Is China about to launch a QE credit flood?

images From Forexlive: The CNY1 trillion in Pledged Supplementary Lending (PSL) that the People’s Bank of China recently conducted in the market “smacks of quantitative easing” The funds which have been relent to China Development Bank are “deliberate and significant expansion of the PBOC’s balance sheet via creating bank reserves/cash” He likens the exercise to the UK’s Funding For Lending scheme Says that the CDB’s balance sheet reflects the transfer of funds, even if the PBOC’s doesn’tThe CNY1 trillion reported — no details confirmed by the PBOC yet — will end up in...
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Moodys: Negative gearing adds 9% to home prices

ScreenHunter_12 Sep. 23 12.54 By Leith van Onselen From The AFR comes some interesting analysis from Moody's estimating that allowing property investors to deduct rental property losses against unrelated wage and salary income - known as "negative gearing" in Australia - has added some 9% or $44,000 to the typical Australian home value: The report said that negative gearing costs the federal government around $4 billion in lost revenue and recognised by some economists as an “unfair and unproductive” distortion... With low interest rates the impact of the subsidy has fallen from a 2008 peak of 15 per cent, “yet...
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Australia’s tumbling neutral cash rate

cs-620x349 Via the SMH blog: ...from Credit Suisse's Damien Boey and Hasan Tevfik: "It would only take 100bps" - [1 percentage point] - "of rate hikes to bring the debt-servicing ratio back to GFC highs, which we view as unsustainable." That's their take on the Reserve Bank of Australia and the interest rate outlook and part of the reason why they think if the RBA did raise, the peak would be below 3.5 per cent. Right now rates are at 2.5 per cent. Borrowers can't afford rate rises like they used to because mortgages are bigger in dollar terms. Yep, the stupidity of it all. This is why I argue...
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Iron ore futures rain on ASX parade again

imgres The ASX tried to take off again this morning and got a boost out of the 11.45 China PMI:   It's the same story with rebar futures in China which jumped half a percent on the release. The iron ore miners followed too. Here is FMG: The problem is, Dalian iron ore futures aren't playing. They opened down and have dropped further. Quite rightly. The PMI is encouraging for Chinese manufacturing but it doesn't say much about property and right now that's what matters. Actually, the more informative PMI for property is the official non-manufacturing PMI, which covers...
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Hockey biography ignites leadership tensions

ScreenHunter_3458 Jul. 24 11.45 By Leith van Onselen The Australian's Dennis Shanahan has reported that Treasurer Joe Hockey's new authorised biography - Hockey: Not Your Average Joe - has invoked the wrath of the Coalition party room, with many viewing Hockey's public statements as an act of self-indulgent treachery: That Hockey wanted an even tougher budget with even more pain not only hurts him and the “team” in the eyes of his cabinet colleagues, it is a clear inference that Tony Abbott was not up to the task. ...coming after a flawed political selling of a budget that had much to economically recommend it, some of...
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China Flash PMI rips

dfgds And so, mini-stimulus delivers: Flash China Manufacturing PMI™ at 52.0 in July (50.7 in June). 18-month high. Flash China Manufacturing Output Index at 52.8 in July (51.8 in June). 16-month high. Data collected 11–22 July 2014. Very healthy internals: A double positive in domestic and international new orders. Aussie popped 25...
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Savers search for yield

TrendRatesVsCPISavings Cross-posted from Martin North's DFA blog: The CPI data which came out from the RBA yesterday registered 3%. This was very bad news for households with savings in deposit accounts at the banks, because ever more are finding that returns after tax are well below CPI. This is part of a worrying trend for many, and is prompting them to seek out alternative and possibly higher risk saving vehicles. Today we examine this issue in the light of latest data from our household surveys. First, here are some benchmark savings rates mapped to the CPI and RBA benchmark rate. Many savings rates are now below...
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AMA warns on US-style health system

ScreenHunter_3457 Jul. 24 10.51 By Leith van Onselen The head of the doctor's union, Australian Medical Association (AMA) president, Brian Owler, yesterday gave an address to the National Press Club, in which he raised concern that Australia is heading down the path of a US-style health system. From The AFR: He said the $7 GP co-payment, cuts to hospital funding agreements and changes to general practice training programs as the worst aspects... Apart from the budget, Dr Owler said another top concern was the back-door entry of private health insurers into primary care... “Despite the protests of innocence, I fear a...
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The road ahead for the sharemarket (members)

dfwda From Citi today: Consolidating gains — This year the ASX200’s limited progress, rising only a few  percent so far, has felt a bit disappointing, but it is only just short of the pace we  expected, with our end year forecast of 5850 envisaging a rise of less than 10%. After the average gains of ~15% in 2012 and 2013, which returned market valuation  to a more normal level, the rise always looked likely to slow, and the possibility now  of little earnings growth again in FY15 has contained the market a bit more. This  has caused us to trim our end year forecast to 5750, but we’re still...
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RBNZ hikes again, but signals pause

ScreenHunter_3456 Jul. 24 09.56 By Leith van Onselen The Reserve Bank of New Zealand (RBNZ) has once again hiked the official cash rate (OCR) by 0.25% to 3.50% - the fourth rise in five months - but also signaled a pause while it assesses the impact on the New Zealand economy. The RBNZ has also warned on the New Zealand dollar, claiming that it is overvalued and risks a potential "significant fall". From the Statement: New Zealand’s economy is expected to grow at an annual pace of 3.7 percent over 2014... Construction, particularly in Canterbury, is growing strongly. At the same time, strong net immigration is adding to...
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Tim Toohey holds the line on 2014 rate cut

hvib From Goldman's Tim Toohey today: Although annual headline inflation is now at the top of the RBA's target band, the pace of inflation has decelerated materially over the past 3 quarters and even without the removal of the carbon tax annual inflation looks set to decline sharply in 3Q14 as the 1.2% qoq in 3Q13 falls out of the annual calculation. With the removal of the carbon tax likely to take approximately 0.7% from inflation in the coming quarters, headline inflation is set to decline rapidly over the coming 12 months. Moreover, it is worth noting that the increase in tobacco taxes provided the...
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BofAML: Inflation to fall fast

lhvi Here is what matters about yesterday's CPI from Alex Joiner at BofAML: Headline inflation as expected, ‘core’ slightly stronger… Headline consumer price inflation came in at 0.5%qoq and 3.0% through the year in June quarter. This was in line with market economist expectations. This is a modest acceleration in the through the year rate of inflation, but this still is now the largest annual price increase since September 2011...Circumstances now are markedly different and we do not expect any response, in a policy sense, from the RBA whatsoever …but in line with the RBA’s forecasts...
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Australia gives digital economy the bird (members)

ScreenHunter_3455 Jul. 24 08.32 By Leith van Onselen Boston Consulting Group CEO, Andrew Clark, and Deloitte Digital head, Frank Farrall, have today urged Australian business to embrace the digital revolution to ensure that it maintains competitive with the world. From The AFR: “Australian companies are in danger of being pushed aside by innovative competitors from at home and abroad unless they move more quickly to catch up with the digital revolution”... Mr Clark said in an interview... “Up until a few years ago, you had Bernie Brookes from Myer saying our customers don’t want to shop online and you had Gerry...
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Tony and Rupert’s $5 billion PPL thought bubble

ScreenHunter_3454 Jul. 24 07.36 By Leith van Onselen A new biography of Treasurer Joe Hockey has dropped a bomb on Tony Abbott's contentious Paid Parental Leave (PPL) scheme, revealing that Abbott gave Rupert Murdoch a "full rundown" of the proposed scheme before announcing the policy in 2010 and without consulting his shadow cabinet or MPs. From The Guardian: “The new leader, like many before him, had dinner with Murdoch, where he gave the media mogul a full rundown on the scheme – supplying enough detail for Murdoch to later have his Australian-based editors briefed on Abbott’s plan, which he considered a visionary...
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APM: House prices still booming (members)

ScreenHunter_07 Mar. 20 20.55 By Leith van Onselen Australian Property Monitors (APM) has released its June quarter house and unit price results (below), which recorded a 1.9% increase in house prices over the quarter at the national capital city level, and a 2.5% rise in national capital city unit prices. In the year to June 2014, APM recorded an 10.9% increase in national capital city house prices and an 8.3% rise in unit values - a slight deceleration from the 11.3% (houses) and 8.3% (units) annual growth recorded in the March quarter release. Looking at the capital city breakdown, you can see that Sydney...
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The Australian dollar wants to go higher (members)

png There's not much one can say about the Australian dollar today except that it very clearly wants to go higher. Here's the one year daily chart with its raging ascending triangle: It's disastrous for the economy, for the Budget, for competitiveness, and to be hollowing out tradable sectors to make room for nothing but an even larger housing bubble is a new low in Australian macro-management. But there you have it. Reap what you have sown,...
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Inflation hysteria returns (members)

images From Jonathon Shapiro at the AFR: Three of the country’s largest banks have slashed their fixed mortgage rates, fighting to win new customers by allowing borrowers to lock in longer-term interest rates of less than 5 per cent. Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corp on Wednesday became the latest banks to cut fixed rates, each giving borrowers the chance to lock in historically low rates over the longer term. ...Concerns about slowing global growth are driving down the cost of borrowing to record lows and allowing Australia’s big banks to offer their...
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The Chinese overbuild is massive

Screen-Shot-2014-07-23-at-11.51.24 From Nomura via FTAlphaville today comes a very important chart:   China's over-building and excess real estate supply is widely regarded to be concentrated in lower tier cities, especially tiers 3 and 4, where nearly three quarters of construction is currently taking place. Is it any wonder that Soc Gen’s sees it this way: In summary, we think that real estate investment growth will continue to trend lower, likely to the level of 5% yoy (from 12.5% in June), a level last seen during the 2009 downturn. The IMF once estimated that a 1% decline in China’s real estate investment would shave...
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Chinese property bailouts proliferate

bigstock-bailout-or-bankruptcy-economic-54368810 Chinese authorities attempts to balance their reform and growth agendas have resulted in another bailout of a looming bond default. From Reuters: A troubled Chinese construction company avoided a landmark bond default at the last minute on Wednesday, raising enough funds to pay off both principal and interest on a 400 million yuan ($64.51 million) bond, people directly involved in the matter told Reuters. The people said there was aggressive fundraising by Huatong Road & Bridge Group Co Ltd, as well as collection of its accounts payable by a local government in Shanxi province, where the...
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Daily iron ore price update (Q3 destock) (members)

anvil Here are the iron ore charts for July 24, 2014: Paper markets are not quite back in free fall but they're sure not strong. Rebar futures were also down a little. Physical is weak too with the BDI cape up slightly and spot down consistently. I don't have a rebar average price today but I'd put the house on it falling too. Chinese mills are destocking raw materials again. It happens most years at this time and they have plenty to run down given the recent climb in inventories. The weak housing market persists and they may well push it. Reuters has texture: "I think some steelmakers might...
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Only energy can hurt Russia

EIA-Oil-and-gas-sales-cover-68-pct-of-exports-revenue-of-Russia Some nice research from the International Energy Agency (IEA) puts recent Russian sanctions in perspective. From LNGWorldNews: Russia is a major exporter of crude oil, petroleum products, and natural gas. Sales of these fuels accounted for 68% of Russia’s total export revenues in 2013, based on data from Russia’s Federal Customs Service, the U.S. Energy Information Administration (EIA) said in a report. Russia received almost four times as much revenue from exports of crude oil and petroleum products as from natural gas. Crude oil exports alone were greater in value than the value of all...
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Links 24 July 2014

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: Why the narrative about emerging markets is likely to shift - The Irrelevant Investor A better measure of bond market sentiment - Humble Student of the Markets Market inefficiencies are interesting only to the degree they can be exploited - A Wealth of Common Sense Can individual investors time market bubbles? Some evidence says yes - SSRN Free ride ending for money market funds - Barry Ritholtz Russia’s stock market is quite a drag on the BRICs - Dr Ed's Blog North America: Seven optimistic charts about the American economy - Quartz IMF...
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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 It’s been risk-on through Asian trade today with some of the major markets breaking key levels after a solid lead from US trade. A combination of US earnings optimism, positive US economic data and a slight downgrade to Russia risk has ignited markets today. While we were expecting to see gains for Asia at the open this morning, very few would have expected the magnitude of the gains we’re seeing now. While US markets rallied into the Apple result, the result itself was a bit underwhelming as we’ve come to expect big...
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Denial won’t grow Aurizon profits

imgres Aurizon CEO Lance Hockeridge needs a new speech writer: Aurizon chief executive Lance Hockridge has claimed the expansion of a coal export terminal at Queensland’s Abbot Point will be done in an “environmentally sensitive manner” as he reiterated confidence in Asian demand for Australian resources. “The ‘Chicken Little’ view of resource demand does not recognise the reality of the long term dynamics in China, Indian and other Asian economies,” Mr Hockridge told the Israel Chamber of Commerce in Brisbane on Wednesday. “Despite the emergence of renewables, coal will remain the...
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Next rate cut hasn’t been “demolished”, Chris

images From our old friend Chris Joye this arvo: The elevated inflation results in the June quarter...demolishes the case for a near-term cut. And with house price growth compounding at 9.5 per cent in 2014 (or triple wages growth)...the RBA is going to have to eventually normalise the cheapest borrowing rates in history. The curve-ball in this calculus is Australia’s currency, which has remained lofty despite declining commodity prices. The interest rate implied by the 3-year government bond futures price jumped from 2.55 per cent to 2.65 per cent...the 50 per cent (pre-release) probability of...
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