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Friday 6th May 2016 - 4:38 pm
Comments Off on RBA reveals all

RBA reveals all

by Alan Thornhill

Australian shoppers are spending more and saving less, according to the Reserve Bank.

The bank made this observation in the May Economic statement, which it published today.

Its main purpose, in publishing this month’s statement, was to explain why the bank cut its marker interest rate by 25 basis points last Tuesday, to a new low of 1.75 per cent.

The bank confirmed, in its statement, that its board had been thinking of cutting this rate, for some time.

It peaked – at 17 per cent – in the late 1980s.

But the bank is expecting much quieter times, in the period ahead.

It noted that wage growth had been “modest.”

It said:“ This implies a further gradual decline in the household saving ratio over the forecast period.”

The bank also said:”The amount of residential construction work still in the pipeline is substantial and has continued to increase.”

“This points to further strong growth in dwelling investment, albeit at a gradually declining rate consistent with the decline in building approvals since last year.”

“ In established housing markets, conditions have stabilised over the past six months or so.”

“ Housing prices have grown moderately over 2016 to date, following a small decline at the end of 2015.”

“ Housing credit growth has eased a little over recent months to be around 7 per cent in six-month-ended annualised terms in early 2016.”

“ This follows increases in mortgage rates and the strengthening of banks’ non-price lending terms in response to supervisory actions.”

“In above average and business credit growth has picked up over the past year or so.”

“ Nevertheless, indicators of investment intentions suggest that non-mining business investment is likely to remain subdued for a time, although it is expected to gradually pick up later in the forecast period as overall demand strengthens.”

“ Mining investment is expected to continue to fall as projects are progressively completed,” the bank said.

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Tuesday 3rd May 2016 - 5:32 pm
Comments Off on Testing investors

Testing investors

by Alan Thornhill

Analysis

Falling prices have allowed the Reserve Bank to shave interest rates.

But how well with this fit, with the Federal government’s economic policies?

We don’t know yet, because at the time of writing the Treasurer, Scott Morrison, still had not delivered his budget speech, in which he is expected to spell out those aims, in detail.

But we can say, safely, that the patience of Australian investors will be tested, in the months and years ahead.

The Reserve Bank’s decision today, to lower its cash rate from 2 to 1.75 per cent, is of historic significance, in the management of the nation’s finances.

The bank’s Governor, Glenn Stevens, was frank about the bank’s assessment of the circumstances in which it was made.

He said:” This follows information showing inflationary pressures are lower than expected.

“The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently.

” While several advanced economies have recorded improved conditions over the past year, conditions have become more difficult for a number of emerging market economies.”

That’s not what investors are looking for, when they decide where to put their money.

Low risk and the prospect of reliable returns are more attractive, or even just acceptable prospects.

Will Mr Morrison’s budget help to produce happier circumstances of that kind?

Well, Australia is, once again, going through a time of quite basic adjustment.

The minerals boom is over.

Investors must look for fresh opportunities, in this time of adjustment.

They will be available.

But will tonight’s budget be compatible with them?

Perhaps that’s the real question.

Tuesday 3rd May 2016 - 3:57 pm
Comments Off on The Reserve Bank decides

The Reserve Bank decides

by Alan Thornhill

The Reserve bank has cut its cash rate by 25 basis points to 1.75 per cent

In a statement explaining the decision the bank’s Governor, Glenn Stevens, said:”At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.75 per cent, effective 4 May 2016.

This follows information showing inflationary pressures are lower than expected.

“The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently.

” While several advanced economies have recorded improved conditions over the past year, conditions have become more difficult for a number of emerging market economies.

‘”China’s growth rate moderated furthe”r in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook.

“Commodity prices have firmed noticeably from recent lows, but this follows very substantial declines over the past couple of years.

“Australia’s terms of trade remain much lower than they had been in recent years.

“Sentiment in financial markets has improved, after a period of heightened volatility early in the year.

“However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.

“In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom.

“GDP growth picked up over 2015, particularly in the second half of the year, and the labour market improved.
Indications are that growth is continuing in 2016, though probably at a more moderate pace. Labour market indicators have been more mixed of late.

“Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.

“Monetary policy has been accommodative for quite some time. Low interest rates have been supporting demand and the lower exchange rate overall has helped the traded sector.

“Credit growth to households continues at a moderate pace, while that to businesses has picked up over the past year or so.

“These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.

“In reaching today’s decision, the Board took careful note of developments in the housing market, where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate.

“At present, the potential risks of lower interest rates in this area are less than they were a year ago.

“Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting,”Mr Stevens said.
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Monday 2nd May 2016 - 6:30 pm
Comments Off on Labor again ahead in the polls, but…

Labor again ahead in the polls, but…

by Alan Thornhill

A new Morgan Poll once again puts Labor in front, but the pollster adds that if a federal election were held today, the result would probably be too close to call.

Gary Morgan, the Executive Chairman of Roy Morgan research, said it could well result in a hung Parliament.

He said that in early May ALP support was up 1 per cent at 51 per cent.

The Coalition’s support fell 1 per cent, to 49 cent on a two-party preferred basis.

“ This is the best result for ALP since Malcolm Turnbull became Prime Minister in September 2015,” he added.

Significantly the Roy Morgan confidence level also fell, slightly, to its lowest level ince Mr Turnbull became Prime Minister.

It showed that only with 39.5 per cent of Australians believe that Australia is ‘heading in the right direction’ while 41.5 per cent believe the country is ‘heading in the wrong direction’

This week’s Morgan Poll on Federal voting intention was conducted over the last two weekends, April 23-24, and April 30 and May 1, 2016, with an Australia-wide cross-section of 2,951 Australian electors.

Monday 2nd May 2016 - 12:03 pm
Comments Off on It’s not just iron ore and coal now

It’s not just iron ore and coal now

by Alan Thornhill

Australian wines, lobster and cherries are starting to appear on Chinese tables.

And that’s just the start of it.

The Federal Minister for Trade and Investment, Steven Ciobo, says our Chinese customers are also buying more fresh mangoes, abalone and boneless beef from us as well.

So our trade, with our most important customer, now goes well beyond their traditional purchases of iron ore and coal.

Mr Ciobo wants us to keep all this in proportion.

In a statement today, he merely says Chinese trade data shows “encouraging early signs that the China-Australia Free Trade Agreement (ChAFTA) is delivering for Australian business.

“Between January and March 2016, Chinese imports of Australian bottled wine grew more than 60 per cent compared to the same period 12 months previously, to reach $200 million, as tariffs were cut twice, from 14 per cent to 8.4 per cent,” he added.

He also said:”with tariffs cut, China’s $11.6 million worth of imports of fresh Australian lobster between January and March were triple those of 12 months ago, and exceeded China’s entire 2015 imports of Australian lobster. 

“Milk powder and fresh cherry imports more than doubled.”

Mr Ciobo also said: “Chinese imports of other products – including fresh mangoes, fresh abalone, fresh and frozen boneless beef, various types of cheese, and hay and chaff – grew impressively as ChAFTA cut tariffs and boosted Australia’s competitive position.”

“Imports of Australian manufactures that benefited from tariff cuts – like titanium for pigments, unwrought zinc and various mixed food preparations – also grew strongly.

He said that:”These impressive results occurred alongside the third round of tariff cuts in early 2016 under both the Korea-Australia Free Trade Agreement (KAFTA) and Japan-Australia Economic Partnership Agreement (JAEPA), which are also driving increased Australian exports to these two major markets where protection is being reduced.”

“Through the trifecta of FTAs Australian businesses now have preferential access to all three giant north Asian markets – access that is unmatched by other major advanced economies.”

“This positions Australia to continue to capitalise on the rapid expansion of Asia’s middle classes and their demand for the high quality produce and other goods we can provide.” 

“This means exciting opportunities for Australian businesses and will drive jobs and growth in the Australian economy.”

“With tariffs on Australian products continuing to be cut annually into north Asian markets, these three FTAs will continue to deliver for Australian business for years to come,” Mr Ciobo said.

Thursday 10th March 2016 - 6:49 pm
Comments Off on The good customer that keeps getting better

The good customer that keeps getting better

by Alan Thornhill

China is already Australia’s best customer.

However new research suggests it could be much better.

It also suggests that your business might well benefit.

The research, published by the Australia China Relations Institute points out that at 109 million in 2015, China’s middle class is already bigger than that in the United States.

Seventeen million bigger in fact.

So we can expect to sell more than iron ore and coal in future.

The Institute also says : “Australia’s ‘China Resources boom’ may have peaked but 57 cents in every dollar increase in Australian exports between 2009-10 and 2014-15 still came from China”

And it adds: “If managed well, Australia’s ‘China dining and services boom’ could run for decades.

There is much more on the Institute’s website at Australia China Relations.Org

Here, though, are some samples:-

In 2014-15 Australia’s agricultural exports to China stood at $9.0 billion

That was up from $3.7 billion in 2009-2010 and 72 percent more than to the US, our second largest customer.

In 2014-2015 Australia’s services exports to China stood at $8.8 billion.

This was up from $5.5 billion in 2009-2010 and 24 percent more than to the US, our second largest customer.

In 2015 more than one million Chinese  tourists visited Australia spending $7.7 billion.

That was up from $3.3 billion in 2010 and more than double that of UK visitors in second place.

By 2020 Chinese tourist spending is forecast to reach $13 billion and account for 44 percent of the growth in total tourist spending to 2024-25,the Institute said.

It  added:“ China’s middle class is no longer confined to the tier-one metropolises of Beijing, Shanghai, Guangzhou and Shenzhen.

By 2022 84 percent of the middle class is expected to live outside these cities.”

“In 2011 the only direct flights to Australia were from Beijing, Shanghai, Guangzhou and Shenzhen”

“ Now there are direct flights from 11 Chinese cities, including inland centres such as Chengdu, Chongqing, Wuhan and Xian.”

“ In 2015 there were 170,212 enrolments by Chinese students at Australian educational institutions, 2.4 times the number of students from India in second place

In 2013-14 the number of Australian student visa applications lodged from China’s traditionally less wealthy inland provinces was 12,345, up 30 percent from a year earlier.

“Those from coastal provinces stood at 23,805, up 24.6 percent.”

Sunday 14th February 2016 - 6:39 pm
Comments Off on Decentralisation:who really benefits?

Decentralisation:who really benefits?

by Alan Thornhill

Analysis

Barnaby Joyce’s imminent rise, to the post of Australia’s Deputy Prime Minister, is producing some apprehension in the nation’s capital, Canberra.

Not least on the issue of decentralisation.

Mr Joyce’s promotion became inevitable last week, when his National Party colleagues chose him to succeed the party’s previous leader, Warren Truss, who is retiring.

The National Party, now the junior partner in Malcolm Turnbull’s coalition government, was once called the Country Party.

And Mr Joyce retains its strong rural and regional focus.

That is reflected in his attitudes to decentralisation.

So no-one in Canberra was particularly surprised when plans to decentralise government scientific and other work to the Great Southern region, near Albany in Western Australia’s Great Southern region, Northam in that State’s Wheatbelt, or even to Tasmania, seemed to take on new life, with the announcement  of Mr Joyce’s new job.

He doesn’t actually become Deputy Prime Minister, of course, until he takes the oath of office.

That is scheduled for Thursday this week,at Government House in Canberra.

Those looking for differences between Mr Joyce and Mr Turnbull, won’t have too much trouble finding them.

Mr Turnbull is, after all, a free-trader, right to the soles of his highly polished shoes.

There is something of a protectionist about Mr Joyce.

He would not shrink from a direct intervention in a market, if he believed that to be valuable.

All this is illustrated, clearly enough, in his attitude towards decentralization.

But he is clever about it.

Earlier this month, while announcing the relocation of three research organisations from Canberra to regional Australia, he said:”I have accepted proposals from three Canberra-based research and development corporations to increase their regional presence, which will boost jobs and growth in Dubbo, Wagga Wagga, Toowoomba and other areas.

“As well as being home to vibrant farming communities, these regions also have some of the best agricultural universities and research facilities in the country.

“It is logical that strong links should exist between the RDCs, universities and farmers on the ground in each industry.

“Being geographically closer to the industries they serve will strengthen their relationships and help the RDCs better understand their individual industry’s needs.”

There are limits to this kind of thing, of course.

Valuable knowledge, built up over years, in a sophisticated city like Canberra, which offers a wide range of educational and medical services, can be lost if a key scientist, chooses to leave a particular project, rather than accept a particular transfer.

And that whole process can become economically expensive, if adopted for political, rather than industrial reasons.

There are some fine questions of balance, here.

Tuesday 2nd February 2016 - 7:12 pm
Comments Off on Prepare for a union election

Prepare for a union election

by Alan Thornhill

The Prime Minister, Malcolm Turnbull, told coalition MPs today that an early Federal election might well be a “live option.”

He also signaled in Federal parliament later that he is prepared to fight that election on industrial relations in the building industry, when he declared that his government would again introduce a bill to set up an industrial relations watchdog, the Australian Building and Construction Commission.

The Senate has already rejected a  similar bill.

Mr Turnbull also told parliament that he is prepared to construct his government’s policies for economic recovery on the “very strong” base of the construction industry, which directly employs more than 1 million Australians.

Every lever of the government and every lever of our economic policies will be directed towards producing a big performance,” Mr.  Turnbull declared.

An election had not been expected until September, when the present government’s three year term is due expire.

However it could be delayed until 2016.

The Prime Minister also welcomed remarks the Reserve Bank Chairman, Glenn Stevens had made slightly earlier, when he said  that the bank’s marker interest rate would stay on hold at the historically low rate of 2 per cent for another month, as expected.

The PM said he was not prepared to accept the level of industrial disruption and strikes which had persisted in building and construction, after it had subsided in other sectors of the economy.

These led, eventually, to the appointment of a Royal Commission to investigate the industry.

It has just reported, although  the government has kept some volumes of its report secret.

Mr Turnbull also welcomed observations Mr Stevens made about signs of  improvements already evident in both the Australian and global economies.

He said, too, that Australia’s economic growth is roughly twice that of Canada, which is also  resource based.

Mr Stevens said in  his statement that recent information suggests the global economy is continuing to grow, though at a slightly lower pace than earlier expected.

“ While several advanced economies have recorded improved growth over the past year, conditions have become more difficult for a number of emerging market economies, ” he said

:”Commodity prices have declined further, especially oil prices.

This partly reflects slower growth in demand but also very substantial increases in supply over recent years.

“The decline in Australia’s terms of trade, which began more than four years ago, has therefore continued.

Financial markets have once again exhibited heightened volatility recently, as participants grapple with uncertainty about the global economic outlook and diverging policy settings among the major jurisdictions.

“Appetite for risk has diminished somewhat and funding conditions for emerging market sovereigns and lesser-rated corporates have tightened. But funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.

In Australia, the available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 even as the contraction in spending in mining investment continued. Surveys of business conditions moved to above average levels, employment growth picked up and the unemployment rate declined in the second half of the year, even though measured GDP growth was below average.

“The pace of lending to businesses also picked up.”

Mr Stevens  said”:”Inflation continues to be quite low, with the CPI rising by 1.7 per cent over 2015.

“This was partly caused by declining prices for oil and some utilities, but underlying measures of inflation are also low at about 2 per cent. With growth in labour costs continuing to be quite subdued as well, and inflation restrained elsewhere in the world, consumer price inflation is likely to remain low over the next year or two.

“Given these conditions, it is appropriate for monetary policy to be accommodative. Low interest rates are supporting demand, while regulatory measures are working to emphasise prudent lending standards and so to contain risks in the housing market.

“Credit growth to households continues at a moderate pace, albeit with a changed composition between investors and owner-occupiers. The pace of growth in dwelling prices has moderated in Melbourne and Sydney over recent months and has remained mostly subdued in other cities.

“”he exchange rate has continued its adjustment to the evolving economic outlook.

Mr Stevens said”’ “At today’s meeting, the Board judged that there were reasonable prospects for continued growth in the economy, with inflation close to target.

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