Aussie Sees No Help from Strong Economic Data

Australian markets continued down the same path as yesterday, following the global trends. Positive Conference Board Leading Index did not help the Aussie, while falling commodity prices have hurt the ASX. As many investors poured into the bond market for safety, the 10-yr yields dropped 3.7 basis points.


[B]We’re drowning in household debt[/B] - A recent survey showed that despite the love Australians have for owning a house, they are less likely to purchase one now than five years ago. Only 32.6% of homes in 2006 were fully owned. On top of that, the affordability of prices has gone very low making headlines when poor New Home Sales figures came out. According to the data, “level of household debt has gone through the roof”. The rents and housing loan repayments have increased considerably. The median housing loan repayment increased 50% between 2001 and 2006 and the rent increased 31%, while the median income gained mere 24% during the same period. [I]Source: Herald Sun[/I].,21985,21976773-5012062,00.html
[B]Overheating concern as tax cuts hit wallets[/B] - As the Australian fiscal year draws to the end, elderly citizens and carers are receiving their bonus payments, a share of government?s budget surplus of 2006-07. The total amount of this payments is equivalent to 10% of monthly retail sales and is expected to trigger spending in the country. Furthermore, government adopted several tax cuts, such as the lift in the threshold for the 30c tax rate from $25,000 to $30,000 adding an estimate of $750 per year to taxpayers with incomes greater than $30,000 and zero tax on superannuation for citizens over 60 years of age. The analysts of the Australian Bureau of Statistics point out that not all of the give-away money will be spent and market will overestimate the boost of spending, as the last time such event happened people actually saved a large fraction of the “free money”. [I]Source: The Australian[/I].,20867,21972590-20142,00.html
[B]Power suppliers rap price controls[/B] - Australia?s major electricity suppliers are asking for deregulation of retail prices, arguing that it would add $400 million to the economy due to higher efficiency of a free-floating market. Consultant CRA International was hired to conduct an investigation and its report stated that they found no benefits to consumers from the regulated prices, but discovered numerous direct and indirect costs. The Independent Pricing and Regulatory Tribunal in NSW set prices for the next three years, but included a provision to review it annually due to uncertainties. The proponents of deregulation argue that these uncertainties and dead losses to the country?s economy will be fixed by a free market. [I]Source: The Australian[/I],20867,21974248-5005200,00.html

Australian Conference Board Leading Index printed positive 0.3% for a third month in a row indicating that country?s economy continues expanding. However, the Aussie headed for a steep decline as the Japanese finance minister warned investors about the risks of one-way exchange bets and many carry traders withdrew from their positions. The dollar dropped to as low as 0.8402, a steep decline from a very recent 18 year high against the US dollar.

Stock Market[/B][/U]
The ASX had a fifth consecutive day of losses, the longest in three months. The losses were due both to correlation with the global markets and decline in commodities, including gold, copper, zinc and oil. Mining giants BHP and Rio Tinto fell 1.0% and 0.8% respectively and oil company Woodside was down 1.3%. The index closed at 6184.20, down a considerable 124.4%.

[U][B]Bond Market[/B][/U]
The Australian 10-yr bond saw a large drop of 3.7 bps today, as many investors are turning to bonds due to the falling equities. The carry traders? sell-off that affected the Aussie did not have significant impact on bond yields as they showed almost no signs of appreciation during the day. The 10-yr yields ended the day at 6.201%.