By Leith van Onselen Earlier this month, we noted how falling mining equipment sales could be a harbinger of a sharper than expected reduction in mining capex. Then last week, mining services contractors, Coffey, UGL and Worley Parsons, cut their earnings guidance for 2013 and announced plans to cut jobs amid a raft of project delays and cancellations in the mining industry. Today, construction and engineering company, Transfield Services, has announced a profit downgrade and confirmed that it will cut 113 jobs due to the slow down in the mining industry and cost cutting across all sectors....

By Leith van Onselen From The West Australian newspaper today comes news that a Coalition Government might look to abolish negative gearing:   Joe Hockey's tax review could pave the way to end the $13 billion a year tax break 1.2 million Australians claim on investment properties. The coalition has promised a white paper on tax reform if it wins office and the shadow treasurer confirmed yesterday this could include a look at negative gearing... Previous attempts to wind back negative gearing were met with political pain. In 2003, shadow treasurer Mark Latham floated the idea in...

By Leith van Onselen Earlier this year, Tulet Prebon released a report showing how UK households are being squeezed by falling real incomes and rising living costs since the onset of the Global Financial Crisis (GFC): Between 2007 and 2012, growth of 10% in average nominal wages was far exceeded by cumulative CPI inflation of 17%, leaving real incomes 6.3% lower in 2012 than they were in 2007. In 2007, wage-earners were 13% better off, in real terms, than they had been in 2002. Since 2007, about half of that previous gain has been lost. This is bad enough in itself, of course, and...

We really should do something about having the ratings agencies as the arbiters of what is good and right after the performance they put in prior to the GFC, but somehow they remain at the centre of global finance. Last night Moody's warned the US that it faced a downgrade to its Triple A rating if a budget deal is not cut. I say big deal and let them cut so people can start to make up their own minds about what is a good and a bad risk and take responsibility for it rather than a rote reliance on AAA, AA or BBB. Indeed in Australia some of the more sound ADI's are rated lower in the BBB+...

Yesterday, CBA reached a record high share price. The Wall St Journal responded thusly: Quiz question: What is the world’s most expensive bank? Analysts at UBSUBSN.VX +1.65% think the answer is Commonwealth Bank of AustraliaCBA.AU +0.38%, having crunched numbers like its price-earnings ratio or book value and compared them to global peers such as Citigroup Inc. C +0.29% or HSBC Holdings PLC. HSBA.LN +1.49% CBA’s shares hit a record high of A$74.18 Monday and are up almost 50% over the past year. That means its stock is trading at 10.2 times its profits before accounting for...

Cross-posted from Kate Mackenzie at FTAlphaville. Many factors affect the development of the economy, notably among them a nation’s economic and political institutions, but over long periods probably the most important factor is the pace of scientific and technological progress. That’s Ben Bernanke addressing a graduating class at Bard College at Simon’s Rock, Massachusetts, on Saturday. He goes on to say that not everyone believes this advancement is going to continue at such a great pace. Yes, he is talking about Robert Gordon and Tyler Cowen, and their arguments that much of the...

By Leith van Onselen Please find below RP Data’s latest weekly housing market update, which provides a useful snapshot of the housing market as at 19 May 2013. This week’s report includes: Latest weekly dwelling value results; Latest median house & unit prices; Average time on market & vendor discounts; Auction results & clearance rates; Number of for sale listings; Mortgage market activity; and New listings activity. Full report below. RP Data Weekly Market Update (WE May 19...

Find below the iron ore price table for May 20, 2013: In news, it appears the large steel inventory build, poor sales and shifting context of structural change has once again spooked Chinese steel mills. From the FT: Analysts said that the past week’s tumble in prices had been caused by an outbreak of bearish sentiment in the Chinese steel industry, which accounts for 60 per cent of global seaborne iron ore imports. In particular, large Chinese steel mills had been selling their inventories on the market, they said. “Chinese mills appear to be undertaking yet another iron ore destock,...

Global Macro/Markets: Helicopter money as a policy option - VOX Learning About Growth from Austerity by Michael Spence - Project Syndicate Is There a Stock-Market Bubble? - New Yorker BIS and IMF attacks on quantitative easing deeply misguided warn monetarists - The Telegraph Gold falls for eighth session, silver down sharply - Reuters Andy Xie Column -- Too Big To Fail Is Bigger than Ever - Caixin North America: Learning from Houston: Great interview with America's first openly lesbian (Democratic) mayor - Wall Street Journal Housing recovery? What housing recovery? -...

It was a strange open in Asia today, with USD/JPY coming off sharply from its Friday close of 103.21 to hit a low of 101.97. This occurred after the Japanese Economic Minister said the JPY’s excessive strength had been largely ‘corrected’ and any further moves may have negative connotations. The sharp moves south have also been blamed on the 9% spike lower in silver to $20.33, as traders liquidated other asset classes to pay up for margin calls. Throw in some wafer thin liquidity and stops, and you can see how you get a sizeable move like that. The 90-pip rebound in USD/JPY is testament to...

By Leith van Onselen Following last week's Memorandum of Understanding between the Reserve Bank of New Zealand (RBNZ) and the New Zealand Government, the RBNZ has today outlined how it will use macro-prudential policy tools to target high loan-to-value (LVR) mortgage lending - i.e. mortgages where the deposit or equity in the property is less than 20%. From Interest.co.nz: The Reserve Bank is getting banks to break down their high loan-to-value (LVR) housing lending by borrower type as it outlines a preference for "speed limits" and "tiered limits" - as opposed to outright caps - in the LVR...

MB contributor, Rumpletstatskin, wrote an interesting post on the Australia property cycle this morning. In it he mused that: The crucial lesson in all this is that Australian nominal asset prices have been supported by fiscal policy during the financial crisis, ongoing monetary policy adjustments, and foreign investment (including in mining infrastructure), which all supported employment and incomes. This support allowed a slow melt adjustment since the financial crisis. Home prices have fallen, mortgage rates are down, and rents have increased. This means that buying a home is more affordable...

Cross-posted from Tiho at The Short Side of Long. Equities Chart 1: VIX & S&P 500 divergence continues... Source: Short Side of Long While not an outright sentiment indicator, Volatility Index (VIX) usually tends to lead the S&P 500 lower. Red divergence lines, in the chart above, show how VIX refuses to make a lower low while the stock market moves higher. Disagreement tends to be a warning signal majority of the time (doesn't always work). It seems that traders tend to buy protection in anticipation of an up-and-coming corrections. This is definitely a warning signal,...

By Leith van Onselen From the AFR today comes news that the Coalition has identified $75 billion of expenditure cuts and tax increases over the next four years required in order to address the "fiscal emergency" and return the Budget to surplus: As well as the $43 billion in cuts and tax rises contained in the federal budget which he supports, Opposition Leader Tony Abbott has separately announced at least another $14 billion savings, including his budget-in-reply promise to defer increases to the superannuation guarantee. Furthermore, the Coalition is backing about $13 billion savings Labor...

By Leith van Onselen From Westpac Economics today comes a report arguing that Australia's housing recovery will remain tepid and uneven: The current recovery in Australia's housing markets has been slow to form and despite a quickening in early 2013 remains uneven across segments and states. We expect more of the of the same going forward. Price expectations suggest current positive momentum is well-entrenched but ‘consumer caution’ and a reluctance on the part of buyers to stretch themselves financially will remain a major ongoing restraint. Concerns around job security remain...

From ANZ: Iron ore prices ended the week with a 5% drop, the sharpest fall since mid-March when China’s growth expectations for this year were reduced. Iron ore prices are now sitting around 6-month lows and remain under pressure from the weakness in Chinese steel prices. Coking coal prices also posted the 4th consecutive week of declines to USD144.9/t, with prices at three and a half year lows. In response, Baltic Capesize rates (key gauge for iron ore and coal shipping), turned lower for the first time in 4 weeks. Coal markets could be hit by China’s National Energy Administration’s...

Recent data suggests that investors are happy to jump back into Australian residential property markets.  Maybe jump is too strong.  Hop might be better. Perhaps this is due to a search for yield.  Perhaps it is foreign cash seeking a safe harbour. Or perhaps it’s simply time for the Aussie love affair to be rekindled.  Holes are over.  It’s houses turn. Despite first home buyers being tapped out, having dosed up in property during the 2008-09 FHBG boost period, the critical indicators are showing that the slow melt of Australian property has run most of its course. With these...

By Leith van Onselen The auction clearance rate in Australia’s biggest auction market – Melbourne – rose slightly over the weekend, with 73% of the 617 auctions reported to the REIV selling, with 33 auctions still listed as “no result”, which will likely lead to some minor downward revisions to the clearance rate as the missing results come in (see below table). The result compares favourably to the 72% provisional clearance rate recorded last weekend on 653 auctions, which was downgraded to a final clearance rate of 70% on 733 auctions after late results were chased-up. It was...

By Leith van Onselen The Western Australian Treasury has slashed more than $2 billion from the state's revenue forecasts amid falling iron ore prices, which are reducing mining royalties. From The West: WA Treasury has cut more than $2 billion from State revenue forecasts since February's pre- election financial update. The writedown over four years to 2016-17 is mostly from revised official State iron ore price and royalty forecasts [down $1.5 billion] and a smaller-than-expected national GST take. Treasury is also worried about a WA labour market that has deteriorated quicker than...

Morgan Stanley offers the obvious truth this morning: All else being equal, a weaker AUD is a positive for resource company earnings: Holding USD commodity prices static, a weaker AUD results in positive translational benefits for ASX resource equities who sell their products in USD and report earnings in AUD. But all things are rarely equal: As shown in Exhibits 1 to 3 on page 2, the AUD-USD rate is highly correlated to commodity prices, particularly bulks and oil. The demise of the “mining boom” brings with it a triple negative too, in the form of lower prices, lower production...

Above is an interesting short discussion from Financial Review Sunday with Bell Potter's Charlie Aitken and the AFR's Michael Stutchbury on the faster than expected unwinding of Australia's mining investment boom, following last week's profit downgrades by mining services companies - Coffey International, Worley Parsons, and UGL - as well as announcements by BHP and RIO that they would pull back mining capital expenditure. I have to take exception to Aitken's claim that the mining boom is coming off more quickly than expected. The writing has been on the wall for mining services for at least six...

By Leith van Onselen In a post-Budget newsletter last week, the "Barefoot Investor", Scott Pape, questioned why Australia's cash-strapped Federal Government had not considered scrapping negative gearing. From Property Observer: “Our 1.25 million loss making landlords cost taxpayers $5 billion a year - a significant saving when the budget is in deficit of $18 billion,” writes Pape. “And all it achieves is to make it harder for young people to compete to buy their first family home. “Sadly, the government didn't have the ticker to abolish it this year"... Pape has long been a...

Stocks and the US dollar were higher on Friday night as the trends continue to dominate markets. US 10 years rates were chased back from 2% last week by some buying but it seems that with all the talk of taper floating around the market is going to continue to keep upward pressure on yields. This is reinforcing the US dollar's growing place in FX land as the least ugly currency du jour and quickly becoming the currency du mois or even du annee. Of course these things are never straight line but as Chris wrote in his trading week note  over the weekend: Previously on the weekly chart  I...

The Opposition has leaked its plan for double dissolution over the carbon tax. From The Australian: TONY Abbott would prepare for a double-dissolution election within five months of taking office if parliament blocked the repeal of the carbon tax, under a 12-month action blueprint to transform the nation's environmental laws. ...The timetable outlines how the Coalition's environment plans would be implemented. The federal environment department would be instructed on day one of an Abbott government to prepare legislation to scrap the carbon tax. The legislation would be introduced to parliament...