The Aussie Crumbled to 85 cents, but Expected to Stabilize

The Australian markets were surprisingly stable today. The strong negative lead from the Dow did not cause the ASX to tumble, and the Australian equities moved into black. The Aussie has found support around 85 cents and is now dependent on the risk appetite of carry traders and the RBA decision and Glenn Stevens? rhetoric. The bonds behaved much like the equities, remaining almost flat and posting little gains at the close.

[B]Rate rise won’t affect us, says Australand[/B] - Developer Australand Property group reported a 34% increase in its first-half profit and says that it remains on track for improved annual earnings. Chief executive John Thomas said that Australand has already shielded itself against a possible interest rate increase in August by moving away from the first-home buyer market. Australand has focused on “quality projects with existing underlying demand”, wealthy clients that will not be affected by the hike. However, apartment construction has stalled in eastern territories, particularly NSW. Despite optimistic rhetoric of the chief executive, company shares have fallen 1.3% today. Source: Herald Sun,21985,22156764-5012062,00.html
[B]Political snag for Chalco[/B] - The biggest Chinese investment in Australia - the proposed $3 billion alumina development in Aurukun has been blocked from receiving federal funding. The federal state political dispute has endangered the project and has potential to damage Australia?s trading and commercial relationship with China. Chalco was quite lucky to win a tender for the development competing with such giants of the industry as BHP, Alcan, Alcoa, Rusal and Xstrata. However, the federal government rejected Chalco?s request for assistance with infrastructure costs, deeming it unfair as it was not offered to any unsuccessful tenders. The Queensland government is asked for up to A$300 million in common-user infrastructure. At the time of the tender, however, the Queensland Premier Peter Beattie said Chalco had the full support of the Chinese government as it was a strategic investment for China. Source: The Australian,25197,22154642-5005200,00.html
[B]Pipeline a ‘disaster waiting to happen’[/B] - An oil pipeline operated by Santos Ltd ruptured just south of Brisbane over the weekend, causing evacuation of some 500 homes. The pipeline has been shut down and a section isolated, some 205 cubic meters of water and oil had been removed. Santos said that it took measures and maintains proper insurance coverage for these types of accidents. However, Ipswitch city council?s environmental spokesman Paul Tully called for the pipeline to be moved away from residential areas. Built in 1964 pipeline has failed twice in four years, a March 2003 leak resulting in some two million liters of oil spilling into the Brisbane River. Mr. Tully stated that the pipeline remaining where it is now is an environmental disaster waiting to happen. Source: Herald Sun,21985,22157163-5012062,00.html
The economic releases did not move the Aussie, just like they did not move the US dollar last week with such important releases as GDP and home sales. The reason may be that both releases have stated the obvious. The second quarter NAB Business Confidence rose by 2 points to 12, not at all surprising amidst weeks of media headlines about the booming Australian economy. HIA New Home Sales printed -0.8%, not as bad as the prior -4.4%, but a negative figure was not at all surprising after the media was covering the housing crisis led by record low affordability. The analysts predict that the same players that moved markets last week are expected to move the Aussie in the near future as well. If the capital markets will find support on their recent dips and will stabilize, healthier risk appetite will lead to investors buying right back into the positions that they sold last week.

[U][B]Stock Market[/B][/U]

The ASX surprisingly stabilized and moved on to weak recovery despite a strong negative lead from the Dow. The media noted that the ASX has suffered its worst week in 15 years, while the fundamentals remained strong. Hence, Australian equities were moved by speculators who decided that stocks became relatively cheap relative to earnings prospects. The miners were in the lead today on copper and oil prices rebounding, with BHP Billiton gaining 2.3% and Rio Tinto adding 1.3% to its share value. The third largest index mover was Macquarie Bank, but it did not help the index advance. Amidst the speculations that higher credit costs will cool off the global takeovers, Australia?s largest investment bank slipped 1.4%. Many brokers note that the next few weeks many profit reports are due, and they are waiting for this critical news before getting back into their positions. The index gained modest 25.9 points and closed at 6108.8.

[U][B]Bond Market

[/B][/U]The bond yield did not see large moves today, but found strong support. The optimistic rhetoric by the Australian Treasurer Peter Costello, stating that Australian market can weather the global instability certainly helped. The Australian reporting season just starting, the analysts expect the capital markets remain little changed as the investors will be looking where to put their money: equities or bonds. The yield gained very modest 0.4 bp and closed at 5.971 not daring to cross the psychological 6.0 level.