Daily Market Summary

Market News –Tuesday, 2 December 2008

Important Note: This commentary is a general account of the day's trading and is not intended to be, nor should it be, taken as a recommendation to buy, hold or sell any particular stock.

Market Update

The Australian share market fell steeply in the morning session before gathering some lost momentum mid way through to close the day 54 points lower.

The S&P/ASX 200 declined 61 points. Investors largely stayed on the sidelines with selling seen in the Financial sector; Westpac (-$0.95) and Commonwealth Bank (-$1.09), the Materials sector; BHP Billiton (-$1.10) and Rio (-$3.90) and the Industrial sector; Transfield Services (-$2.25) and Leighton Holdings (-$1.78).

Macquarie Infrastructure Group (+$0.02) has transferred its 50% interest in the Westlink M7 to the Western Sydney Road Group (WSRG) and on-sold 50% of WSRG to an Institutional Investment Manager for $402.5M, delivering MIG investors a 25.9% internal rate of return. MIG declared the offer implies an enterprise value of $2.8B for the M7 and an EV/EBITDA multiple of 23.9x. Great Southern (+$0.00) has reported a net loss from operating after tax and impairments of $63.8M. Before impairments GTP recorded a net loss of $33.8M. The result was significantly impacted by lower sales from its MIS segment, which were down 24% on pcp. The Board has elected not to pay a final dividend, leaving the full-year dividend at 3cps, down from 12cps in FY07. Leighton Holdings (-$1.78) has announced that the Trump Tower project the Al Habtoor Leighton Group was constructing for Nakheel in Dubai in JV with Murray & Roberts has been suspended. Nakheel has agreed to cover all costs incurred to date. The project was valued at AED2.9B (~$1.2B). Of this, LEI's share was ~AED653B (~$272M). LEI noted the suspension will not have a material impact.

AUSTRALIAN BOND MARKET: Australian Government bonds dipped 3 to 7 basis points across all maturities.

AUSTRALIAN DOLLAR: The Australian dollar weakened against the greenback to end the day lower at USD0.6477.

AUSTRALIAN ECONOMIC STATISTICS: ABS said company profit growth slowed in the third quarter following weak earnings at retailers, transport businesses and manufacturing. In a report published by Australian Industry Group and PricewaterhouseCoopers indicated that Australian manufacturing in November shrank for the sixth straight month, where the manufacturing index fell 7.7 points. According to a monthly gauge released by TD Securities Ltd. and the Melbourne Institute consumer prices fell 0.6% in November versus 0.2 % drop in October.

Overnight:

Stocks tumbled Monday, smashed in the last hour of trade, with fears about the economy driving a selloff as manufacturing slumped to a 26-year low and the US economy was officially declared to be in a recession. Speaking in the afternoon, Fed Chairman Ben Bernanke said that the economic weakness would continue for some time, despite the impact of the government's efforts to get money flowing again.

Stock declines were broad based, with all 30 Dow components falling, led by financial components American Express (-16.0%), Citigroup (-21.2%), Bank of America (-20.5%) and JP Morgan Chase (-16.5%). Market breadth was negative. On the NYSE, losers beat winners by nearly 8 to 1 and on the Nasdaq, decliners topped advancers by four to one.

The five consecutive advances in the S&P 500 before today marked the benchmark gauge’s longest streak of gains since July 2007 and sent it up 19% from an 11-year low on Nov. 20, the most over five days since 1933.

The Institute for Supply Management said its November manufacturing index fell to a 26-year low of 36.2 from 38.9 in October, which was worse than forecast. October construction spending fell 1.2% versus a flat reading in the previous month. Economists thought spending would drop 1%.

Including “Black Friday”, the day after Thanksgiving, shoppers spent US$41B in the four-day holiday weekend, according to the National Retail Federation, an industry trade group. The average shopper spent $372.57, up 7.2% from a year ago. However, overall 2008 holiday spending is expected to rise just 2.2% from a year ago, the smallest gain in six years.

Chipmakers declined after the Semiconductor Industry Association said global sales of the equipment fell 2.4% in October because of a worldwide economic slowdown and lower prices for memory products. Intel dropped 9.0%, Texas Instruments retreated 10.0% and Infineon Technologies AG American depositary receipts lost 13.2%.

Massey Energy fell 21%. The US Supreme Court refused to question a US$244M award against the fourth- largest US coal producer for failing to deliver promised coal supplies to steelmaker Wheeling-Pittsburgh Steel.

Mentor gained 89% after Johnson & Johnson, the world’s largest health-care company, agreed to buy breast- implant maker Mentor for US $1.07B in cash.

European stocks dropped, sending the Dow Jones Stoxx 600 to its first retreat in six days, as record declines in European and Chinese manufacturing signalled the global economic slump is worsening.

National benchmark indexes decreased in all 18 western European markets. The FTSE 100 dropped 5.2%, Germany’s DAX lost 5.9% and France’s CAC 40 slipped 5.6%.

Banks were the worst hit, with Standard Chartered Bank falling 14% and UBS down 12%, Fortis slipping 11% and BNP Paribas declining 7.6%. Commodities shares also slipped, tracking an 8% drop in crude prices, a 2.8% fall in aluminium prices and a 1.6% drop in copper prices, mainly on worries about global economic growth.

Russia’s Micex index sank 7.2% after the nation’s manufacturing shrank more in November than during the 1998 financial collapse. ArcelorMittal, the world’s biggest steelmaker, slid 12%, following a 34% advance last week. ThyssenKrupp, Germany’s largest steelmaker, retreated 7.5%.

Miners tracked weaker metals prices. BHP Billiton (-9.0%), Anglo American (-14.2%), Vedanta Resources (-15.6%), Lonmin (-18.3%), Kazakhmys (-16.5%), Xstrata (-12.5%), Antofagasta (-7.0%) and Rio Tinto (-13.4%) fell between 7% and 18%.

Within the retail sector, Marks & Spencer (-2.2%), Next (-9.5%) and Kingfisher (-7.5%) were all weaker.

China’s Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today. A second PMI, released by CLSA Asia-Pacific Markets, also showed a record contraction.

A European manufacturing index based on a survey of purchasing managers by Markit Economics dropped to 35.6 from 41.1 in October, remaining below the expansion-threshold of 50 for a sixth month. That is the lowest since the survey began in 1998 and less than an initial estimate of 36.2 published on November 21. In addition, British manufacturing shrank at a record pace in November and mortgage approvals slid back to a series low in October, showing neither a weaker pound nor lower interest rates have stalled a slide into recession.

October retail sales in Germany, adjusted for inflation and seasonal swings, dropped 1.6% from September, when they declined a revised 1%, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.5%.

Central banks in Britain, the euro zone, Australia and New Zealand are expected to cut borrowing costs sharply this week in response to the crisis. Expectations for more rate cuts in Britain were underlined by the UK's PMI index showing manufacturing shrank at a record pace in November after a collapse in new orders.

ECB policy makers, convening in Brussels on December 4, will probably cut their benchmark lending rate by 50bps to 2.75%.