian close of
    $9.48. Volume was 436k ordinary shares equivalent.

    NCP: In ADR trade NCP spiked 3.1% to A$ equivalent of $9.19 from
    the Australian close of $8.90. Volume was equivalent to 12.47mln ordinary
    shares. The spread finished at $1.49, or 19.4%.

    PDG: In US trading PDG rose 2.4% to US$9.12 which values their bid
    for Aurion Gold at A$2.9349 a 7% discount to yesterday's close of A$3.14.

    RMD: Resmed rallied 3.7% to A$4.74 from the Australian close of
    $4.53.

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