The Australian markets suffered from the global fall of equities. The 1.1% drop of the Dow index and reported 25% losses of two Macquarie Bank?s investment funds have sent the ASX down 3.3% marking its worst day in six years. The news of Mac Bank?s troubles was especially bad as the funds were reported to have had no direct relation to the US subprimes. The unwinding carry traders sent the Aussie as low as 0.8444 with no help seen from the stellar retail sales and manufacturing. The 10-yr yield plunged under the demand for the fixed income in the flight to safety.
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[B][U]Headlines[/U][/B]
[B]Dow Jones takeover ‘will change industry?[/B] - Fund managers foresee that successful takeover of Dow Jones Inc., the publisher of The Wall Street Journal, by News Corporation could have a profound effect on the Australian media. 2MG Asset Management director Scott Maddock said that Dow Jones is one of very few websites that generates subscribers. Analysts also suggest that Dow Jones was underselling its content and might raise prices to boost its revenues. News Corp is the parent company of the publisher of news.com.au portal, the largest source of media in Australia. The Australian Financial Review is anticipated to become less competitive, with weaker must-read content. Source: Herald Sun
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[B]MacBank: brace for sub-prime loss[/B] - Macquarie Bank, Australia?s largest investment bank revealed yesterday that two of its high-yield investment funds lost up to 25% of their value. The funds did not have direct exposure to the US subprime, which signals danger to the bank according to the analysts. The director of one of the funds, Peter Lucas, said that the underlying assets remained fundamentally healthy and fell by 4% in the month to July 30, but the leverage increased the loss to about 25%. He said that the funds were forced to sell assets to reduce leverage, but were not successful because of market conditions. Last quarter Macquarie Fortress Notes paid an annualized yield of 10.8%. The decision regarding current quarter?s interest distribution has not been made yet. Source: The Australian
http://www.theaustralian.news.com.au/story/0,25197,22168528-20142,00.html
[B]Building industry suffering skills shortage[/B] - Despite the fact that building activity has cooled off in recent years; there is still shortage of skilled workers according to Housing Industry Association (HIA). HIA?s chief economist Harley Dale said that all trades are experiencing a shortage of human capital. This presents additional challenges to the building industry that might experience significant cost pressure. With housing affordability at record lows, these extra costs might signal more troubles for the industry. Source: Herald Sun
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[B][U]Currency
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The Aussie remains driven by the situation in the capital markets. The stronger retail sales that printed 1.4% versus predicted 1.0% and -0.1% prior, the largest increase in two years, coupled with strong Performance of Manufacturing Index that printed 57.4, highest since December of 2004, lifted the Aussie some mere 20 pips. The trade balance went further into negative territory for which weather is to be blamed according to the analysts. However, the economic data was of little significance to the AUDUSD pair that tumbled over 150 pips from yesterday reaching new lows of 0.8447. The Australian ASX was hurt the most amongst word?s top 21 equity indices losing 3.3% of its value. With no significant economic releases on the calendar for the rest of the week, the Aussie is expected to be driven by the capital markets? stability and the carry traders? sentiment.
[U][B]Stock Market[/B][/U]
The ASX collapsed today, falling 3.3% - the largest fall amongst the top 21 world equity indices listed on Bloomberg. The negative lead from the US, where the Dow fell 1.1% started the day for the Australian equities, erasing all of the gains made in the previous two days in a mere hour after the open. The 25% losses from two retail investment funds of Macquarie bank have worsened the situation. Despite the Treasurer Peter Costello rushing to proclaim that the US subprime will not jeopardize the growth and stability of the Australian economy, the markets continued to plunge. The aforementioned Macquarie lost 11% of its value today, while the Commonwealth Bank of Australia lost 3.8%. Four out of five top index movers today were large Australian banks that were hurt by the bad news. The top index mover was BHP Billiton that tumbled due to its close ties to the global financial system and falling commodities. BHP was down 2.8% today contributing a loss of 17.7 index points alone. Overall, the index lost 203 points closing its worst day in 6 years at 5941.20, below the psychological 6000 benchmark that it crossed in April.
[U][B]Bond Market
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The bond yield plunged today as the equities posted strong losses and the investors fled to safety of the fixed income. The bond yields lost 11.5 bps closing at 5.916%.
