The Australian Markets Rebound, the Aussie Shows Continuing Strength

The Australian equity markets posted their first gain after four days of losses. The appreciating commodities, such as gold and copper cleared the way for the gains, while S&P positive outlook on the future of Australian big banks has helped the sector lead ASX today. The 10-yr yields did not take the usual lead from the US yields that fell yesterday, competing with large bond sales by big banks. The Aussie continues to work its way towards 88 cents benchmark on strong carry traders? sentiment and positive comments of RBA governor Glenn Stevens.


[B]Home affordability crisis to deepen[/B] - Housing Industry Association (HIA) released its national outlook for the June quarter. The report stated that record low housing affordability was stopping a growing number of Australians from owning their own home. It was also stated that the housing supply would slow over the next 10 years as the demand will be very hurt. [I]Source: Herald Sun[/I].,21985,22098190-5012062,00.html
[B]Booming MacBank tips more ahead[/B] - Australia?s largest investment bank Macquarie Bank says that its first quarter earnings have risen substantially and an outlook on strong growth remains. According to the bank?s chief executive Allan Moss, the bank?s earnings improved across all of its businesses, but did not release any figures. The bank expects growth due to strong IPO and M&A activity and also plans to expand through small and medium size acquisitions. The bank is satisfied with its current location and plans to remain headquartered in Australia. [I]Source: The Australian[/I],25197,22098995-643,00.html
[B]Demand for executives plummets[/B] - A high Australian dollar and slowing US economy have led to an 11% decline for exec in June. The recruiting company EL Consult, which released the report, said that June being the month of year-end accounting does tend to be slower, but this past June?s fall suggested a larger than usual downturn. The data suggested that an overall downturn in employment might occur in the end of 2007, but would be mild. The biggest declines were recorded in marketing and IT, while financial services were the only ones to post a modest gain of 1% of the EL exec demand index. [I]Source: Herald Sun[/I],21985,22098728-5012062,00.html

The economic calendar remained relatively uneventful for the Aussie, the only data released today being the RBA Foreign Transactions for June, constituting A$618M versus prior A$480, marking the highest level since June 2006. The release merely stated the obvious fact that international investors are drawn to Australian markets: carry and FX traders taking advantage of high yields and rallying Aussie respectively, while hot mining industry and overall booming economy are attracting investors to equities. The hot Chinese data, including the CPI did that shook the markets last year did not have much of an effect this year. The AUDUSD pair was primarily driven by US dollar weakness on renewed Bear Stearns fears and large liquidation, hot CPI figures and then dovish comments of Fed?s chairman Bernanke. The comments of RBA?s governor Glenn Stevens saying that he was not at all surprised by the current Aussie strength and is still concerned about the Australian currency underperforming on the crosses, such as NZD, boosted investors? confidence in the Aussie strength.

[B][U]Stock Market[/U][/B]
The ASX posted first gain after a streak of four days of losses. Gold and copper price gains have helped the rally, boosting the performance of large miners, such as BHP that gained 0.7%. However, the leaders of the ASX gains today were large banks after S&P reported a stable outlook for them. National Australia Bank came into the first position with a 1.6% gain. Commonwealth Bank of Australia was the second largest mover with a 1.2% gain. The index closed 55.1 points higher at 6384.2.

[B][U]Bond Market
The bond yield was much more dynamic today than yesterday. The 10-yr competed with large bond sales by Investa and Becton Property Group, appreciating 2.5 basis points and booming equities. However, the yield declined after shortly before midnight EST, closing at 6.154% with an infinitesimal change of 0.1 bp. The media did not provide explanations for the decline.