CFOs say “no” to recovery

aef From Deloitte's quarterly CFO survey today: CFOs entered 2014 full of optimism but the position is far more subdued as we move into 2015. Whilst there are modest signs of positive growth, genuine momentum and confidence are in short supply. The year ended with a greater sense of caution for Australian CFOs. With just over a quarter of CFOs thinking now is a good time to take greater risk onto their balance sheets, they appear to be preparing for an uncertain future. Decisions on pursuing growth strategies are focused around safe choices such as organic expansion and introducing new products...
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Unelectable turns unsustainable

unnamed Just last week I forecast that Tony Abbott would hang on this year. That was before the baffling decision to deliver Prince Phillip a knighthood, which appears to have crystallized global Abbott ridicule. The Left press at the Fairfax dailies and the Right press at The Oz are now hammering our adrift PM with equal ferocity. Even the Financial Times is having a good laugh: Australia Day is typically when prime ministers attract positive headlines by doling out honours to people promoting good causes. But Tony Abbott, the gaffe-prone holder of the office, provoked a storm of controversy on...
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ANZ CEO: Australia is “different”

imgres From the AFR: The Reserve Bank of Australia should resist calls to cut official interest rates, according to ANZ Banking Group chief executive Mike Smith, who argues ­Australia can weather falling commodity prices and a global currency war. In a position at odds with the forecasts of his own bank’s economists for two rate cuts over the next five months, Mr Smith said he was optimistic about Australia’s outlook – particularly with a falling dollar making exporters more competitive. “If I was the central bank I would wait and see how this plays out because if the currency can take most...
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Caterpillar goes hungry as mining busts

CAT Dec 2014 region_0 Here's a story for those prognosticators calling the bottom for mining services firms, from Caterpillar: We expect world economic growth to only improve modestly in 2015.  The relatively slow growth in the world economy and continued weakness in commodity prices—particularly oil, copper, coal and iron ore—are expected to be negative for our sales.  We expect sales and revenues in 2015 to be about $50 billion.  To provide a better understanding of our expectations for 2015 profit, we are providing our outlook with and without anticipated restructuring costs.  Over the past two years, we have...
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Goldman burns the two coals

imgres I noted yesterday that Goldies have shattered their long term iron ore outlook but they've also beared-up on the wider bulks. On coking coal: Production costs are falling as mining productivity starts to improve. Meanwhile, the gradual displacement of marginal capacity (mine closures since 2013 are equivalent to 10% of current seaborne supply) is gradually flattening the industry cost curve; extending these trends into the future, we estimate that marginal production costs for premium hard coking coal could drop to US$130/t by the end of our forecast period. At the moment, coal prices have...
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The hard, cold truth about iron ore’s future

images With various pundits chasing iron ore prices down with dumb calls, bottom feeding, elaborate metaphors and unreason, it's time for a look at the future of iron in the harsh, cold light of day. Demand The World Steel Association publishes terrific global crude steel data and it looks like this: As you can see, the growth rate is sliding towards zero. The evidence of China's determination to reform its economy to lower and less commodity-intensive growth is now undeniable and, if anything, it's steel output growth is likely to decline. But let's be positive and say global output holds at...
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Daily iron ore price update (meh)

anvil Here are the iron ore charts for January 27, 2015: Ugly. Six month futures appear destined to break down. 12 month swaps are better but kidding themselves while rebar tumbles like this. Spot has not found a bottom for Qingdao and benchmark was worse losing 60 cents to $62.80. We're a good chance of heading into the $50s here. The AFR shows we're making progress on sentiment: Ric Ronge, head of global resources at Melbourne-based fund manager Pengana Capital said that even though bargains could be emerging in iron ore, uncertainty remained too great to justify investing. “When...
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Daily LNG price update (hooray)

1 An up day! Brent climbed 2.5% to $49.30, as I write, on the back of this, from Businessweek: Saudi Arabian Oil Minister Ali al-Naimi met with the ambassadors of Russia and Norway to discuss oil market “stability” as prices traded near a six-year low. They “reviewed the importance of the international oil market stability, and the increase of joint investments in the sectors of oil and mining,” the official Saudi Press Agency reported. Not sure what the excitement is about, if killing shale is the goal then it's too early to be boosting prices.  Which is why Saudi is secretly boosting...
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Currency war arrives in China

China-slowdown Patrick Chovanec has a piece in Foreign Policy explaining why China's sale of treasuries isn't bad news for the U.S., let alone the treasury market itself, Why China’s U.S. Treasury Sell-Off Is Good News: But when the PBOC sells U.S. Treasurys, the opposite occurs. It can’t spend the dollars it receives in the Chinese economy, and if it exchanges them for yuan, it’s in effect taking money out of the Chinese economy. The PBOC can counter this tightening effect by injecting more yuan, on its own, but selling U.S. Treasurys does nothing to channel more funds into the domestic Chinese economy....
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Yanis Varoufakis calls out extend and pretend

yanis New Greek Finance Minister Yanis Varoufakis calls out extend and pretend with superbly simple...
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Links 28 January 2014

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: Goldman Sachs’s Cohn Says Oil Prices May Hit $30 in Extended Slump - Bloomberg First U.S. Bitcoin Exchange Set to Open - Wall Street Journal ETFs Show Some Traders Were Prepared for Russia Downgrade - ETF Trends Here’s Why the Next 10 Years Will Be A Stock Picker’s Market - Ivanhoff Capital Dubai Displaces Heathrow as Busiest International Air Hub - Bloomberg North America: Did Ending Unemployment Insurance Extensions Really Create 1.8 Million Jobs? - Next New Deal Will the US soon have a budget surplus? - Financial Times Investment...
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ASX at the close

ScreenHunter_31 Jun. 04 16.42 Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets Equities rally despite Greece concerns The biggest surprise in global markets at the moment is perhaps the lack of panic around the results from the Greek elections. Focus has also been on extreme weather conditions in the northeast part of the US, some big earnings this week and the Federal Reserve meeting. It’s not yet certain whether the weather will impact trading hours and by how much it’ll impact activity. All these events perhaps warrant some caution given the big rally driven by the ECB action. On Greece, the polls...
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Is Asia about to drop Australian property?

no-thanks From the AFR: Asia’s wealthy are falling out of love with the Aussie dollar as record-low yields and sustained declines persuade them to look elsewhere, according to UBS. ...“Two years ago when I came to the region, in most client meetings, people were asking about Aussie assets, the Australian dollar, yield play; when you talk about it now, there’s almost no interest,” Mr Smiles said in an interview on Monday. “From the third quarter of last year, there’s a growing belief that the US dollar would start a sustained appreciation trend.” ...The Bank of Canada’s unexpected decision...
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Westpac jobs index loses momentum

ScreenHunter_10 Mar. 29 12.46 From Westpac: There are many business surveys out there and most have questions, in some shape or form, that are applicable to the labour market. To generate the broadest and deepest labour market indicator possible, Westpac compiles all the relevant indictors from these surveys into the proprietary Westpac Jobs Index. The Index firmed a touch to 49.2 in Dec from 48.5 in Nov holding below the long run average (50). The index was 49.4 in Oct and 50.8 in Sep. The Index had been on a general firming trend since the low of 45.1 in Apr 2013 till it peaked at 50.8 in Sep. The Index correctly...
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Goldman describes an iron ore calamity

imgres From Goldies: A sooner than expected decoupling from the Chinese cost curve and growing evidence of cost deflation lead us to downgrade our price forecasts to US$66/61/60/60 over the period 2015-18. In the short to medium term, prices will continue to underperform relative to costs in order to incentivize mine closures and project delays over the period 2015-17. This will unfold while marginal production costs are falling due to weaker commodity currencies, lower input costs and rising efficiency. At approximately 6% of annual seaborne supply, the scale of the adjustment required...
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REIA parasite injects negative gearing poison

imgres By Leith van Onselen The property lobby must be worried that the Government is considering winding back negative gearing tax concessions, with the Real Estate Institute of Australia (REIA) and the Property Council reportedly spending $60,000 on a new report aimed at combating claims that negative gearing distorts the housing market. From Perth Now: Set for release early this year, REIA chief executive Amanda Lynch said the new data revealed mum and dad investors with incomes under $80,000 would be the hardest hit should negative gearing be scrapped... WA Property Council executive director Joe...
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The great CBA vs BHP divergence

tree_diverge Regular readers will know that the Australian economy is not a miracle but a strange and rather unique blend of pre-modern and post-modern business sectors. The pre-modern are the commodity producers. They totally dominate Australian exports and account for a huge proportion of national income. The post-modern is the banking sector and its trick of leveraging up that income in big offshore loans that are re-distributed largely through mortgages to households. One half of the economy can't function without the other for very long, which makes me wonder at the sustainability of certain current equity...
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Fortescue craters

MCDNOAH EC011 The iron ore majors are taking shellacking today but not enough! BHP and RIO are both bouncing through the day as the bottom-feeders presume oil and iron ore have bottomed (at least for today). FMG is bouncing as well but it fell 10% to below $2 at the open, within spitting distance of its GFC low, so is still down 5%. Here are the indexes today: The idiocy spreads are paused before any push closed: The juniors are still guzzling the hemlock: Dalian six month futures are down 1 point. The current move lower has no reason to end yet that I can...
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NAB survey erodes

2 The December NAB survey is out and shows little improvement from November's rollover: The Survey again shows a patchwork economy with little-to-no momentum building. In December, conditions eased for the second successive month after October’s surprisingly strong result. As a result conditions are now a touch below the long run average. Additionally, forward orders fell back significantly (broad based) suggesting soft demand conditions will continue in the near term. On the other hand, levels of capacity utilisation edged up a touch. The fall in conditions was driven by all three...
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Unemployment reprieve hands Newman electoral gift

ScreenHunter_5741 Jan. 27 11.27 By Leith van Onselen The reprieve in Queensland's stubbornly high unemployment could not have come at a better time for the Newman State Government, which is headed for the polls this Saturday in a bid to gain a second electoral term. In the ABS labour force release for December, issued earlier this month, Queensland's headline unemployment rate fell sharply to 6.1% from 6.8% in November, with the more reliable trend measure also falling marginally to 6.6% (see next chart). The sharp fall in the headline rate has enabled Premier Newman to trumpet his Government's so-called strong economic...
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ACOSS schools Hockey on tax rates

dunce_cap By Leith van Onselen In August last year, Treasurer Joe Hockey made headlines for twice claiming on national television that "higher-income households pay half their income in tax".  Hockey was at it again last week when he told Fairfax radio that Australians paid nearly half their incomes in tax: "When Australians spend the first six months of the year working for the government with tax rates nearly 50 cents in the dollar it is a disincentive," he said. "You're working July, August, September, October, November, December just for the government and then you start working for yourself and your...
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Another housing short heads for listing

Best of Go Short 2013Logo w From the AFR: As investors brace for a wild ride, bankers are making sure their clients are ready to test the market as soon as the initial public offering window opens...The latest is QBE Insurance Group, which is understood to be working with Bank of America Merrill Lynch and Morgan Stanley on its $1 billion lenders mortgage insurance (LMI) spin-off. ...It is understood QBE is targeting a deal in the first half of this year and intends to structure the sale through an IPO. Analysts expect QBE will look to offload a 30 per cent to 40 per cent stake. The LMIs are the unlucky insurers of...
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Macro Morning (Greek snow job)

marketmorning By Chris Becker For all the hyperbole leading up to the recent Greek election, markets have largely brushed off the turmoil, save the Euro (literally) which fell from 1.16 to just below 1.11, but has since recovered somewhat. The bigger news, relatively speaking, is the massive blizzard hitting New York and elsewhere in the north-eastern US, which is having an impact on Wall Street. While it gapped-down significantly yesterday morning alongside everything else post-Greek election, the S&P500 has recovered to resistance at 2060 points and looks set to breakout here: European stocks...
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New year’s data wrap

happy-new-year By Leith van Onselen Today is my first day back after one month's leave. For those of you that are like me and have largely ignored the news over January, below is a primer summarising the key ABS/RBA data releases pertaining to the Australian economy over the past month, broken out by broad theme. Australian housing: The year began with the release of the RBA housing credit data for November, which revealed a strengthening of mortgage credit growth (see next chart). Total mortgage credit growth accelerated to 7.06% in the year to November, with investor credit surging by 9.99% and...
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Australian bond curve flattening gets serious

Flat-Tyre Australian bond yields curve continued to flatten over the past few days. The two year yield fell to as low as 2.04% overnight, close to fully pricing two rate cuts, but currently sits at 2.11%. The five year is chasing it down even faster and today is at just 2.19%: Thus the 2/5 year spread is down to only 8bps: This is the flattest curve in 2.5 years. If the RBA doesn't cut next week (it probably will as iron ore gets hit again) it's a good bet that the curve will invert and recession calls will proliferate. The 10 year is holding up better, though still at record lows, probably...
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