Aussie Remains Solid Without Strong Domestic Leads

The Australian markets were driven by a bout of risk aversion that began in the US subprime mortgage sector and wrapped around the globe. The capital markets took significant hits, while the Aussie remained surprisingly stable compared to other currencies, staying within 30 pips range of 86 cents against the US dollar.


[B]BHP moots $47bn Alcoa deal[/B] - Mining Giant BHP Billiton is rumored to have stepped closer into the planned $47 billion takeover of Alcoa. BHP is reported to have entered talks with its private equity partners to finance the move. Analysts suggest it would be a logical move for BHP to acquire Alcoa and their rival Rio Tinto to bid for Alcan. Multiple sources reported that there is increasing chance that a third party might bid as well. [I]Source: Herald Sun[/I],21985,22054771-5012062,00.html
[B]Reindeer gas to be taken by the horns[/B] - The rising domestic demand for natural gas subsequent surge in prices has encouraged the Houston-based Apache Energy in partnership with Santos to commit to a big gas development at the Reindeer field off of West coast of Australia. The project has an estimated $470 million price tag and is supposed to be completed in 2009. [I]Source: The Australian[/I],20867,22053166-5005200,00.html
[B]Woolies strategy will bury Coles[/B] - The decision of Woolworth?s to sacrifice profits to cut the prices in its supermarkets appears to have given it a competitive edge over its primary rival Coles Group. According to analysts, Woolworth?s could have achieved up to 40% growth, much higher than current 25-27% expectations, due to the move. [I]Source: Herald Sun[/I],21985,22055577-5012062,00.html

The Aussie was primarily driven by a flight from risk sentiment this morning as traders felt the aftershocks from a hit to US sub-prime debt. In other news, the domestic consumer confidence indicator printed a 0.6 percent contraction against the previous 2.0 percent drop. This kept the annualized mark at 120.8, suggesting the Australian nation remains strongly optimistic above the 100 points cutoff. The release has helped the Aussie to recover from a steep surge that analysts attribute to earlier carry trade sell off. Overall, the Australian currency held relatively stable, trading around 86 cents while most other majors cut moves that were larger than 100 points.

[U][B]Stock Market[/B][/U]
The 1.09 percent dive in the Dow, and similarly large drops of global equity indexes driven by the subprime mortgage scares yesterday, led to a steep contraction in the ASX index shortly after the open. However, Australian equities seem to have recently found support at 6,300 and made a slow yet solid recovery through the rest of the day. The leaders of the move were the biggies from different industries: the mining giant BHP dropped 1.8%, Commonwealth Bank of Australia dipped 0.8% and the retail giant Woolworth?s lost 1.3% despite stronger growth figures projected. The index fell 36.4 points overall to 6325.1.

[B][U]Bond Market[/U][/B]

The yield on the 10-year government bond followed the lead of the US and other international instruments, opening nearly 7 bps lower. Yields found no help from the Westpac Consumer Confidence print this morning and continued to fall throughout the active session, ending 11.5 bps lower at 6.162%.