Aussie Aims at 0.8500; Investors' Sentiments Dampened by the Dow

The Australian markets showed significant correlation with the US markets today. In spite of lack of big headlines, the Aussie is still aiming for the 85 cents, while both ASX and the 1-yr yield fell. The investors are concerned about the weak performance of the Dow that had its worst week since February, while Japanese carry traders continue to boost the value of the Australian dollar and exert downwards pressure on Australian yields.

[B]Boom to deliver record $150bn[/B] - The Australian Bureau of Agricultural and Resource Economics (ABARE) said today that it anticipates that minerals and energy exports of Australia will amount to around $117 billion in 2007/08 fiscal year. The recent economic boom is boosting earnings in energy sector (predicted growth of over 6%), metals and minerals (to rise 9%) and farms (to rise 3%). [I]Source: Herald Sun
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[B]Real wages falling or flat as profits rise[/B] - Australia is certainly not alone in a cohort of countries with below 5% unemployment levels with no inflationary pressure, caused by the growth of the global market economy?s labor force. The tendency is that greater share of Australian national income is going into profit rather than wages. Rise of the global competition is blamed for the downwards pressure on wages here. However, this tendency is predicted to discontinue and globalization in the long run will hurt rather than boost company profits. [I]Source: The Australian[/I],20867,21960429-20142,00.html

[B]Evans & Tate receives merger offer[/B] - A winemaker Evans & Tate is currently working on restructuring its $400 million debt with ANZ Bank. After a proposed merger with Ferngrove Vineyards, the debt of the company should be reduced to about $42 million. This is a second restructure proposal that the company received and it is now facing a decision to pick one of the two that will be more beneficial to the company. [I]Source: Herald Sun[/I],21985,21962500-5012062,00.html
[B]Xstrata considers open cut mine in Wandoan[/B] - The mining giant is looking into a project of developing a 20 million tones a year mine in Wanoan, Queensland. The company proceeds with caution and does not expect to make a decision until 2009 after extensive feasibility studies are complete. The mine?s life is expected to be 30 years. [I]Source: The Australian[/I].,20867,21962962-5005200,00.html
Australia?s economic calendar remains empty and the currency is in the hands of carry traders. Analysts anticipate the Aussie to go beyond 0.8500… The leading economic research institution of Australia places its bet on above the 0.8500 level in the near future, as it anticipates Japanese retail investors to put their savings offshore during the end of financial year bonus time. After the rapid recovery from the late Friday fall, the currency traders have restrained themselves from bold movements today and the pair stayed between 0.8475 and 0.8495.

[B][U]Stock Market[/U][/B]
The ongoing large falls of the Dow are continuing to diminish investor?s sentiment. Last week was the worst for the Dow since February. Drop of oil and a slight dent in metal prices have also contributed. BHP Billiton and Macquarie bank were the largest decliners. In general, 15 stocks fell for every four that gained. ASX made a weak move towards recovery later in the day, but could not fully recover and closed at 52.9 points lower at 6329.7.

[U][B]Bond Market
The Australian bonds were following the lead of the US 10-years. The yields took a deep dive without much recovery during the rest of the day. A plausible explanation is that investors are turning to fixed income now when the equity has had a rough week and the demand for bonds exerts downwards pressure on yields.