share market turns around but for how long

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    Sydney - Friday - April 4: (RWE Aust Business News) The
    Australian sharemarket has again tracked an erratic Wall Street during
    the week as the US banking sector continues to produce a string of
    write-offs, but the market is still rising on the premise there is not
    much more to come.
    There has been so many losses that financial markets believe
    there is not much more to write off and credit markets should soon begin
    to stabilise.
    That's the theory, anyway.
    The irony is that amidst all this turmoil global sharemarkets
    have had a good week and finished in front.
    The key ASX 200 index has risen every day this week - including a
    combined 248 points on Wednesday and Thursday - and settled 10.7 points
    in front at 5619.6 today for a gain of 268.5 points over the week.
    The broader All Ordinaries index rose 17.9 points to 5663.7 today
    to end 262.5 points in front for the week.
    Drivers have been mining stocks as commodity prices recovered,
    led by oil and wheat while the AUD has stabilised around US91.5c.
    But Australian financial markets now have their own cross to bear
    in the form of the collapse of stockbroker Opes Prime, which involves a
    liquidation of $1.4 billion of assets.
    Already lenders Merrill Lynch and the ANZ Bank have been hard at
    work selling stocks that were secured on loans until margin calls.
    According to the Australian Financial Review, more than a quarter
    of companies listed on the Australian Securities Exchange are involved.
    Directors have lost their companies and countless investors have
    been cleaned out.
    The Malaysian Royal family has gone to court to prevent one of
    the lenders selling them out of Gindalbie Metals in which their 14.5 per
    cent was on the block.
    Merrill Lynch said yesterday it had almost completed a selldown
    of shares covering $500 million in secured loans.
    It is one of the biggest catastrophes recorded by the ASX.
    Still on the home front, the Reserve Bank of Australia decided to
    leave interest rates unchanged at 7.25 per cent at its Board meeting on
    Tuesday, as everybody expected.
    This followed the back-to-back 25bp rate hikes in February and
    March, and the disproportionately large increases in interest rates by
    the commercial banks - the "Big 5" Aussie banks have raised their rates
    on branch-originated home loans by 25bp to 40bp more than the cash rate
    since the start of the year.
    Stephen Walters, chief economist for JP Morgan Australia pointed
    out that there has been a large amount of monetary tightening already in
    the policy pipeline.
    Also, officials seem to be treading carefully while they gauge
    how conditions in skittish financial markets are evolving.
    The tone of the commentary announcing the decision was, however,
    less hawkish than expected, even after accounting for the fact that the
    RBA, by definition, had to tone things down relative to the announcement
    in March, when the RBA raised the cash rate, according to Mr Walters.
    Importantly, the forward guidance of current monetary policy
    setting is appropriate for the time being, but leaves open the door for
    the rate hike that JP Morgan - which last week predicted this week's
    strong rebound - has forecast for next month.
    Whether the RBA moves or not depends critically on the first
    quarter CPI data to be released on April 23, two weeks before the next
    RBA Board meeting on May 6.
    Indeed, not tightening policy with evidence that inflation is
    running away seemingly unchecked will take some explaining.
    Meanwhile, RBA Governor Glenn Stevens fronted the Federal
    Parliament's House Economics Committee to make a prepared statement and
    answer loaded questions.
    Governor Stephens has warned about inflation again, suggesting we
    should see it rise to about 4 per cent, well above the central bank's
    target rate of a maximum of 3 per cent.
    It means the RBA is thinking of another rate rise next month.
    Financial markets had been expecting a signal of the likely
    direction and extent of any moves in official interest rates and they
    appear to have got it.
    Government committee members will want the Governor to blame the
    previous government for the inflation problem, while Opposition members
    will want the Governor to condemn the Labor Government's performance in
    its first few months in office.
    In the market Asciano's bid to takeover the much bigger pallet
    operator, Brambles, has ended in failure and cost the company about $85
    million.
    Despite this, its shares jumped 19c after yesterday's
    announcement and added a further 15c to $4.46 today.

    International scene
    -------------------

    The big push on Wall Street came on Tuesday when the market just
    would not lie down and buyers grabbed anything in sight.
    This was despite some ghastly data which investors shrugged off
    and lifted the Dow 391 points.
    But they picked up on the news that the manufacturing and
    construction reports, both of which showed the sectors had contracted
    less than expected.
    That raised hopes that the worst may soon be over for an economy
    that many believe has entered recession.
    They were also encouraged by the belief the spate of fresh credit
    write downs may be near the end.
    Overnight the Dow edged up 20 points to 12,626, a gain of 410
    points for the week to date.
    The S&P 500 has advanced 54 points to 1369, the Nasdaq Composite
    climbed 102 to 2363 and the 100 index has gained 88 to 1855.
    The latest bombshell was the admission from the Fed chairman Ben
    Bernanke when giving his testimony to Congress on the economy, he
    indicated for the first time that the country may slip into a recession,
    a situation that economists have been suggesting for months.
    But he said growth should pick up later this year as interest
    rate cuts and other emergency steps take root.
    Another development was Mr Bernanke's efforts to explain to
    Congress why the Fed went to the rescue of Bear Stearns last month after
    it was suddenly threatened with bankruptcy.
    Mr Bernanke told the congressional Joint Economic Committee that
    the decision to offer backing of as much as $30 billion through JP Morgan
    Chase was to prevent a sudden collapse of Bear Stearns, which he said
    would have cause chaos in financial markets.
    In financials there has been solid demand for a Lehman Brothers
    Holdings share offering.
    Shares of Lehman jumped 16.3pc to $43.80 after the bank said it
    raised $4 billion of capital after an offering of convertible preferred
    shares, bolstering its balance sheet and erasing fears that it was facing
    the same predicament as Bear Stearns which almost collapsed two weeks
    ago.
    However, Moody's Investors Service and Fitch Ratings lowered
    their ratings for UBS AG by one notch after the Swiss bank unveiled $19
    billion in write-downs due to losses tied to US mortgage-related
    securities.
    UBS will ask shareholders to approve up to $15.07 billion in
    additional funds as it flagged a quarterly loss of more than $12 billion.
    On the data front, the US private sector added jobs in March,
    according to a surprisingly optimistic report that contrasted with Mr
    Bernanke's bleak economic outlook and more bad news from the factory
    sector.
    Private employers added 8,000 jobs in March, according to a
    report on Wednesday by ADP Employer Services, confounding economists'
    expectations that companies would trim payrolls in the face of a slowing
    economy.
    The news on private-sector job growth bodes well for tonight's
    March jobs report from the Labor Department.
    A government report showed new orders at US factories fell for
    the second month in a row in February and by a much larger than expected
    1.3pc.
    The Commerce Department said orders for durable goods, items
    intended to last three years or longer, fell 1.1pc.
    When the volatile transportation component was stripped out,
    factory orders took a steeper drop of 1.8pc.
    In commodities metals improved, including gold.
    Oil surged almost $4 to nearly $105 a barrel after a US
    government report showed a steep draw in US refined fuel inventories as
    the giant consumer gears up for the summer driving season.
    The gains ended three days of losses as Iraq began to repair an
    oil pipeline in the south damaged by an attack last Thursday.
    Data from the US Energy Information Administration showed
    gasoline inventories tumbled 4.5 million barrels against analyst calls
    for a 2 million-barrel fall, while distillate stocks fell by 1.6 million
    barrels.
    Investors took some encouragement in the fact that the Institute
    for Supply Management's gauge of the non-manufacturing economy showed the
    decline in services was not as bad as feared.
    The non-manufacturing index came in at 49.6, slightly up from
    49.3 in February but below the 50 mark that separates growth from
    contraction.
    The result was above the record low of 44.6 hit in January.
    Government data showed claims for unemployment benefits jumped
    to 407,000, the highest since September 2005, and raised the prospects
    that tonight's non-farm payrolls report could show deep job cuts as the
    economy struggles.
    Economists had expected initial jobless insurance claims to
    increase to 370,000, compared with the upwardly revised 369,000 the prior
    week.
    Analysts fear a housing slump and credit crunch may have tipped
    the US economy into recession and are watching the labour market for
    evidence of slackening jobs that could sap consumer spending.
    Meanwhile, an index of chief executives' confidence in the US
    economy plunged to a record low last month, reflecting deeper concerns
    about the US credit crisis and prospects for hiring.
    Most CEOs expect a drop in US employment levels over the next
    four to five months, according to a monthly survey by Chief Executive
    magazine.
    The monthly confidence index stood at 84.1 in March, 25.3 points
    lower than February and down by half since July, shortly before the
    sub-prime mortgage crisis hit.
    In other data, the Chicago Federal Reserve Bank said its Midwest
    manufacturing index fell in February, hurt by declines in the vehicle and
    steel sectors.
    The index slipped to a seasonally adjusted 101.0.
    Other dismal news revealed that more Americans have fallen behind
    on consumer loans than at any time in nearly 16 years, as credit problems
    once concentrated in mortgages spread into other forms of debt.
    Commodities overnight were mixed with metals holding including
    COMEX gold up $9.80 at $905oz on the April contract.
    But oil fell 59c to $103.83 barrel while the Australian dollar
    edged up 14 points to US91.58c in New York trading.

    Movers and shakers on the week
    ------------------------------

    Even in troubled financial times, there are some good contracts
    around, indicated by Leighton whose subsidiary Thiess won two contracts
    worth a total of $1 billion over 20 years to develop and operate an
    open-cut coalmine in India's northeastern coalfields.
    Apart from a fall of $1.44 on Tuesday, Leighton has had a strong
    week, culminating in today's advance of $1.80 to $47.50 for a gain of
    $6.95 over the five days.

    *****

    Then there was Downer EDI, which last night announced that it has
    signed a long-term mine services contract worth more than $1 billion over
    five years with Peabody Pacific for its Millennium and Wambo open-cut
    coalmining projects.
    The company followed that up with today's announcement of an
    alliance with Western Power to provide resources for its future
    transmission and distribution capital works program for its South West
    Interconnected System.
    Shares of Downer EDI rose 28c to $6.67 today and have risen 39c
    over the week.

    *****

    The OPEL deal to cover the country with broadband, or just simple
    communications, was never going to work.
    If Telstra can't do it, a combined chop suey of
    telecommunications operators such as Elders and Optus/Singapore Telecom
    was not in the hunt.
    Just as worse is the Government's belief it can build its own
    network, reportedly costing $8 billion.
    The Government had every right to pull the plug on the OPEL
    project, which clearly didn't measure up.
    It now looks as though the government might kiss and make up with
    Telstra.
    There was certainly bad blood between Telstra and the previous
    government.
    Shares of SingTel fell 3c to $3.15 today but are up 5c on the
    week while those of Telstra eased 1c to $4.53 today and have gained 15c
    over the week.

    *****

    Babcock & Brown has been attracting attention for propping up the
    troubled stockbroker Tricom Securities for no apparent reason.
    Some analysts want to know why, with one observer suggesting it
    might be due to personal connections.
    But it has made a lot of financiers nervous indicated by the
    shares seeing a high of $15.64 and a low of $$14.21 over the week.
    Today they slumped 87c to $14.51 and are just 1c ahead of last
    Friday's close.

    *****

    Pharmaxis made the news this week, announcing it has had one of
    its products approved for use at the Olympic Games in Beijing.
    Athletes these days have to be scrupulously careful about the use
    of any medications used in the Olympics to ensure they have no illegal
    form-boosting ingredients.
    The company's asthma-testing product Aridol has been included as
    an approved test by the International Olympic Committee's independent
    Medical Commission.
    Pharmaxis says the prevalence of asthma in elite athletes has
    grown exponentially in recent years, rising from 9 per cent in 1988 to 21
    per cent of all athletes at the 2000 Sydney Olympics.
    Its shares gained 16c to $2.49 today to be 25c in front for the
    week.
 
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