Sunday Macro, October 26

Sunday-Reading China Ministry Said to Propose Local Gov'ts Issuing Bonds to Cover Debts – Caixin Three major nations absent as China launches World Bank rival in Asia – Reuters Why China No Longer Wants Cheap Coal - Peterson Institute How China plans to rewrite the rules of solar energy – China Economic Review CHINA’S BANKING: HOW REFORMS LOST MOMENTUM (Pdf) – HKIMR THE LOCAL GOVERNMENT CRISIS 2007-2014: WHEN CHINA’S FINANCIAL MANAGEMENT FALTERED (Pdf) – HKIMR China’s capital defences have sprung a major leak – Reuters China’s slowdown is secular, not cyclical – Gavyn...
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Weekend Links 25th-26th October 2014

reynard Global Macro / Markets: Ten insane things people on Wall Street believe.  - The reformed broker Shanghai exchange ready for options rollout - FT Losses Jump at Amazon, as Investments Pile Up - NYT Americas: New Home Sales increased slightly to 467,000 Annual Rate in September - CalculatedRisk Weekly initial unemployment claims are sitting at expansion lows.  - CalculatedRisk Fed’s $4 Trillion Holdings Keep Boosting Growth Beyond End of QE - Bloomberg Thirty-one banks prepare for Fed tests - FT Europe: Europe’s economic and political future will be determined in...
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ASX at the close

ScreenHunter_31-Jun.-04-16.425-200x200 Chris Weston, Chief Market Strategist at IG Markets Asia equities had been looking fairly upbeat, pricing in the lead from both Europe and Wall Street until news broke that Ebola had made its way to New York. S&P futures have pulled back, with traders concerned that the Ebola patient had travelled on the subway from Manhattan to Brooklyn.  Our European opening calls have fallen in response, although our clients have been better buyers of the pullback, presumably expecting the short-term trend higher we have seen in a number of developed bourses to continue. It does feel like the bulls are...
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Doc Wilson: House prices flat for a decade

ScreenHunter_04-Apr.-17-20.53-200x200 You've got to love the Fairfax property spruik machine: Australia's property prices will be "flat as a pancake" over the next decade, Domain Group senior economist Dr Andrew Wilson says. The resources boom is over, the international economy "can't get its act together" and investors will soon start to lose interest. "Going forward we are going to have a much flatter housing market in terms of price," Dr Wilson said. Even growth in the stand-out city, Sydney - up 3.8 per cent in the September quarter and 16.6 per cent in the past year - is moderating from the higher levels of last year. ...There...
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How the US FTA undermined Australia’s PBS

ScreenHunter_4643 Oct. 24 10.25 Cross-posted from The Conversation: Australia’s Pharmaceutical Benefits Scheme (PBS) is one of the few pieces of national public health policy with unquestioned democratic legitimacy. It was established by the vote of a majority of citizens in a majority of states in a referendum in the late 1940s. Since then, it has lowered the cost of pharmaceuticals to citizens through expert assessment of their cost-effectiveness. The PBS uses public funds to reimburse pharmaceutical companies for the “health innovation” value of listed medications, as determined after review of scientific evidence by...
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Iron ore miners fall as futures hold

hjki It's a decent day today for the big miners with BHP only down a little and RIO a bit more. FMG is on the nose again down 2%+. Here is the relative performance chart: The idiocy spreads are stable: The juniors are still supping the hemlock:   Dalian six month futures are...
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China house price falls continue

imgres China has released its official house price data and the news is accelerating falls in September. New home prices fell in 69 of 70 cities by 1.3% year on year from 0.5 in the positive in August. Prices were down 1% month on month after falling 1.1% in August. Existing home price fell in all 70 cities. Beijing new home prices were down -0.7% month on month and existing home prices were down -1.4% month on month. Shanghai new home prices were down -0.9% month on month and existing home prices were down -0.1% month on month. In short, sizeable falls but before the big mortgage...
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Goldman on iron ore in 2015/16

zdfa From Goldies: What next? Two scenarios for 2015-16 We expect Chinese steel production to grow by 2% and believe that further upside from stimulus spending is highly unlikely given the shift away from investment-led growth that is unfolding across the economy. The market needs to absorb a c.110Mt surplus in 2015, roughly double the c.60Mt surplus it absorbed this year via mine closures and restocking at Chinese ports. Our price forecast assumes that mine closures continue in China as the price differential with imported ore narrows and domestic producers are fully exposed to US$80/t seaborne...
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New York catches Ebola

imgres Breaking news from Bloomie that a doctor in New York City has a confirmed case of Ebola. He had recently worked in West Africa. That won't cheer markets any and appears to have kicked shares and the dollar...
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EU agrees huge greenhouse gas cuts

images From ABC: European Leaders agreed early Friday to cut greenhouse gas emissions in the 28-nation bloc to at least 40 percent below 1990 levels by 2030. The deal was aimed at countering climate change and setting an example for the rest of the world ahead of key international climate negotiations next year. A package agreed by leaders at an EU summit in the early hours of Friday after lengthy negotiations also requires climate-friendly, renewable energy to provide at least 27 percent of the bloc's needs and demands that energy efficiency increase by at least 27 percent in the next 16...
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Hellooo rate cuts, says Mac Bank

sdfwef Macquarie Bank still has a base of no rate rises until January 2016 but it has introduced a "risk case" for interest rates based around the adoption of macroprudential tools: The key hurdles, or catalysts, we think would be necessary for push the RBA into action are:  Non-mining capex intentions for FY16 falling short of the level needed to deliver enough  demand to a balance the labour market;  The unemployment rate, after allowing sufficient time to elapse in order to smooth out the  rogue July-September outcomes, pushing up towards the 6.5% mark;  Signs that fiscal policy is...
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China steel mill sentiment edges above disastrous

sgw A few charts below from Mac Bank's monthly Chinese steel mills survey: The October results of our proprietary steel survey show a modest improvement in conditions after September’s sharp contraction. Steel traders report improving sales and falling inventory, mill orders are contracting less quickly and profitability appears to stabilising at much better levels than previous troughs. For raw materials, purchasing plans still seem muted and stock overhangs are still pressuring prices. No plans to restock: And no evidence of any turn in property orders but exports are...
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Adam Carr does China

images From  Adam Carr today: Consider that in 2014 the Chinese economy is expected to show the largest expansion on record; GDP set to rise by nearly $1.5 trillion (on a PPP basis) after a $1.37 trillion lift last year. For comparison, this is 22 per cent above what we saw during the ‘mining boom’, in dollar terms, and about 40 per cent above what we saw in the few years prior to the GFC -- a time when China’s economy grew on average by $955bn per annum. This highlights an important point -- China’s relative importance to global growth is much higher now than it was pre-GFC. Thirty cents of...
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The TPP betrays Australia’s national interest

ScreenHunter_3418 Jul. 23 10.44 By Leith van Onselen Vocal FTA advocate, Alan Oxley, has delivered another Panglossian view of the Trans-Pacific Partnership (TPP), which he claims will "lay fresh foundations to boost growth among 12 nations that produce 40 per cent of global GDP". From The AFR: [The TPP] surely should be where Australia should focus its resources... TPP aims to do more than just reduce conventional trade barriers. They are already low worldwide. Future growth depends on opening up services and removing barriers to investment, both heavily regulated across Asia. This should have be the business of the WTO....
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What will the end of QE3 do to equities?

segweq From Westpac's rising star, Elliot Clarke: As we come to the end of October, we find ourselves facing a new state of affairs. Not only will an end to tapering in the US halt the provision of new liquidity to the US financial system, but the Fed’s balance sheet will also start to shrink relative to the size of the economy – a trend apparent in Europe and the UK for some time. What does this mean for the global economy and equity markets? For the US economy, the impact of this policy shift is unclear. This is because US banks are largely yet to put the liquidity afforded to them to work....
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The ABC does macroprudential

ScreenHunter_3712 Aug. 12 07.03 By Leith van Onselen ABC's The Businessaired a really good overview (above) of the current state of play in the Australian housing market, particularly the RBA's and APRA's deliberations on how to deal to deal with runaway investor demand, which is at unprecedented levels (see next chart). The segment includes a useful soundbite from RBA governor, Glenn Stevens, who all but acknowledges that tighter regulatory (macroprudential) restrictions on investor mortgage lending is on its way, with deliberations with APRA advancing: "We're keeping a close eye on the build-up of credit to investors...
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Saudi oil relief for LNG?

imgres Oil bounced last night on the following from Bloomie: The amount of oil Saudi Arabia supplied to markets fell last month, according to a person familiar with the country’s oil policy. Its production climbed. The world’s biggest crude exporter supplied 9.36 million barrels a day last month, a reduction of 328,000 barrels daily from August, according to the person, who asked not to be identified, citing policy. The supply figure excludes what’s stored. Saudi Arabia produced about 100,000 barrels a day more than in August, the person said. ...“If this was an intentional cut by Saudi Arabia,...
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Macro Morning: Bulls return

marketmorning By Chris Becker Following the steady (if internally weak) flash PMI in China yesterday, European markets absorbed the German, French and EZ wide PMI prints last night without any surprises and risk returned. Continental markets were up over 1% while the FTSE could only rise 0.3% but futures were bid following the US lead: The daily chart above still shows some high intraday volatility but gaining momentum. The picture extends to US stocks, which are also absorbing not bad news with earnings from Caterpillar beating expectations and jobless claims coming in low and steady. The S&P500...
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Coalition to compromise on university reforms

ScreenHunter_26 Oct. 16 10.41 By Leith van Onselen The Abbott Government's attempt to overhaul Australia's university system have hit a pot-hole, with the Coalition considering watering-down some key facets of its reform program in order to ensure its passage through the Senate. In the May Federal Budget, the Government announced that it would cut-back funding to universities by 20%, deregulate (raise) university fees, and apply a real interest rate to student debts (pegged to the 10-year government bond rate) - moves that would significantly raise the costs of attending university. However, Fairfax Media is reporting...
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A flawlessly mismanaged mining boom and bust

b It is amazing to watch as the mismanagement of the mining boom turns to mismanagement of the mining bust. We all know what should have been done many years ago on the way up. Dutch disease is not a mystery. Everyone knows that the currency will rise and rise through a resources boom. The answer to it has been followed very successfully by other nations like Chile and Norway. You set up huge resource rent taxes and push the money offshore into sovereign wealth funds. Not only does it help keep the currency down, it prevents disruptive volatility in fiscal planning, containing spending during the...
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Daily iron ore price update ($67 in May)

anvil Here are the iron ore charts for October 23, 2014: That's some poor price action. Paper is tanking again, including rebar futures. 12 month swap hit a new post-GFC low. Dalian is rolling. It's May contract was crushed and is now pricing 521 yuan or $67 equivalent. Reuters has texture: Amid slowing economic growth in China, demand for steel is unlikely to see "any obvious improvements", the China Iron and Steel Association (CISA) said in a report published on its website on Wednesday. "And with steel production remaining at a high level, oversupply will worsen, steel prices are unlikely to...
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Big four miners flood Fortescue

Capture Yes, it's all iron ore go at the big miners. Anglo-American has joined the party. From Bloomie: Anglo raised its full-year iron-ore production forecast to a range of 45 million tons to 46 million tons from 44 million tons to 46 million tons, after third-quarter output jumped 37 percent from a year earlier, the London-based company said in a statement today. It plans to start shipping iron ore from the $8.8 billion Minas Rio project by the end of this year. ...“Work on the Minas Rio project continues, with significant progress made to deliver first ore on ship,” Anglo said. “Commissioning and...
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RBNZ claims macroprudential victory

unnamed2 From Banking Day: Reserve Bank of New Zealand governor Graeme Wheeler has talked up the bank's macro-prudential policies to a Bank For International Settlements conference in Wellington....He said house prices had risen rapidly in several Asia-Pacific countries in recent years, including Australia."Strong housing demand can add to financial stability risks, especially when accompanied by high household indebtedness. Housing market exuberance can be particularly problematic when interest rate responses are not warranted because economic growth is well below potential, and inflation in factor and...
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Mac Bank warns on property

images Finally a few sell-siders are catching up to monetary reality. From BS, Mac Bank sees: “Clouds looming over the domestic property market. Recent  announcements around macroprudential regulation represent a significant change in view from the RBA. Likewise the Government appears about to get serious about foreign buyers. While this is unlikely to result in a ‘train wreck’,  international experience points to 2 to 13 per cent underperformance by banking sectors faced with these kinds of interventions.  Domestically we believe the sector hasn’t skipped a beat mainly due to...
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RP Data weekly Australian house price update

ScreenHunter_07 Mar. 20 20.55 By Leith van Onselen In the week ended 23 October 2014, the RP Data-Rismark 5-city daily dwelling price index, which covers the five major capital city markets, rose by 0.13%. It was the fifth consecutive weekly increase (see next chart). Home prices rose across all major capitals except Adelaide (see next chart). Values are up by 1.09% so far in October, with all major capitals except for Adelaide up (see next chart). Since the start of the year, home values nationally have risen by 7.47%, with all major capitals rising in value (see next chart). Over the past 12...
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