Investor Confidence Comes Back

Yesterday?s bounce back in the Dow had profound influence on the Australian markets. Primarily due to strengthened investor confidence and risk appetite, Japanese carry traders returned, helping the Aussie recover to 84 cents level. Equities dominated bonds and as a result ASX gained 81.4 points while bonds fell with the 10-yr yield gaining 4.1 basis points today.

[B]Xstrata may end coal bid -[/B] The Swiss Mining giant Xstrata has warned Gloucester Coal that it might walk away from its $391 million bid after a Hong Kong commodity trading giant Noble Group is attempting to block the bid. Xstrata?s spokesman proclaimed that the Swiss company is positive that it has properly valued the Australian miner and will refuse to pay higher. It will walk away if a hostile bid comes through. [I]Source: The Australian[/I],20867,21979746-5005200,00.html
[B]Citigroup cleared of insider trading[/B] - The Federal Court in Sydney has ruled the case of insider brought into court by the Australian Securities and Investments Commissions (ASIC). The first claim of insider trading could not be supported and was only based on discussions between traders. The second claim failed as the court was shown evidence that at the time Citigroup traded shares of Patrick Corp. it had arrangements that ensured that information was not communicated to the trader. Citigroup is satisfied with the outcome and hopes to continue its work and collaborate with the ASIC. [I]Source: Herald Sun
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[B]Board bid at Paramount[/B] - The diamond explorer Paramount Mining was regarded as underperforming and shareholder activists are considering replacing the board. The company?s share price dropped more than 30% in the past year. The initiator of the board replacement is the major shareholder Cleo Holding that has a 9.73% stake at paramount. Paramount?s stock price was unchanged today. [I]Source: The Australian

The only news on the economic calendar for Australia was the job vacancies that printed 3.9%, just slightly below the expected 4.9%. The news had very little effect on the AUD/USD pair, and the large movements were attributed to carry traders resuming their activity and buying the Aussie again. As a result, the Australian dollar reached as high as 0.8447, where it met some resistance.

[U][B]Stock Market[/B][/U]
The ASX was recovered today aided by the strong gains of the Dow and rally of oil and metal prices. As there was little market moving domestic news during the day, ASX stayed almost constant until the close. The top market movers were the mining giant BHP Billiton, up 2.0% and two banks: National Australia Bank, up 1.9% and Commonwealth Bank of Australia, up 1.7%. The index closed at 6265.6, up 81.4 points.

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

The bond market was dominated by considerable strengthening in investors? risk appetite. Encouraged by the strong equity gains, investors were leaving their fixed income positions for higher yielding investments. The return of carry traders has not provided significant downwards pressure on yields and the 10-yr closed at 6.24, up a whopping 4.1 basis points.