Growth Outlook Eases in Australia

123jump.com Staff
17 Sep, 2008
New York City

Stocks in Australia edged lower as global credit crisis brought down the largest insurance company AIG and receive emergency bailout from the U.S. Fed. The emergency action sent shock waves around the world and only a day ago one of the oldest brokerage houses in the U.S., Lehman Brothers had sought bankruptcy protection. The interbank lending in the U.S. and Europe remain frozen as banks avoided lending to each other.

[R]3:00AM New York, 7:00PM Sydney – Financial stocks in Australia fell as global credit markets remained seized and the U.S. conducted the largest bailout in its history.[/R]

Stocks in Australia edged lower as global credit crisis brought down the largest insurance company AIG and receive emergency bailout from the U.S. Fed. The emergency action sent shock waves around the world and only a day ago one of the oldest brokerage houses in the U.S., Lehman Brothers had sought bankruptcy protection. The interbank lending in the U.S. and Europe remain frozen as banks avoided lending to each other.

Financial stocks were affected by news that Macquarie Group Ltd. may face difficulty in refinancing debt.

Market Sentiment

In Sydney trading ASX 200 index fell 0.6% or 28.6 to 4,722.20. Of the ASX 200 stocks, 90 rose, 97 declined and 13 were unchanged. Babcock & Brown led advancers in the index shares with a rise of 19.8%.

U.S. Fed in Historic Bailout of AIG

The Federal Reserve Bank in the U.S. nationalized the troubled insurer AIG, fired its management and agreed to offer $85 billion of loan at a substantially higher rate than expected. The dramatic decline of once the largest insurance companies in the world highlights the daunting tasks the regulators in Washington and New York face in restoring investors’ confidence.

The Fed will provide two-year bridge loan at 8.5% above the Libor rate and in exchange of warrants that will control 79.9% of the company and replaced its management. The Fed hopes that its action will allow AIG to conduct its business and sell assets in an orderly manner and repay loans in less than two years.

The nationalization of AIG is the worst financial collapse in the U.S history and largest bailout of any private company in the world. The lawmakers and regulators remain at odds as late as last night before the announcement of the loan package. The U.S. Treasury Secretary office and the Senate Finance Committee members could not agree on how far the U.S. gets involved in AIG and in the future bank collapses.

Australia''s Annualized Leading Index Slows 3.7% in July

Westpac Banking Corp. reported on its Web site today that the annualized growth rate of the Westpac-Melbourne Institute Leading Index, which gauges the pace of economic activity in the next three to nine months, eased 3.7% in July from a fall of 2% the previous month.

Also the Coincident Index was 1.4%, below the long-term trend of 3.6%.

The report notes that there has been a substantial upward revision in the growth in June to 4% due to stronger-than-expected growth in corporate profits and productivity that is reflected in the June quarter national accounts.

Notably, national accounts recorded a 12% increase in profits of non-financial companies in the quarter to June, driven by a 40% rise in mining profits and a 5% gain in non-mining profits.

RBA Injects Capital

The Reserve Bank of Australia has injected A$4.285 billion into the financial system in order to allay mounting worries occasioned by the failure of Lehman Brothers and the acquisition of Merrill Lynch. The move coordinated with the central bankers in Japan, Switzerland, Europe and the U.S. was designed to provide added liquidity to the system.

Gainers & Losers

Babcock & Brown led advancers in the ASX 200 index shares with a rise of 19.77% followed by increases in St Barbara Ltd. of 9.09%, in Lihir Gold of 8.63%, in Hills Industries of 6.10%, and Sino Gold Mining of 5.65%.

Gold stocks gained as gold price rose more than 4% in international trading. Investors are increasingly unwilling to take additional risk in the stock markets and fearful of poor response from the central bankers in resolving ever growing U.S. financial crisis.

Babcock & Brown led decliners in the S& P/ ASX 200 index shares with a fall of 12.38% followed by losses in Great Southern of 11.96%, in HFA Holdings of 10.64%, in Timbercorp Ltd of 9.93%, and Tower Australia of 8.62%.

Commodity stocks also fell as the Australia dollar strengthened. Panoramic Resources edged up 8.19%, Murchison Metals advanced 7.37% and Roc Oil surged 6.93%.

Macquarie Group Ltd. slipped 7.80% on news that it might face difficulty in refinancing debt.