Economies
Australia – The Reserve Bank of Australia has maintained official interest rates at 4.25% and has indicated it may not cut interest rates further unless the economy slumps. This stance reflects: growth in the Australian economy at close to trend; and a more optimistic global outlook, with the US having a moderate-paced recovery, China’s growth remaining robust, a softening in commodity prices; and sign of some signs of alleviation of acute financial pressure in Europe.
Banks - Australian banks face the possibility of rating downgrade, when Ratings agency Fitch placed a negative ‘ratings watch, due to their reliance on wholesale funding, the large proportion sourced offshore.
Housing Prices – Preliminary estimates show that the price index for established houses for the weighted average of the 8 capital cities decreased by 8% in the year to 31/12/11. House prices decreased by -6.7% in Brisbane, -6.4% in Adelaide, -6.1% in Melbourne, -5.4% in Darwin, -4.9% in Perth, _4.0% in Hobart, -2.7% in Sydney and -2.6% in Canberra.
Manufacturing - The AIG-PWC Australian Performance Manufacturing Index suggested improving conditions, increasing in January by 1.4% to 51.6%, above 50% for the 2nd consecutive month, the first time since mid-2010. Activity was weakest in textiles and construction materials, with strength in the food and beverage sector.
ANZ Job Ads Series – The number of job ads (internet and newspapers) rose 6% month on month in January, the largest rise in job ads since February 2010. While much of the strength was in the ‘resource’ states of WA and Qld, other states appear to have stable or modestly improving economies.
Motor Vehicles - The Federal Chamber of Automotive Industries reported new motor vehicle sales increased by 4.3% to 76,783 in January 2012, compared to January 2011. This followed a 1.5% increased for the 6 months to December 2011.

US
The US economy generated 243,000 new jobs in January, way above the 155,000 forecast, with the unemployment rate falling from 8.5 per cent to 8.3 per cent, a near three-year low. Other data showed that the U.S. nonmanufacturing sector expanded at a faster rate in January, while a factory orders came in lower than expectations.
Meanwhile, US justice officials announced a $US25 billion ($A23.25 billion) settlement between US states and five leading banks and mortgage lenders to resolve complaints that they abused millions of borrowers in home loan foreclosures.
Europe
Greek government leaders reached agreement on austerity measures expected to pave the way for a massive second EU-IMF bailout and help the country avoid an overt default on its debt. Dealers said the tone was cautious while eurozone finance ministers requiring approval by the Greek parliament before a new rescue for Greece is approved.
The austerity measures cover €3.3b annual spending cuts, including public services job cuts, pension cuts and a 22% reduction in the private sector minimum wage in exchange for lending an additional €130 b (A$160b) to the Greek government to keep it from defaulting on its debts of €14.5b due in March. The IMF won’t lend Greece more until its sees firm plans to cut a further €325m (A$400m) and reduce debt as a % of GDP from 170% to 120% by 2020. This would also see a restructure of Greece’s debt which would see a €70b deduction in its debt of €350b and a half of the €120 private sector debt and reduce the face value of €45b in Greek bonds.
To assist Eurozone banks, the European Central Bank left its key interest rate at a historic low, as well as relaxing collateral rules at a second tender of loans due later in February.
 

Asia
Indications of continued growth in China with:
 China reported an increase in its consumer price index from 4.1% in December 2011 to 4.5% in January 2012, topping expectations of a 4.1% rise, although diminished expectations of more near-term monetary easing measures from Beijing.
 The China Manufacturing “Purchasing Manager’s Index” rose to 50.5%in January. This index last breached 50% in October 2011 (at 51%).

Markets
Australia - The ASX All Ordinaries Index in January increased by 5.2%, the biggest January increase in 16 years and the 8th best increase over the last 42 years. Previously, an increase in January has resulted in higher yearly closes in 75% of cases.
This and the relative performance to some offshore markets, suggest there is the possibility of a good bounce this year. Consider the following:
 From markets highs in 2007, the Australian market fell by 54% to its low in March 2009, roughly in line with the Dow (-54%), the S&P 500(-58%) in the US. Since, the Australian market has recovered by only 37%, compared to increases of 95% and 97% for the Dow and the S&P 500, and 64% and 79% for the UK and Hong Kong. The Dow is now only 10% below its record high in 2008.
 From the most recent lows in September 2011, the Australian market as only recovered by 11.4%, roughly half of the S&P 500 increase of 22.4%.
 The valuation premium of the US market trading on a PE of around 18.5and dividend yield of 1.8%, compared to 14.5x and 4.8% (+franking) in Australia.
 Australia has been the best-performing equity market over the 112 years since 1900, with a real return of 7.2% per year. This compares to bonds and bills, which gave a real return of 1.6% and 0.7% respectively

Short Interest - As reporting season kicks off, the market weighted average level of short interest across the S&P/ASX 200 sits at 1.4%, down from 1.5% three weeks ago. The most shorted sector remains Discretionary Retail, with average short interest in DJS, MYR, JBH, HVN and BBG currently 12%. Other sectors with high levels of short interest include Resources, Basic Materials, Media, Healthcare and Consumer Staples. Major short positions include retailers JB HiFi, Myer, Billabong, David Jones and Harvey Norman, travel group Flight Centre and Wotif and Fairfax.

COMPANIES
Global
Facebook (NYSE: FB) - The most eagerly awaited IPO of the decade has filed its Prospectus. Key data:
• Proposed maximum aggregate offering ranges between is around US$10b, but includes a 120.0m share sell-down by Mark Zuckerberg, the founder, could value Facebook between US$75b and US$100b. As Mark Zuckerberg holds 28% pre-IPO, his holding will be valued at over US$28b. Effective January 1, 2013, Mr. Zuckerberg’s (MD) annual base salary will be reduced to $1 pa
• FB had 845 million monthly active users and 483 million daily active users, uploading 250 million photos per day, and 100 billion friend connections as of December 31, 2011. FB generated US$3.7b (+85%) in Revenue in 2011, and generated US$1 b (+40%) in net income in 2011.
• FB held$3.9 billion in cash and marketable securities at time of listing. Pending other uses, FB intends to invest the proceeds in investment-grade, interest-bearing securities and does not intend pay any cash dividends in the foreseeable future.
Mega Global Mining Merger – Glencore (GLEN) and Xstrata (XTA) have confirmed a proposed an “all share merger of equals, which may or may not lead to an offer being made”. While there are no further details, GLEN is obliged to make an offer by 1/03/12 under UK Takeover Code. GLEN currently owns 34% of XTA and markets around 30% of XTA’s volumes.
This has implications for Australia, as the combined group generate 33% of Operating Profit from Australia and is No.1 global producer of thermal coal, zinc and lead. The combined group will have Revenue of £212b (A$311b) and EBIT of £14bn (A$20.6b), with a Market Capitalisation is around £70bn (A$103b), although still below the Market Capitalisation of BHP (A$203b), Vale (A$140b) and Rio (A$138b).
 

Australia
Telstra (TLS) – A strong result with profit increasing by 22.9% to $1,468m on a revenue increase of 1.2% to$12.4b. The Interim Dividend was steady at 14¢ ps. Mobile (+10.9%) was strong, with fixed line broadband (+5.8%). The main weakness was in Sensis (down -25%) and fixed telephony (-9%). TLS maintained guidance for a growth rate in profit of low single digit and a dividend of 28¢ ps fully franked.
News Corp (NCP) - As strong Interim Profit for report, with a 28% increase in Profit to US$1.82 on a revenue increase of 5% to US$16.9b. The underlying result was stronger, after adjusting for the losses related to the News of the World (NOTW) closure. The main growth areas were film (+108%), TV (+25.2%) and cable networks (+20.0%), partly offset by weakness in Publishing (-42.6%) resulting from Australia newspapers ( -US$100m) and NOTW closure/investigation .
Downer EDI (DOW) – Two items of positive news for the beleaguered DOW:
 A $570m, six year contract with Kara Mining for Drilling, blasting and haulage services at uits WA iron ore Project.
 News that the NSW Government has reached agreement with Reliance Rail, DOW and other related parties for the restructure of Reliance Rail, with the Government investing $175m in 2018 in return for 100% of Reliance Rail.
Qantas (QAN) – QAN has raised ticket prices on all routes from 15/2/12, in response to Carbon Price schemes to be introduced in Australia and Europe, and soaring aviation fuel prices. The international surcharge will increase by up to $60 one way, while domestic surcharges will increase by an average of 2.5%.
Fuel costs for QAN in 1H FY2012 increased by 25% to $2.2b, with fuel prices at their highest levels since FY2008. European Carbon Pricing Schemes from 1/1/12 will add $2.3m in 2012, while Australian Carbon Pricing scheme from 1/7/12 is expected to add $110m to $115m pa, resulting in increases in of up to $6.86 per fare. Jetstar fares will increase by $10 one-way.
Separately, QAN credit rating has been further downgraded to 1 notch above Junk, due to the deteriorating operating environment and high fuel prices, raising speculation on further cost cuts, a reduction in capacity or some capital raising.
Macquarie Group (MQG) – MQB has slashed guidance for FY2012 profit by 25% to around $700m. As a result, it’s targeting a $300m cost cutting exercise across its securities and advisory business, and is exiting its institutional derivatives business. This reflects the weak global economies, subdued capital market activity and mistakes in its recent global expansion initiatives. MQG expects to start its previously announced share buyback in 1H FY2013.
BHP Billiton (BHP) – BHP reported a 7% profit fall to US$9.9b on a 9% increase in revenue to US$37.5b This was in spite of record production for 2 commodities and 6 operations, particularly petroleum, WA iron ore and NSW coal. This was offset by industrial action and lower grades at Escondida (Chile), industrial action and weather problems in Qld and margin pressure for nickel, aluminium and manganese. The interim dividend was increased by 20% (US$0.09) to US$0.55 ps.
National Australia Bank (NAB) – NAB reported a Q1 FY2012 cash earnings increase of 7.7% to A$1.4b, 4% below market expectations, but in line with 4Q FY2011. The main growth areas were its wholesale banking and wealth arms, while net interest margin pressure limited growth in its retail and business banking. A positive was continuing revenue growth above expense growth, with positive jspreads of 3.8%. NAB is currently reviewing its poorly performing UK businesses, following economic weakness and a rise in bad debts.
Bank of Queensland (BOQ) – BOQ is looking to offload a substantial portion of its underperforming commercial property interests, to overcome an significant increase in bad debts. The increase in bad debts is a result natural disasters and default on commercial loans
Rio Tinto (RIO) - While the underlying profit increase for CY2011 of 11% to US$15.6b was ahead of expectations, the Reported Profit fall included a US$8.9b impairment charge of its aluminium division. The majority of the aluminium division was acquired at the time of the proposed takeover by BHP. The final dividend was increased by 44.5% to US$1.45 ps, resulting in a Full Year dividend increase of 34% to US$1.45 ps. The main growth areas for RIO were Iron ore (+26%), which comprises 62% of revenue, partly offset by copper (-25%), aluminium (-15%)
Rio has committed a further US$3.4b over the next 3 years to the major expansion of its Pilbara iron ore operations in WA as part and overall investment program of US$18b, ensuring Rio position as the largest iron ore group. The investment comprises increase Pilbara iron capacity from 225m, tpa to 283m tpa and provide infrastructure for a future increase in production capacity to 353 tpa, currently the subject of a final feasibility stage.
Tabcorp (TAH) - The result was ahead of expectations, with a14 % increase in profit to $189.3m on a revenue increase of 3% to $1573m. The Interim dividend was raised 1¢ to 13¢ ps. The main growth area was Wagering (+5%) and Keno (+13%), partly offset by weaker Gaming (-3%)
Gunns (GNS) – The share price has risen strongly with plans to raise $130m through a rights issue and a $150m placement to Richard Chandler Capital. Richard Chandler is believed to be one of the wealthiest men in Singapore and is the largest shareholder Chinese forestry company Sino Forest. The raising, along with asset sales will reduce the company’s debt and has raised optimism on the prospect of financing the proposed $2.3b Bell Bay Pulp Mill.
Alumina Ltd – Alcoa, jointly owned with Alcoa Inc has indicated that it may cut production at its Point Henry, Geelong smelter in response to global economic conditions and the high A$. Any cut in production would result in significant job losses.
Ansell (ANN) – The 1H FY2012 profit increased by 9% to US$67m, slightly ahead of consensus. While Sexual Health and Wellbeing (Condom) division grew by 54%, the key larger Industrials and Medical divisions fell by 9% and 14% respectively. ANN reaffirmed guidance of a FY2012 profit increase of 5% to 11%, depending on global economic conditions and latex prices.