The Australian Markets Take a Hit from the Dow

The Australian markets that proved to be weak in the past two sessions, collapsed like a house of cards as the Dow tumbled again. The Australian dollar has not suffered as much as it did in the previous weeks, as the weakness in the US dollar has helped offset the effects of the carry liquidation. While the Aussie fell to a four month low against the yen, it has maintained strong stance against the US dollar and did not dip below 85 cents benchmark.

[B]Wall St sparks local plunge[/B] - After the negative US lead, the Australian equities fell by as much as 2% in early trading. Companies with largest weight on the index, such as miners BHP Billiton, Rio Tinto and major banks Macquarie, Commonwealth Bank and National Australia Bank. The negative sentiment was driven by renewed concerns of the grim US credit market voiced by Bear Sterns as well as weaker unemployment figures. The gap between US spending and earnings has not narrowed, while unemployment grew by 0.1% causing concerns that the mortgages and loans in US will suffer more defaults. Mixed metal prices did not help the miners, while the plunging oil had universally negative effect on oil companies. The bearish sentiment was so strong that Argo Investment fell 1.6% even after it reported a projected 18.9% lift in 2007 net profits. The analysts noted that many have underestimated recent declines and were expecting the Dow and ASX to consolidate and rebound late last week. However, since that did not happen, they foresee the current volatility scaring off the investors for a prolonged period of time. Source: The Australian,25197,22195752-643,00.html
[B]Gold price ‘to surge above $US1000 mark’[/B] - Vice-chairman of Newmont Mining Corp. Pierre Lassone has forecasted the gold price to reach $1000 mark and that the global resources boom still has a way to go. Gold has broken away from equities on Friday for the first time in months, attracting risk-averse investors. Newmont, the world?s second largest gold producer expects to produce up to 5.6 million ounces from its global operations this year. Source: Herald Sun,21985,22196332-5012062,00.html
[B]Symbion report recommends Healthscope offer[/B] - Ernst & Young has concluded that the proposed takeover of Symbion Health by Healthscope will be in best interests of Symbion?s shareholders. Under the proposed scheme, Healthscope would pay between $4.36 and 4.561 per share plus cash amounting to Symbion?s 2007 final dividend, which represents a 25-30% premium. Symbion?s shareholders will meet to vote on the proposed takeover on September 11. Source: Herald Sun.,21985,22195597-5012062,00.html
The Aussie remained volatile, but did not find a direction. The plunging Dow and ASX certainly did not help the carry traders? sentiment and the Aussie fell to a four month low against the yen. However, unlike in the previous weeks, the investors did not find the US dollar an ultimate safety currency, and went long on Swiss franc and European currencies instead. The dollar weakness prevented the AUDUSD falling below the 85 cents benchmark and the pair even recovered almost all Friday losses, aiming for a retest of 86 cents. The media once again took notice that the Australian banks are little exposed to the US subprime crisis. Once the bearish sentiment cools off, the analysts note a lot of potential for the bulls as the fundamentals remain strong. The only economic data released for Australia was ANZ Job Advertisements that printed negative for the second month at -0.5%, yet was slightly better versus prior -0.8%. The analysts commented that the negative figure is related to the fact that employers were successful in filling the vacancies. The market did not show strong reaction to the data.

[B][U]Stock Market
The ASX collapsed again after two days of a slowdown as the Dow printed in red again. The new wave of risk aversion has sent the Australian index by as much as 2% in early trading. The media reported that the move was largely caused by renewed scares of the US credit market, while mixed metal prices did not help miners gain or lose, while falling crude prices had negative impact on Australian oil industry giants. In the end, the Australia?s biggies with largest exposure to the global markets lost the most: BHP Billiton was in the lead with a 2.2% loss and Macquarie Bank was a close second, losing 7% of its equity value. The third largest loser was National Australia Bank with a 1.7% loss. The index eased 100.8 points to 5920.2.

[B][U]Bond Market
The bond yield has lost the close correlation with the ASX index that it had in the past two sessions. The yield took a strong negative stance after the open from the global fixed income markets and rapidly collapsing ASX. The spike up was rumored to have been affected by an A$1 billion bond sellout by the Bank of Queensland and the comments that the Australian markets will not be strongly affected by the US subprime woes. The bond yield has remained flat for the rest of the session, closing 3.4 bps lower at 5.916%.