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 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...
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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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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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Iron ore futures rain on ASX parade

imgres In case you're wondering why the air is coming out of the ASX rally and the iron ore juniors this afternoon, the dollar is up and threatening and Dalian iron ore futures are down 0.6% points in...
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Why rental growth just keeps on falling

ScreenHunter_19 Mar. 06 16.12 By Leith van Onselen The June quarter consumer price index (CPI) data, released today by the Australian Bureau of Statistics (ABS), revealed a continued moderation of rental growth at the national capital city level. According to the ABS, rents nationally grew by 0.6% over the June quarter of 2014 – down slightly on the 0.7% growth recorded in March – but moderated to 2.4% growth in the year to June – the lowest annual growth recorded since December 2005 (see below charts). The outlook for rental growth is weakening. While population growth is still running strong - which...
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Rio plots monster pit

images From The West: Rio Tinto is working on plans to build the biggest single pit iron ore mine in the Pilbara, filing environmental applications for a 70 million tonne-a-year monster at its Yandicoogina operation. ...The documents suggest the Pocket and Billiard South pit would be about 7.5km long and nearly a kilometre wide. Rio told the Environmental Protection Authority it wanted to begin production at the new pit in 2017, at an initial rate of 28mtpa. That would take total production at Yandicoogina to 70mtpa, with expansion of the pit likely as other areas of the mining hub wind...
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Are banks slashing mortgage rates out of cycle?

adfa From the AFR: The Commonwealth Bank has slashed its five-year fixed mortgage rate to a record low of 4.99 per cent, offering borrowers the chance to exploit historically low interest rates. The country’s biggest lender said on Wednesday its five-year rate would fall 0.7 percentage points to 4.99 per cent, the lowest rate in the market. It is the first time the bank has cut its five-year fixed rate below 5 per cent. ...Fixed rates are influenced by the outlook for the cash rate...ANZ Bank interest rate strategist Zoe HcHugh said markets were pricing in a 50 per cent chance of a quarter-point...
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Australian CPI in detail

ScreenHunter_01 Jun. 08 23.33 By Leith van Onselen As noted briefly by Houses & Holes, the Australian Bureau of Statistics (ABS) has released the Consumer Price Index (CPI) data for the June quarter 0f 2014, which registered a modest quarterly increase in prices, with the result also coming in line with economists’ expectations. According to the ABS, headline CPI rose by a modest 0.5% in the June quarter, which follows March’s 0.6% rise (see next chart). On an annual basis, headline CPI growth rose to 3.0% from 2.9% in the March quarter, which is at the top of the Reserve Bank of Australia’s (RBA) target...
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CPI eases

imgres The Australian Bureau of Statistics has just released the June quarter CPI and it's about expected at 0.5 headline with slightly higher analytical measures. The dollar jumped on the latter. At first blush it looks like tradable inflation is still firmish but the dollar has overreacted because it's priced for cuts. JUNE KEY FIGURES Mar Qtr 2014 to Jun Qtr 2014 Jun Qtr 2013 to Jun Qtr 2014 Weighted average of eight capital cities % change % change All groups CPI 0.5 3.0 Food and non-alcoholic beverages 0.4 2.5 Alcohol and...
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ASX rips to post-GFC high on BHP

dfaef The ASX200 is trading at a new post-GFC high as the BHP results sends the teenagers and algos into melt up: As predicted, iron ore juniors are all rising in sympathy with the dirt monster that is destroying them. Good day to pick...
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Labor left calls for higher taxes

ScreenHunter_64 Jul. 29 15.04 By Leith van Onselen The left faction of the branch of the Australian Labor Party (ALP) calling for a national debate on the size of government, arguing that taxes should be raised rather than cutting expenditure. From WA Today: The Left will introduce a resolution at this weekend's NSW Labor conference noting that Commonwealth revenue has fallen over the past decade - from 25.6 per cent of gross domestic product to 23.6 per cent... The resolution asserts that: ''In order for Labor to deliver on the community's aspirations for role of government, the revenue to GDP ratio may need to...
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Ex WTO chief slams flawed TPP trade deal

ScreenHunter_3418 Jul. 23 10.44 By Leith van Onselen Former World Trade Organisation (WTO) director-general, Supachai Panitchpakdi, has slammed the Trans-Pacific Partnership (TPP) – the proposed regional trade deal between 12 Pacific Rim countries, including Australia – claiming that it represents a step backwards to the days before the WTO when the US and Europe controlled the global trading system to the detriment of other economies. From the New Zealand Herald: "TTIP [Trans-Atlantic Trade and Investment Partnership] and TTP together could drive the world back into the old days before the WTO was conceived, a world...
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DEEWR job vacancies firm

adsfq The Department of Employment (DEEWR) job vacancies report for June is out and firmed 1.5%: The trend remains weakly up: Composition was unexciting (economically) with carers taking the gong: Skilled looks more encouraging: No change, really. Insipid labour market. Full report...
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Western economists see Chinese mortgage gusher

imgres From Bloomie: Chinese banks will probably offer discounted mortgage rates to their clients in the second half of 2014 as demand in the country’s housing market weakens, according to a Bloomberg News survey. Banks will resume preferential mortgage rates, according to 74 percent of analysts and economists in a survey conducted from July 14 to July 17. Fifty-six percent forecast lower minimum down payments, while 59 percent said they expected the central bank to ease its mortgage restrictions. A total of 29 economists and analysts responded to the survey. The moment of truth is certainly...
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BHP dirt monster feasts

afw Woho! BHP is chucking out dirt like a transformer on steriods. From its Q2 production report: Strong operating performance delivered a 9% increase in Group production with annual records achieved across 12 operations and four commodities. Western Australia Iron Ore achieved a fourteenth consecutive annual production record as volumes increased to 225 Mt (100% basis), significantly exceeding initial full-year guidance. We now expect production of 245 Mt (100% basis) from the Pilbara in the 2015 financial year. Metallurgical coal production of 45 Mt exceeded full-year guidance as...
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Crisis is the new black! (members)

imgres Gosh, what has MB done? Three years of talking a little truth to power and the business media has gone barmy, too barmy even for bearish little me. Business Spectator may publish the perma-bulls in "Mad" Adam Carr and Craig James but they're being drowned out by a thumping chorus of doomsayers in Rob Burgess, Callam Pickering, Tristan Edis, Robert Gottliebsen and even Stephen Bartholomeusz. The Markets Live blog at Fairfaxand the AFR  have also been publishing a steady stream of warnings from "strategists" that stock market doom is nigh. Even the Pascometer appears to have malfuctioned...
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Is Australia isolated on health care inflation? (members)

ScreenHunter_3414 Jul. 23 08.19 By Leith van Onselen The New York Times has produced a report on the significant slowdown in health care cost inflation throughout the developed world, whereby every major high income country experienced a sharp deceleration in the growth of health care spending between 2001 and 2011: The rate of health cost growth has slowed substantially since 2000 in every high-income country, including the United States, Canada, Britain, France, Germany and Switzerland, according to data from the Organization for Economic Cooperation and Development... What’s behind the pattern? Economic growth...
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Q2 CPI preview

dfgwr From Westpac comes the following Q2 CPI preview (released today): Our Q2 headline CPI forecast is 0.6%qtr/3.2%yr. Core  inflation, as measured by the average of the trimmed mean and weighted median, is forecast to rise by 0.7%qtr/2.8%yr. We estimate that the 6 month annualised pace of core inflation eased back to 2.5%yr in Q2 from 2.8%yr in Q1 and 3.0%yr in 2013Q4. The pulse of core inflation has eased back from the top of the RBA’s 2-3% target band and the lack of wage inflation, well anchored low inflation expectations and a robust AUD suggests that the most likely outcome is for this...
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Australia’s roads investment “hideously inefficient”

ScreenHunter_02 Apr. 02 20.10 By Leith van Onselen Australia's independent infrastructure umpire, Infrastructure Australia, has launched a scathing attack on road-based infrastructure investment undertaken by Australia's governments, arguing that it has been "hideously inefficient" in a new leaked report. From The Canberra Times: More than $20 billion a year of national road funding is being spent in a “hideously inefficient” manner, according to a leaked assessment by Australia’s independent infrastructure umpire... “The unhealthy focus of road agencies appears set on ‘getting, controlling and spending’ more...
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Confessions of an unpopular Treasurer

MAGICAL MAESTRO 2 Joe Hockey has released an authorised biography, presumably to further his own leadership ambitions and it's got some interesting stuff in it. From the AFR: “In reality, the budget was much softer than Joe would have liked,’’ says the book by Madonna King, Hockey: Not Your Average Joe. “He wanted changes to pensions made earlier and the deficit levy to net more taxpayers. “But Abbott, who chaired each of the expenditure review committee meetings, was taking a much more cautious approach than his Treasurer, no doubt with one eye firmly on the reaction of voters.” ...And his...
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Markets have boxed in the RBA for another cut (members)

InflationJune2014 The Australian dollar had a volatile night: The prime culprit was the US CPI which eased back from recent highs and showed even more weakness in the internals. From the Cleveland Fed (charts from Calculated Risk): According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.0% annualized rate) in June. The 16% trimmed-mean Consumer Price Index also increased 0.1% (1.8% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the...
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APRA’s macroprudential-lite upsets banks

imgres From the AFR: In May, amid concerns lending standards were slipping, APRA published landmark guidelines on how it expected banks to manage and monitor their mortgage risks. But a new submission on behalf of the banking industry has hit back at the plan, saying it will add costs and invites a “tick the box” mentality among lenders. The Australian Bankers’ Association submission argues the regulator should stick to providing banks with top-level principles for lenders to implement as they see fit, rather than developing specific guidelines. ...In particular, the ABA took aim at proposals...
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World steel growth solid

Production_6 From the World Steel Association today: World crude steel production for the 65 countries reporting to the World Steel Association (worldsteel) was 137 million tonnes (Mt) in June 2014, an increase of 3.1% compared to June 2013. World crude steel production in the first six months of 2014 was 821.3 Mt, an increase of 2.5% compared to the same period of 2013. The EU 28 showed an increase of 3.8% while Asia and North America reported growth of 2.9% and 1.7% respectively in the first half of 2014. South America and C.I.S. produced -1.0% and -2.6% less each. China’s crude steel production for June...
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