FYI | Mar 20 2007
By Greg Peel
Australia has done it again! This irregular report has noted on more than one occasion recently that the Australian market has become tired of meekly following Wall Street and has anticipated turnarounds before they happen in New York overnight. Now, it seems, Australia has led the world again.
Clearly comforted by the Bank of Queensland (BOQ) taking a swing at Bendigo Bank (BEN) yesterday, British-based world investment banking powerhouse Barclays felt safe to announce last night it is in negotiations to merge with Dutch-based world investment banking powerhouse ABN Amro.
Okay – so there might be some difference in scale. The White Shoes and the Prospectors together would reach about A$4 billion in capitalisation while we’re talking more like US$156 billion if the English and Dutch get together (strange bedfellows indeed). But that’s not important right now.
What is important is that such financial sector activity comes at a time when the world is reeling from the US sub-prime mortgage crisis and many a case-hardened old market watcher is calling for an escalation in financial market fallout. Readers are encouraged to assess the views of Morgan Stanley’s Stephen Roach (Should We Be Scared About Sub-Prime?; FYI; yesterday) and look out for a story on market guru Dennis Gartman’s views coming up later this morning.
The BOQ/BEN merger had the effect of refocusing interest in an otherwise underperforming banking sector, with Bendigo peer Adelaide Bank (ADB) coming in for attention and number six financier Suncorp-Metway (SUN) indicating it is in the hunt as well. St George perhaps (SGB)?
A Barclays/ABN merger was not the only story on Wall Street either, as other M&A activity was rife in sectors such as health care and utilities. Is this the bottom? Have the bargain hunters moved in? Even beleaguered energy stocks were sought after despite yet another drop in the price of oil (although it is gasoline prices that are on the rise).
The Dow recouped most of last week’s losses by closing up 115 or 1% to 12,226, with the Nasdaq and S&P 500 following suit.
The yen also fell against the US dollar last night, suggesting the carry trade unwinding panic may now have abated. With anticipation of a more relaxed Fed meeting tonight and no change to rates on Wednesday, the market was in a slightly more optimistic mood.
Gold and silver continued to edge up slightly while the base metal market was unremarkable but for another 2% fall in the zinc price. April oil, which rolls over tonight, closed at US$56.70/bbl.
The SPI Overnight was not exactly exuberant, closing up only 9 points. This probably reflects the activity in the financials yesterday which won’t thus be suddenly boosted by overnight Wall Street activity today. Australia rules!