Australian Confidence, Stocks Drops

Mayank Mehta, Chandrasekhar Atreya and Darlington Musarurwa
19 May, 2010
New York City

Australia

[R]3:00 AM New York, 7:00 PM Sydney – Australia’s consumer sentiment index drops 7% in May. Fortescue Metals suspends A$17.5 billion projects on super-tax profit. Australia’s wages rises 0.9% in March.[/R]

The Australian currency slipped to an eight month low against the US dollar after consumer confidence tumbled the most in 19 months on concerns about China’s possible slowdown and Europe’s credit crisis.

The sentiment index decreased 7% to 108 points according to a survey of 1,200 consumers conducted by Westpac Banking Corp and Melbourne Institute of Survey between May 10 and May 16 and released today in Sydney.

In contrast, the wage price index that measures hourly pay rates excluding bonuses jumped 0.9% from the fourth quarter when it rose 0.6% as per details released by the Statistics Bureau in Sydney today.

The annual wage price index growth accelerated for the first quarter gaining 3% from a year earlier, today’s report showed.

Australian stocks fell on a spate of negative data as consumer sentiment dropped in May following the Reserve Bank of Australia interest rate hike.

Investors continued to sell as worries over the sovereign debt crisis deepened, while commodity stocks plummeted after gold prices slipped 0.01% to $1,214 per ounce and crude oil prices declined 1.2% to $68.6 per barrel.

The deposit market competition is likely to ease, as a further recovery in securitization markets could help lenders to further their sources of funding, according to the RBA.

‘The need for more secure sources of funding has forced banks to hike their deposit rates by 150 basis points from the previous level that was about 50 basis points below the bill rate,’ said RBA Assistant Governor, Malcolm Edey, at the Australian Retail Deposits Conference 2010 in Sydney today.

In Sydney trading ASX 200 Index fell 1.9% or 83.6 to 4,387.10.

Of the ASX 200 index stocks, 25 gained, 170 fell, and 5 were unchanged. Karoon Gas Australia led gainers in the index shares with a rise of 5.9% followed by Whitehaven Coal jumping 3.4%.

The Australian dollar declined 0.7% to 85.82 U.S. cents.

Consumer Sentiment Falls 7% in May

The Westpac–Melbourne Institute researched Consumer Sentiment Index fell by 7% to 108 in May from 116.1 in April after the Reserve Bank of Australia increased its key rate by 25 basis points.

The recent rate increase has pushed the variable mortgage rate from 7.15% to 7.4%, which is within the range for the variable mortgage rate where future rate hikes are going to hurt consumers.

Confidence of respondents with a mortgage fell by 8.1% in May compared with average fall of only 2.3% in response to the five previous rate hikes.

Westpac chief economist Bill Evans said the Time to Buy a Dwelling Index declined by 15.4% to 88.2 in the period, which is 35.6% below its long run average.

In the period, the Share Price Index fell 6.8% while the Australian dollar dropped by 4.2%.

In addition, the Expectations Index fell by 10.8%, while the Current Conditions Index plunged 1%.

The component of the Index assessing the economic outlook for the next 12 months fell by 17.3% while the five year outlook fell by 10.6%.

Expectations for family finances over the next 12 months also fell by 3.6%, while the assessment of family finances today relative to a year ago rose by 2.6%.

An assessment on ""whether now is a good time to buy major household items"" decreased by 3.4%.

Westpac is forecasting RBA to pause increasing its interest rates when it meets on June 1.

Wages Rise 0.9% in March

Australian Bureau of Statistics reported today that the country’s wage price index, which measures the total hourly rates of pay excluding bonuses, rose 0.9% in March from the previous quarter and advanced 3.1% from the same period a year ago.

For the private sector, the index jumped 0.8% from the December quarter and advanced 2.6% from a year ago, while the index gained 1.2% in March and 4.3% from the comparable year ago period in the public sector.

Fortescue Suspends A$17.5 billion Projects

Fortescue Metals Group reported today that it has mothballed two of its three expansion projects due to “the financial impact of the Federal Government’s proposed Resource Super Profits Tax.

In particular, the US$9 billion Solomon Hub project, which includes the development of the new Pilbara port at Anketell Point, will be put on hold, while the US$6 billion Western Hub project has also been suspended.

The affected projects mainly depended on debt funded capital using equity derived from cash flow from the Chichester Hub project.

However, the US$4.5 billion Chichester Hub will proceed as it is expected to be funded by internally generated resources.

According to company secretary Rod Campbell, the review was necessary by the funding implications of a proposed retrospective tax on projects that were financed prior to the imposition of the tax.

The miner will seek clarification on the government tax guarantee for 40% of project losses in the event of bankruptcy.

ASX 200 Index Movers

Karoon Gas Australia led gainers in the ASX 200 index stocks with a rise of 5.9% followed by Whitehaven Coal 3.4%, Australian Agriculture 2.7%, Singapore Telecommunications-CDI 2.1%, and Billabong International 1.9%.

Gunns Ltd led decliners in the ASX 200 index stocks with a fall of 9% followed by Murchison Metals 8%, Roc Oil 7.5%, MacMahon Holdings 7.2%, and Boart Longyear Group 6.9%.

Other Movers

Commodity stocks fell after gold prices dropped 0.01% to $1,214 per ounce and crude oil prices slipped 1.2% to $68.6 per barrel. Medusa Mining decreased 6.2% to A$4.51 and Gindalbie Metals edged up 5.8% to A$0.98.

Financial stocks also fell on worries over the deepening sovereign debt crisis. National Australia Bank dropped 3.7% to A$23.80, Westpac decreased 2.9% to A$22.70 and Commonwealth Bank of Australia tumbled 2.4 to A$51.38.