Investors turn to safe stocks

Published in The Age, October 2006 by Stephen McMahon

Falling oil prices and fears of an interest rate rise early next month are dominating the market, which finished slightly lower.

The S&P/ASX 200 Index was down 1.9 points at 5333.5 at the close. Since mid-June, it has risen 495 points, or 10.2 per cent, but most analysts and investors are expecting a downturn this week.

This has led investors to move into defensive stocks, with the banks the most sought, in the run-up to tomorrow's release of consumer price index figures, which should give a clear picture on the outlook for interest rates.

"We are predicting a 0.7 per cent rise (in the CPI), which is down on the previous prediction of 0.8 per cent but will more than likely trigger an interest rate rise," said Deutsche Bank chief economist Tony Meer.

"The market is priced for a rate hike in November and that is why in terms of our trading strategy we have been happy to take profits at these levels."

Despite an expected slowdown in inflation, the market is putting an 80 per cent chance on the Reserve Bank raising interest rates by 25 basis points to 6.25 per cent next month.

"The market should peak, if it hasn't already, in the next few days before it falls away," said Dale Gillham investment adviser at Wealth Within.

The financial sector helped offset heavy falls by retail and oil stocks, but Promina suitor Suncorp led the market down. Shares in the financial group lost $1.29 to $21.41 — a 5.6 per cent fall — after it reached a formal agreement to table a $7.9 billion bid for rival insurer Promina.

But investors remain sceptical about whether the deal will be completed as Suncorp is seen as a potential takeover target for one of the big banks. Promina shares were up 13¢ at $6.92, still almost 10 per cent below the offer price.

Woodside dropped 83¢ to $37.67 after the West Texas spot price continued to slide. The spot price has dropped 26 per cent from a record high of $US78.40 a barrel in mid-July to $US56.82.

The lower oil prices helped Qantas up 5¢ to $4.22.

Takeover rumours continue to dominate the media sector. Amid this uncertainty, PBL lost 50¢ to $19.70 and Fairfax shed 5¢ to $5. But potential buyer Macquarie Bank firmed $1.01 to $74.20.

Investor concerns about consumer spending levels if interest rates were raised for the third time this year made retail stocks the other major drag on the market.

Woolworths gave up 11¢ to $20.61 despite chief executive Michael Luscombe announcing a 21 per cent lift in sales to $10.7 billion for the first three months of the 2007 financial year.

Shares in Coles Myer continued to slide after its rebuttal last week of a $18.2 billion, or $15.25-a-share, bid from a private equity consortium. The stock lost 15¢ to $13.40.

The T3 share offer opened but Telstra shed 2¢ to $3.61.

Commonwealth led the rise in bank stocks, jumping 64¢ to $47.09, which took its gain since June to 12 per cent.

The likelihood of an interest rate rise helped the dollar maintain its climb. It finished near a six-week high at US76.09¢, just up on Friday's US76.02¢.