Investor Confidence and Risk Appetite grow, the Aussie Reaches 86 Cents

All Australian markets gained today as investor confidence and risk appetite returned due to the strong US labor market data. The ASX index was driven by multiple industries, from mining to retail and banking. The Aussie was driven higher by carry traders, while the 10-yr yield was boosted on fears that pre-election spending spree will create inflationary pressure and induce RBA to hike soon.


[B]Go easy on spending, warn banks[/B] - The top banks of Australia have warned both the Coalition and Labor parties against encouraging high spending during pre-election. Hotter spending would create inflationary pressure and induce RBA to raise rates. While the Japanese carry traders would very much like that, higher interest rates would translate into higher mortgage payments to the Australians who are facing skyrocketing housing prices. The stronger dollar would also put strong pressure on the bottom lines of Australian mining exporters. While the leader of the Coalition party John Howards attracts voters by arguing that interest rates will always be lower under his party, the analysts do not buy in, as RBA stays independent from politicians and would raise rates regardless of what party wins if inflationary pressure is created. Source: The Australian.,20867,22040285-20142,00.html
[B]Burrup plant fails environmental standards[/B] - The liquefied natural gas (LNG) plant on the Burrup peninsula in Wester Australia proposed by the resource giant Woodside failed to meet marine standards set by the state environmental regulators. The predicted coral loss caused by the $10 billion plant would exceed the accepted levels greatly. However, the plant could still be built if Woodside agreed to a range of conditions set by the regulators. The company spokesman said that company was satisfied with the recommendations, but did not say whether the conditions will be accepted. Woodside is also considering still as to whether to make an appeal. Source: Herald Sun,21985,22042822-5012062,00.html
[B]Investors abuzz as BHP and Rio ride the commodities super cycle[/B] - BHP?s new CEO Marius Kloppers concluded his first address to the firm?s Melbourne staff with a warning that its global rivals are catching up. Both mining giants, BHP and Rio Tinto, are now sitting in a difficult spot. The mining industry is clearly booming, but the commodity prices do not appear to have much juice to grow. The companies must invest and stay ahead of its rivals, while staying careful not to get caught up in over-production and oversupply that would signal a bubble burst. Goldman Sachs warned both companies that they should be more aggressive to keep their market shares. The world awaits the response that the CEOs of the two giants will make. Source: Herald Sun.,20867,22039378-5005200,00.html

Housing affordability strategy needed - Rudd - The Labor leader Kevin Rudd accused the Federal Government of failing to act on a current housing crisis, when first-home buyers and low-income earners get locked out. Mr. Rudd said that Australia needs a national housing affordability strategy to deal with home ownership and rental crisis. Source: Herald Sun,21985,22042624-5012062,00.html
The Aussie was moved little today by the ANZ Jobless Advertisements release that printed negative for the first time this year, signaling that the number of vacancies is cooling off. Instead, the market was strongly driven by carry traders, who have taken the US labor market data released on Friday will not encourage the Fed to raise rates this year. However, it did signal stability and spurred risk appetite in investors. The Aussie reached the 86 cents level against the US dollar, where it was just before the US labor market release.

[U][B]Stock Market
The ASX gained on stronger investor confidence. The gains were seen across the board and it is difficult to separate a single industry that was driving the surge. This gets reflected in the mix of today?s three leaders: BHP Billiton, representing mining, gained 3.2%; Commonwealth Bank of Australia let banking sector rebound with a 1.4% gain; last but not least, Woolworths?, representing the retail business, climbed 1.9%. The index gained 49.5 points and closed at round number of 6400.6.

Bond Market

[/U][/B]Despite the demand pressure from carry traders and gaining equities, the 10-yr yield surprisingly surged today above the magic 6.25% level. The skyrocketing housing prices and the pre-election tendency of candidates to encourage spending to please electorate puts pressure on RBA to raise rate. The yields surged 5.9 basis points closing at 6.296%.