Australian Market Notes – 8 November 2006

MELBOURNE AUSTRALIA, 8 November 2006 – By the time you read these words, around lunchtime today, chances are that the Reserve Bank of Australia has increased interest rates by 25 basis points to 6.25%. Of the twenty-four analysts surveyed by Bloomberg News, all of them have formed the opinion that there will be a rate rise.

They are also in lock-step for the December RBA meeting, with all of them forecasting that the rate will remain at 6.25%. In fact, all bar one of the analysts believes that after this increase, the RBA will remain on hold through to at least the end of the first quarter of 2007. The only dissenting voice is the analyst at 4Cast who believes that rates will go up by another 25 basis points during the first three months of next year.

We shall wait and see if their opinion changes following the statement released by the RBA this morning – assuming rates do go up. If they haven’t it would have to be an odds-on bet for a December rate rise, as unpalatable as that would be for the government.

On the markets, the All Ordinaries had another pearler of a day, rising by 0.9% to close at 5,456.70. Resources stocks such as BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) were aided by the rising price of commodities.

The price of oil had risen overnight in New York on Monday taking the near month crude oil contract to above USD$60 following attacks on a Nigerian pipeline and forecasts that US inventories may have risen less than forecast. While on the London Metal Exchange one of our favourite metals, zinc advanced by 2.7%.

In other commodities markets, copper futures rose on speculation that China was looking to rebuild its inventories. Any suggestions that the Chinese economy may have slowed or may be slowing could soon be consigned to the rubbish bin if this does in fact happen. Copper on the London Metal Exchange was priced at USD$7,400 a tonne, a gain of 0.5% but still some way below the USD$8,000 plus price it reached earlier this year.

And uranium stocks continued their comeback trail following comments over the weekend which suggested that the Australian government was determined to fully develop a domestic nuclear industry that would include mining, processing, enrichment and power generation. The biggest issue for most people of course is the waste and how it is stored. No-one not surprisingly wants it dumped in their backyard.

Uranium junior Deep Yellow (ASX: DYL) had another polished day as its share price gained by 12%. The share price has gained by 35% since last Friday following the announcement by the government.

Another junior uranium play, Redport Limited (ASX: RPT) also had a belter gaining by 45% on the day to close at 27.5 cents. A far cry from the 17 cents that it closed at on Friday.

It wasn’t just the small fry that had something to crow about. Energy Resources of Australia (ASX: ERA), which counts Rio Tinto as a majority shareholder gained by 8% to close at $19.30. The share price has nearly doubled in a matter of months.

Yet it shouldn’t be surprising to see the price of uranium sensitive stocks rise given all the noise that still surrounds fossil fuels. One only needs to take a look at the headlines on financial news services such as Bloomberg to see that all is not well.

Whether we like it or not, uranium and nuclear energy appear to be back in favour. It is perhaps a little hysterical to suggest that a nuclear power station is “coming to a suburb near you”, yet Kim Beazley was certainly correct on Monday when he stated that nuclear power stations require a source of water for cooling and what better place than along a coastline.

It just so happens that the majority of the Australian population is also situated along the coastline and that apart from the stretch either side of Perth and Darwin, there are reasonable concentrations of population. Enough anyway, to cause a bit of a stink when the first power station announcement is made.

Kris Sayce

Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Markets and Money e-newsletter in 2005.
He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.

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