The Overnight Report: Mounting Concerns And Worries

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This story features BHP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BHP
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Rudi Filapek-Vandyck

Investors (and non-investors) were celebrating Martin Luther King (or MLK as they say in the streets of Harlem and the Bronx) on Monday, so financial US markets remained closed yesterday. That didn’t stop equity markets elsewhere from booking losses as investor worries about the health (and survival) of banks, corporate profits and the effectiveness of government policies to pull economies out of the gutter are once again taking centre stage.

The world is turning more concerned than hopeful, or so it seems, and the result is a cheaper British Pound, a cheaper euro, cheaper oil, and predominantly lower share prices.

Metals, and other commodities, had a mixed session.

As things stand right now, futures for US shares are indicating US markets will follow through with yesterday’s weak performances across the globe, despite this being the day of the long-anticipated inauguration of the 44th President of the US. MLK would be a proud man today.

The big headline producer in Europe yesterday was Royal Bank of Scotland. Its shares plummeted 67% after the bank announced it expects to post a loss of as much as 28 billion pounds for 2008. With the UK government ready to raise its stake in the lender, investors are anticipating a full nationalisation of the troubled lender, the second in the UK in a relatively short time.

Taking the nationalisation of Northern Rock as an example, this may not leave anything for existing shareholders, and thus the shares were dropped like a hot potato.

Share prices for banks remained under pressure across the globe.

In Germany, chemical giant BASF dropped 4.6% after management said demand had deteriorated “significantly”, further fuelling investor fears corporate profits are in for a dismal performance, while wondering when exactly is the turnaround coming along?

National benchmark indexes fell in all 18 western European markets. Germany’s DAX dropped 1.2%, the U.K.’s FTSE 100 lost 0.9%. Spain’s IBEX 35 tumbled 1.5% after the country’s AAA sovereign credit rating was removed by Standard & Poor’s. The move marks the second downgrade of a euro-region government in five days. Greece’s rating was cut one step to A- last week.

Crude oil futures for delivery in February fell below US$35 a barrel in electronic trading on the New York Mercantile Exchange, but on low volumes, as the market is already preparing for the switch into the March contract. The big trading volumes are thus occurring in the March contract, which fell a little less and ended at US$40.94 per barrel.

(If this confuses you: the oil market is trading in heavy contango which means that futures at a later date are priced at a premium to shorter dated contracts. Hence the oil price will “seemingly” rise towards the end of each month as the contract that expires is being replaced with the next one in the queue. Few doubt this will keep the crude oil price out of the US$30s though.)

Lower oil, and a stronger US dollar, weighed upon the price of gold. Other metals were mixed with trading at the LME heavily dominated by rumours about whether the Chinese are buying to prop up their home industries, and fill up strategic reserves, or not.

Early indications (SPI futures) are the Australian share market will probably open lower today. Share prices for BHP Billiton ((BHP)) and Rio Tinto ((RIO)) both retreated in London.

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