The market gets a boost from Energy!

October 21st, 2008  by Cale McCulloch

Closing Data

	current	change	%
Dow Jones	9265.43	413.21	4.7%
NASDAQ	1770.03	58.74	3.4%
S P 500	985.4	44.85	4.8%
FTSE 100	4282.67	219.66	5.4%
Nikkei 225	9005.59	311.77	3.6%
SPI Futures	4248	90	2.2%
All Ords	4,099	153.9	3.9%
Oil	74.11	2.21	3.1%
Gold	795.2	-0.4	-0.1%
Silver	9.81	0.06	0.6%
Aluminium	2101	-3	-0.1%
Copper	4875.5	174.5	3.7%
Lead	1407	81	6.1%
Nickel	10155	-180	-1.7%
Tin	13260	-40	-0.3%
Zinc	1181	65.5	5.9%

The market gets a boost from Energy!

Well the mood changed on Wall Street last night as focus shifted from the Banking sector to the Energy stocks ahead of the OPEC meeting on Thursday. OPEC are widely expected to cut production in an effort to send the price of Oil back into the USD 90 -100 range. A cut in production would stop Oils slide which has seen it erase 50% of the price over the past months. Oil climbed 3% over night. This, combined with better than expected earnings from Halliburton led the Oil stocks up over 10% as an industry overnight. This was only a small rally compared with the losses that the sector has suffered recently due to the slipping Oil price and ongoing fears about the affect a global economic slowdown will have on the price in the future.

So we can expect to see the Oil stocks such as Santos, Woodside, and Oil Search do well on the Australian Market when it opens this morning.

Gold followed the oil price higher yesterday, but it should be noted that the precious metal pared some of the gains from the Asian session to settle just 1.5% higher on the spot market, compared with 2.5% at the close of the Australian share market yesterday. We may see some strength however in Newcrest which, along with the obvious exposure to the Gold price, also has a positive correlation to the Australian dollar which climbed overnight.

Domestically, The NAB have just reported their full year earnings, with full year cash profit coming in 10.7% lower at $3. 92 billion. NAB have also said that they will pay a final Dividend of 97c per share, and see no need at this stage for any major capital raising and was in a good position moving forward. The Bad debt provision for the full year was $2.49 billion, and the outgoing CEO was very bearish about the state of the global economy, particularly in Europe, but confident that the Bank was in a good position to boost net profit in FY09.

To put any concerns about the capital adequacy of Australian banks at rest, NAB currently has a total Tier 1 capital ratio of 7% which is above the minimum requirement under the Basel 2 framework imposed by the regulator late last year. To put this in perspective - ING who over the weekend agreed to take USD 13.5 billion from the Dutch government, now has a total tier 1 capital ratio of just under 8%. Hence, the issue surrounding Australian banks is not their capital position, or the ability to survive the current financial storm, but rather their ability to maintain earnings in this environment. Your savings were never at risk, and the government guarantee as far as Australia is concerned was a political measure, that has been successful in putting your mind at ease and helping you sleep better. The truth is that the regulatory framework for Australian banks is sound, and has been since before the financial crises hit home, and tabloid news stations and papers started to push the "How safe is your money" headline.

The market as a whole, is set to open stronger this morning - should be a nice change!

Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.

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