The Australian Markets Proceed with Caution

The Australian markets were relatively quiet today, driven mostly by global markets. Strong consumer sentiment and New Motor Vehicle Sales helped the Aussie to set yet another high at 0.8813. The ASX index took a lead from the Dow, but did not see any record highs, despite booming metals and oil as investors remained caution about the future direction of the global markets that have pushed so far so fast. The bond yield remained mostly flat throughout the session, trading in a tight range of about 2 bps and loosing mere 0.9 bp at the close remaining very attractive for the carry traders.

Alcoa slumps as BHP ‘bid’ evaporates - The US aluminum giant Alcoa fell 3.9% today after The Australian reported that BHP Billiton will not make a takeover offer. After BHP?s rival Rio confirmed its bid for the Canadian Alcan on July 12, the speculation that BHP will bid for the US aluminum producer intensified. Alcoa was trying to acquire the Canadian aluminum producer earlier in the year to gain a competitive edge over the new #1 in the industry: Russian Rusal. The media explained that BHP did not go for Alcoa because it already possesses a diversified set of revenue streams with steel and raw materials contributing about 55% of the company?s EBIT versus 76% for RIO, which needed Alcan?s aluminum business to broaden its products line and gain greater stability. The analysts note that the decision will keep market in cautious about RIO?s ambitious bid. The media noted earlier this week, that the investors were concerned about the company taking too much debt with the takeover. Source: The Australian.,25197,22101669-643,00.html
Dexion to buy NZ Audeo Group for $12.2m - Industrial and storage company Dexion has entered an agreement to buy New Zealand commercial storage manufacturer Audeo Group for A$12.2 million. The purchase, according to Dexion will be on a debt free basis and will be completed by August 1. Audeo?s annual revenue is A$25.85 million and before tax profit of A$1.89 million. Source: Herald Sun.,21985,22104394-5012062,00.html
Consumer sentiment still upbeat - Australian National Retailers Association?s (ANRA) chief executive Margy Osmond stated that the consumer sentiment is still high amidst the economy boom and tax cuts. The upbeat in spending triggered by the sentiment translates into hotter employment rates and higher wages, both well above the trend. The news had positive effects on forecast growth of a department store giant David Jones Ltd and the largest computer equipment retailer in Australia Harvey Norman Holdings Ltd’.
Today Aussie?s strength was boosted by several economic releases. Import prices rose 0.1% in the second quarter versus previous -1.7%, and export prices increased 0.3% versus prior 0%. Even more impressive, was the change of the New Motor Vehicle Sales, up 2.2% for June versus prior -0.5% and 11.3% versus 6.6% for the year, suggesting that the Australian investor confidence and spending very strong right now. The momentum of the releases drove it to the fresh high of 0.8813. The Australian currency retained its strength throughout the Asian session, but dipped below the 88 cents after a sudden strengthening of the US dollar.

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

The Australian ASX index had a second consecutive day of gains today. The impressive rally of the Dow (closed just above 14,000); record high Asian equities and booming oil (crossed $75 level) and metal prices have all been named the reasons. Given such a streak of data it is surprising that the ASX moved so little and most gains being derived from the momentum at the open. The miners BHP and Rio Tinto led the gains with 1.9% and 2.5% gains respectively. The third largest index mover was the Commonwealth Bank of Australia with a 1.0% gain. The index closed 37.6 points higher at 6421.8.

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

The bond yield slipped lower today as driven by the US yield that slipped from 5.07 to 5.02 and continued down today. The bond yields remained mostly flat throughout the session, mimicking the ASX index and closing with a very modest loss of only 0.9 bp at 6.145%.