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Tuesday 1st December 2015 - 3:28 pm
Comments Off on Rates:Glenn Stevens explains

Rates:Glenn Stevens explains

by Alan Thornhill

At its meeting today, the Reserve bank. Board decided to leave the cash rate unchanged at 2.0 per cent.

In a statement afterwards the bank’s Governor, Glenn Stevens, said the global economy is expanding at a moderate pace.
He noted that there had been some softening in conditions in the Asian region,.

But Mr Stevens also said there had been “continuing US growth and a recovery in Europe.”

He said:” Key commodity prices are much lower than a year ago.”

Mr Stevens said, this reflected “increased supply, including from Australia, as well as weaker demand.”
He warned:“Australia’s terms of trade are falling.”
Mr Stevens said:“ (the)Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease monetary policy.”

Hoowever, her added:“Volatility in financial markets has abated somewhat for the moment.
“ While credit costs for some emerging market countries remain higher than a year ago, global financial conditions overall remain very accommodative,” Mr Stevens said.

“In Australia, the available information suggests that moderate expansion in the economy continues in the face of a large decline in capital spending in the mining sector.”

“ While GDP growth has been somewhat below longer-term averages for some time, business surveys suggest a gradual improvement in conditions in non-mining sectors over the past year.”

“This has been accompanied by stronger growth in employment and a steady rate of unemployment.”

“Inflation is low and should remain so, with the economy likely to have a degree of spare capacity for some time yet.”

“Inflation is forecast to be consistent with the target over the next one to two years.”

“n such circumstances, monetary policy needs to be accommodative.”
“ Low interest rates are acting to support borrowing and spending. While the recent changes to some lending rates for housing will reduce this support slightly, overall conditions are still quite accommodative.”
“ Credit growth has increased a little over recent months, with credit provided by intermediaries to businesses picking up.”

“Growth in lending to investors in the housing market has eased.”
“Supervisory measures are helping to contain risks that may arise from the housing market. “
Mr Stevens said:“The pace of growth in dwelling prices has moderated in Melbourne and Sydney over recent months and has remained mostly subdued in other cities.”
“ In other asset markets, prices for commercial property have been supported by lower long-term interest rates, while equity prices have moved in parallel with developments in global markets.”

“The Australian dollar is adjusting to the significant declines in key commodity prices.”
“At today’s meeting the Board again judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate.”
“Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand.”
“The Board will continue to assess the outlook, and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target,” Mr Stevens said.
For Immediate Release
Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
The global economy is expanding at a moderate pace, with some softening in conditions in the Asian region, continuing US growth and a recovery in Europe. Key commodity prices are much lower than a year ago, reflecting increased supply, including from Australia, as well as weaker demand. Australia’s terms of trade are falling.
The Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease monetary policy. Volatility in financial markets has abated somewhat for the moment. While credit costs for some emerging market countries remain higher than a year ago, global financial conditions overall remain very accommodative.
In Australia, the available information suggests that moderate expansion in the economy continues in the face of a large decline in capital spending in the mining sector. While GDP growth has been somewhat below longer-term averages for some time, business surveys suggest a gradual improvement in conditions in non-mining sectors over the past year. This has been accompanied by stronger growth in employment and a steady rate of unemployment.
Inflation is low and should remain so, with the economy likely to have a degree of spare capacity for some time yet. Inflation is forecast to be consistent with the target over the next one to two years.
In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. While the recent changes to some lending rates for housing will reduce this support slightly, overall conditions are still quite accommodative. Credit growth has increased a little over recent months, with credit provided by intermediaries to businesses picking up. Growth in lending to investors in the housing market has eased. Supervisory measures are helping to contain risks that may arise from the housing market.
The pace of growth in dwelling prices has moderated in Melbourne and Sydney over recent months and has remained mostly subdued in other cities. In other asset markets, prices for commercial property have been supported by lower long-term interest rates, while equity prices have moved in parallel with developments in global markets. The Australian dollar is adjusting to the significant declines in key commodity prices.
At today’s meeting the Board again judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate. Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand. The Board will continue to assess the outlook, and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.

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Monday 30th November 2015 - 8:08 pm
Comments Off on The economy stirs

The economy stirs

by Alan Thornhill

The Australian economy has stirred over recent months.

 

Manufacturing sales rose 0.8 per cent – on seasonally adjusted figures – in the September quarter – after six quarters of falls.

 

However this small rise – on a volume basis – seen in figures published by the Bureau of Statistics – was dwarfed by a 5.1 per cent fall over the year.

 

A survey, also published today showed business confidence fading in recent months as results failed to meet expectations.
The fall in business optimism was reflected  in the results of the  latest Dun & Bradstreet’s Business Expectations Survey.

 

These suggest a fairly subdued outlook for the first quarter of 2016.

 

However Westpac Economist, Andrew Hanlan, said the tone of the bureau’s business indicators’ survey had been more positive than anticipated.
Adam Siddique, the Head of Group Development at Dun & Bradstreet, broadly concurred.

 

He said business confidence remains historically strong,.

 

However he warned that cooling in housing market activity might present challenges in the year ahead.

 

“There can be no doubt the Sydney and Melbourne housing markets are now slowing down, which is to be expected after a period of spectacular growth,” Mr Siddique said.

 

The firm also reported that, as the new year approaches, business are reporting lowered expectations for activity across sales, profits, employees and capital investment.

It said that in the September quarter, the percentage of  businesses reporting an actual increase in activity minus percentage of businesses reporting an actual decrease fell short of expectations a across all components, except selling prices,

 

That exceeded expectations by a marginal 0.33 points.

 

Meanwhile, the actual increase in both selling prices and employment exceeded expectations for the September quarter:

Twenty five point 2 per cent of businesses reported an increase in selling prices for Q3, compared to the 24.2 per cent that had expected an increase, while 23.0 per cent of businesses reported an increase in employees for the quarter, compared to the 21.1 per cent that had expected an increase.

 

D&B said the muted outlook came despite an improvement in actual indices for profit, capital investment and selling prices in the September quarter over the June quarter.

 

Only the actual sales index decreased; while the actual employees Index remained unchanged since the previous quarter.

Monday 30th November 2015 - 2:00 pm
Comments Off on Business confidence fades as results weaken

Business confidence fades as results weaken

by Alan Thornhill

Business optimism falls away
Business optimism has weakened as results fail to meet expectations .
This is reflected in the latest Dun & Bradstreet’s Business Expectations Survey.

 

The results of the survey, which were published today, suggest a fairly subdued outlook for the first quarter of 2016.

The firm reports that, as the new year approaches, business are lowering their expectations  sales, profits, employees and capital investment.
It said, too,  that in the September quarter, the percentage of businesses reporting an actual increase in activity minus percentage of businesses reporting an actual decrease fell short of expectations a across all components, except Selling Prices,

 

That exceeded expectations by a marginal 0.33 points.

 

Meanwhile, the actual increase in both Selling Prices and Employees exceeded expectations for the September quarter.

 

The firm said 25.2 per cent of businesses reported an increase in selling prices for q3, compared to the 24.2 per cent that had expected an increase.

 

It noted too that  23.0 per cent of businesses had reported an increase in employees for the quarter, compared to the 21.1 per cent that had expected an increase.

The firm said the muted outlook comes despite an improvement in Actual Indices for Profit, Capital Investment and Selling Prices in the September quarter compared to the June quarter.

 

Only the actual sales index decreased; the actual employees index remained unchanged from the previous quarter.

Adam Siddique,  the Head of Group Development at Dun & Bradstreet, said business confidence remains historically strong,.

 

However he warned that  the cooling in housing market activity might present challenges in the year ahead.

 

“There can be no doubt the Sydney and Melbourne housing markets are now slowing down, which is to be expected after a period of spectacular growth,’ he said.

 

In light of the Treasury’s recent cut to its growth forecast, from 3  per cent to 2.75 percent, it will be interesting to see how business confidence fares if this key driver of economic activity begins to fade,” Mr Siddique said.
“Housing, along with construction and other related activities, has underpinned growth following the end of the mining boom.”

 

“The lack of business investment in non-mining areas of the economy suggests there will be no obvious candidates to pick up the slack should this turn into a sustained easing in the housing market.”
“The recent trend of Actual and Expected results gradually aligning in the headline and component indices has continued, and this is something we’ll track with interest as we head into 2016,” Mr Siddique added.

Friday 27th November 2015 - 7:30 am
Comments Off on Malcolm;s big statement

Malcolm;s big statement

by Alan Thornhill

Some might call it a mini-budget.

 

All the Prime Minister said, in an interview with Leigh Sales on the ABC last night, though, is that his government would release “an innovation statement” within the next two weeks.

 

Well, perhaps he did add a little dressing, to make the prospect enticing.

 

How?

By promising, for example, that he would would “set out a very large number of substantial measures. to drive the innovation that would ensure that Australians, their children and grandchildren, will have great jobs.”

 

“…better jobs in the future that will drive our economy,” he added.

 

Then he laid it on the line.
“I don’t think anybody has any doubt that if we are to remain the high wage, generous social welfare net country, first world country that we want to be then we need to be more innovative, more competitive, more productive and the innovation statement will be a good example of the measures the government is undertaking to achieve that.”

 

Yet Mr Turnbull, himself, has some catching up to do in this regard.
He saddled Australia with the pursuit of an internet system which, even if achieved, would offer speeds be well below those of many other first world countries, such as France.
Of course, with its vast expanses to connect, Australia does have difficult – and expensive – problems to overcome, in building anything that could – even remotely – be called a fast internet system.

 

Yet the picture emerging from Mr Turnbull’s attempt to do so – on the cheap – has not been impressive, so far.

 

Long waits for connection.

Cost over-runs.

 

There can be no doubt about one thing.

 

This “innovation statement, when it appears, will be drawn up to underwrite Mr Turnbull’s bid for re-election next year.

 

Politically, his situation has its difficulties, despite what some are calling his initial “honeymoon” period.

 

He is still the man who became Prime Minister, without a popular mandate.

 

And he is not short of opponents who stand ready to remind him of that fact, if he starts making mistakes, as most Prime Ministers do, as they start to settle into office.

Mr Turnbull also declared during his interview last night that he is “comfortable” in his new job.

 

But make no mistake.

 

His handling of the Brough affair is already being watched very closely.

Thursday 26th November 2015 - 6:48 am
Comments Off on FX market conduct “improving”

FX market conduct “improving”

by Alan Thornhill

A new code of conduct is restoring trust in foreign exchange markets, according to a senior Reserve Bank official.

 

Guy Debelle, the bank’s Assistant Governor (Financial Markets) made the observation at an FX Week Europe conference in?London.

 

 

He said, too, that further improvement could be expected.

 

Mr Debelle recalled that from early 2013, concerns were increasingly raised about the integrity of FX benchmarks, particularly around the potential for market misconduct in the trading around the time of benchmark fixings.

 

“ Accordingly, the Financial Stability Board (FSB) formed a group co-chaired by Paul Fisher of the Bank of England and me to firstly analyse the structure of the FX market and the incentives that might promote inappropriate trading activity around a fix, and then come up with some potential remedies to address the problems we found,” he said.

 

The results?

 

Mr Debelle said there had been good progress in relation to “the London fix,” but less elsewhere.

 

However a report arising from this process had led to a recommendation that banks should establish separate processes for handling and executing their fixing orders from other orders.

 

“This recommendation was designed to address potential conflicts of interest arising from managing customer flow,” Mr Debelle said.

“ A sizeable number of banks have implemented this recommendation by shifting the execution of fixing orders from the spot voice FX trading desk to electronic trading desks that execute them with algorithms,” he added.

 

Then he said:“ the motivation for the changes to the foreign exchange benchmarks is to reduce the incentive and opportunity for improper behaviour by market participants around benchmark fixes.”

 

“The implementation of the recommendations in the FSB benchmark report, together with the enhanced scrutiny externally and within organisations on fixing transactions, appears to have moved the market in a favourable direction.”

 

Mr Debelle then concluded with an appeal to those present.

 

“As it is in all our interests for trust to be restored to the FX market, I very much trust that you, as market participants, will work with us constructively in this important endeavour,” he said.

Tuesday 24th November 2015 - 7:31 am
Comments Off on Take a lead in Paris:scientists say

Take a lead in Paris:scientists say

by Alan Thornhill

Australian scientists are urging the Turnbull government to take a lead at the world climate change talks which open in Paris this week.

 

The Australian Academy of Science says this – and global co-operation – will be essential if we are to avoid the worst effects of global climate change.

 

Delegates from more than 190 countries are heading to Paris this week in an attempt to reach an agreement to reduce greenhouse gas emissions and limit global warming.

 
In a statement today, the Academy’s President Professor Andrew Holmes urged world governments to take note of the scientific evidence and the implications of inaction.

 
“The science is clear, we need to move to net zero carbon emissions by the second half of this century to avoid serious impacts on our health, our economies and on our environment.

 

 

“Paris will be a critical turning point along the path to a carbon neutral world,” Professor Holmes said.
“Australia has an important responsibility, as one of the world’s biggest per capita emitters, to show leadership at this important moment in history.

 

“As the world’s twelfth largest economy, we also have the capacity to do our fair share.
“Australia has some of the best climate scientists in the world and a wealth of expertise in clean energy; we have the opportunity to play a leading role,” Professor Holmes added.
“The national commitments so far are promising and Australia’s own post-2030 targets are an important start but now is not the time for complacency.

 

“We must understand that the only sustainable long-term goal is net zero-emissions and the risks are too great to keep on our current high emissions path.”

 

In a submission to the Australian government in May, the Academy recommended cuts in greenhouse gas emissions 30 to 40 per cent below 2000 levels by 2030.

 

An attempt by Australia to take a lead at the Paris talks would be likely to have high impact.

 

That’s because of the record of previous Australian leaders, including Tony Abbott, of dismissing climate change science.

 

The Coalition’s approach to tackling climate change, by subsidising big polluters, in an attempt to persuade them to change their ways, hasn’t impressed climate change scientists either.

 

Nor has the willingness of government MPs to speak up for the coal lobby in parliament.

 

Wednesday 18th November 2015 - 12:25 pm
Comments Off on RBA chief sees new opportunities in China

RBA chief sees new opportunities in China

by Alan Thornhill

A Reserve Bank chief says Australia can expect to benefit from changing patterns of demand in China and Asia generally.

 

Christopher Kent, the bank’s Assistant Governor (Economic), made the observation at a UBS conference in Sydney today.

 

He said a slowing in the Chinese economy had already affected Australia in at least two ways..
First, the substantial slowing in industrial production has contributed to a further decline in commodity prices over the course of this year,” Mr Kent said.

 

 

Second, the shift in demand towards services and agricultural products within China and the Asian region more broadly presents new opportunities for Australian exporters.

 

And he added:“ While our comparative advantages in service industries are perhaps less obvious than they are for mineral resources, the rise in the demand for services from a large and increasingly wealthier populace in our region will no doubt be to our benefit.
Mr Kent also said:”The easing in the growth of the Chinese economy over the past year or so has two related parts.

 

The economy is slowing as it matures, and this is to be expected.

 

Overlaying that, there has been a substantial slowing in the industrial sector, linked in part to earlier excesses in construction.

 

How all of this will play out and the effects on the Australian economy are uncertain.

 

But he added:I’ll briefly highlight some possibilities.”

 

“Let me be clear though, many of these have positive implications for our economy.
It is natural for the speed of China’s economic development to ease and for its nature to evolve.”
He also  said:”part of this reflects slower growth of the working-age population, which is now in decline.

 

Other than increasing the retirement age, there is little that can be done to alter that in the coming years, notwithstanding the ending of the one-child policy.
“However, growth continues to be supported by the process of urbanisation, which uses commodities intensively.”
“This has further to run, albeit at a more gradual pace.”
“Productivity growth appears to be slowing as windfall gains from earlier reforms have waned.”

 

“But there remains a large gap between productivity in China and in advanced economies.”

 

“That gap could be closed more quickly via additional reforms to allow a greater role for market forces in allocating productive resources.”

“The authorities have expressed support for such reforms.”
“The authorities would also like to see growth rebalancing from investment towards consumption.”

 

“That is happening gradually.”

 

“It is also being accompanied by a rise in the share of activity accounted for by the services sector as the economy develops and household incomes rise.”
“While these longer-run changes imply a decline in the growth rates of investment and industrial production, both have also experienced a noticeable cyclical slowing over the past year or more,” Mr Kent said.

 

“As earlier excesses in residential construction gave rise to a large stock of unsold housing, house prices declined and so too did housing construction.”

 

“Sales and prices have recovered a bit since the start of this year, but there is little sign to date of a sustained improvement in construction activity.”

Tuesday 17th November 2015 - 3:04 pm
Comments Off on The economy:how the RBA sees it

The economy:how the RBA sees it

by Alan Thornhill

The Reserve Bank expects Australia’s economic growth will remain below its target range, even tbough we will keep spending.

 

It made this clear today, when it published the minutes of its the board meeting it held earlier this month.

 

The bank said it expects Australia’s economic growth to be be between 2 and 3 per cent, in the period until June next year, before rising to 2.75 per cent.

 

The bank aims to keep growth between 3 and 4 per cent, over the course of a business cycle.

 

However the shortfall now in sight is probably not big enough to cause the bank to cut its marker interest rate – which now stands at 2 per cent – in an attempt to boost growth.

 

The bank said its board members had noted that recent data on economic activity in Australia suggested that the moderate economic expansion had continued.

 

The very low level of interest rates was supporting growth in household consumption and dwelling investment.

 

In addition, the Australian dollar was adjusting to significant declines in key commodity prices and boosting demand for domestic production.

 

This had been most evident in the services sector, which had experienced strong employment growth over the past year.

 

And while measures of non-mining investment intentions had remained subdued, surveys of business conditions had strengthened to above-average levels.

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Alan Thornhill is a parliamentary press gallery journalist.
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