Why we need more rate cuts

Capture The business-as-usual crowd in the press has had an interesting reaction to today's soft CPI. Phil Baker at the AFR reckons: The real concern is do we need that rate cut and are we going down the deflationary path like the rest of the world? ...Wednesday’s latest inflation report won’t kill off talk of the possibility that the Reserve Bank can cut the official cash rate one more time if it wants to. But with a property market thriving, the RBA has so far been reluctant to add to it. If borrowing rates are at record lows what good would another rate cut do? It would still mean lower...
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Iron ore miners rally over futures

djh It's rally day for everyone today, with the iron ore majors up strongly all over: The idiocy spreads are clearly widening again now: Juniors are mixed but mostly still gasping for breath: Dalian futures are down 3...
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REINSW slams RBA’s jekyll and hyde routine

ScreenHunter_4619 Oct. 22 13.57 By Leith van Onselen President of the Real Estate Institute of New South Wales (REINSW), Malcolm Gunning, has this afternoon slammed the Reserve Bank Of Australia's (RBA) inconsistency on property investment, which has seen it swing from encouraging investment to being on the brink of implementing macroprudential curbs to slow the property market down. From The Australian: "Six months ago, Mr Stevens was encouraging investment in real estate," Mr Gunning said. "Now that the public is buying properties with confidence, the RBA has changed its mind and is being critical, giving warnings about...
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West Pilbara lunacy revs up

Capture From the West Australian: China's Baosteel has signalled that sagging iron ore prices will not hold back development of its West Pilbara iron project, recruiting former Iron Ore Holdings boss Alwyn Vorster to head up its local iron ore business. Mr Vorster confirmed yesterday he had accepted the role as general manager iron ore at Aquila Resources, delisted from the stock exchange earlier this year after Baosteel and Aurizon closed a $1.4 billion takeover. The poor outlook for iron ore prices has industry watchers discounting the likely development of multibillion-dollar iron ore projects,...
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Rents decouple from prices, population growth

ScreenHunter_17 Jul. 16 08.30 By Leith van Onselen The September quarter consumer price index (CPI) data, released today by the Australian Bureau of Statistics (ABS), revealed continued moderate rental growth at the national capital city level. According to the ABS, rents nationally grew by 0.7% over the September quarter of 2014 – up slightly on the 0.6% growth recorded in June – but was only 2.5% in the year to September, with a clear downwards trend evident (see below charts). What's most interesting about the current moderate rental growth is that it is at odds with other housing-related indicators,...
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Enjoy the great ASX de-rating!

Capture UBS is one of those sensible sell side shops that has been pushing ideas similar to my own post-2011 allocation thoughts for Australian shares in positioning for the falling currency and slowing China: Correction Restores Some Value Since our last rebalance in early September the Australian market experienced a 9%  correction before bouncing just over 3% from the lows of last week. The correction has  restored some value to the market with the market PE (1 year forward) retracing from  14.9x in early September to 13.8x currently. We believe the market P/E can push back  into the 14.0 to 14.5x...
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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 September quarter 0f 2014, which registered a modest quarterly increase in prices, with the result also coming ahead of economists’ expectations of 0.4% inflation over the quarter. According to the ABS, headline CPI rose by a modest 0.5% in the September quarter, which follows June’s 0.5% rise (see next chart). On an annual basis, headline CPI growth fell to 2.3% from 3.0% in the June quarter, which is well within the...
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CPI eases

images The Australian Bureau of Statistics has released the September quarter CPI and inflation is easing at 0.5% (0.4 expected) for the quarter and a tame 2.2% for the year. The analytical series are now easing as well with the trimmed mean at 0.4% and 2.5% and weighted median 0.6% and 2.6%. All figures are down sharply from June QTR growth rates: SEPTEMBER KEY FIGURES Jun Qtr 2014 to Sep Qtr 2014 Sep Qtr 2013 to Sep Qtr 2014 Weighted average of eight capital cities % change % change All groups CPI 0.5 2.3 Food and non-alcoholic...
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US goes back to the future with high LVR

ScreenHunter_4599 Oct. 22 09.48 By Leith van Onselen Just six years ago, the US and a number of European nations experienced first hand the carnage of a full scale property bust.  These experiences should have taught the world that debt-fueled property speculation, along with placing regulatory constraints on housing supply, is a recipe for disaster and bound to end badly. Yet last year, the Obama Administration looked to cement the US housing recovery by re-igniting sub-prime lending - one of the factors that caused the US housing bust (along with the Global Financial Crisis) in the first place - by getting banks to lend...
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DEEWR jobs ads show weak labour market

sdfq The Department of Education, Employment and Workplace Relations Job Vacancies index is out for September and has fallen away 0.8 on the month: The trend remains a shallow and vulnerable recovery but vacancies have barely climbed above their GFC low: Falls were widespread: Skilled vacancies were a littler better: This remains an historically lousy jobs market. Full report...
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Leading index sinks further

erty3 From Westpac's Bill Evans: The six month annualised deviation from trend growth rate of the Westpac Melbourne Institute Leading Index which indicates the likely pace of economic growth three to nine months into the future fell from –1.07% in August to –1.16% in September. This is the eighth consecutive month where the growth rate in the Index has been below trend. That follows 13 consecutive months to February this year when the growth rate was above trend. The index continues to indicate that we can expect growth in the Australian economy to stay below trend in the final quarter...
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BHP unleashes iron ore tide

Capture The BHP third quarter production report is out iron ore is fountaining from the big Australian: Western Australia Iron Ore (WAIO) production increased by 15 per cent in the September 2014 quarter to a record  62 Mt (100 per cent basis) as the ramp-up of Jimblebar continued ahead of schedule and we improved the  availability, utilisation and rate of our integrated supply chain. In addition to the strong operational performance  achieved at our mines, a higher proportion of direct to ship ore increased outflow capacity at the port and facilitated  record sales volumes of 63 Mt (100 per cent...
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China accelerates away from the quarry

fdghe A few extra charts this morning from the CBA commodities team gives an insight into just how fast the Chinese economy is moving way from Australia. Net exports are a new support for growth as imports fall back: Consumption and investment are still stuck together: Fixed asset investment is falling across the board (though infrastructure has been rising): The Li Keqiang index is looking sick:     Power production is galloping away from thermal coal:   And growth in residential floor space under construction is fading fast: As starts...
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Coalition gives ground on under-30s dole delay

ScreenHunter_3946 Sep. 01 12.43 By Leith van Onselen The Government's plan to make job seekers aged under 30 wait six months before receiving Youth Allowance or Newstart looks doomed, with Family First Senator, Bob Day, proposing a compromise one month delay and Social Services Minister, Kevin Andrews, indicating the government would support the measure. From The Canberra Times: "I can't say [what the government's final position would be] but one month would be better than what we've got now," Mr Andrews told Fairfax Media. The Senate crossbench has been staunchly opposed to the idea of a six-month wait but Senator Day, of...
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Macro Morning: Pay day!

marketmorning By Chris Becker We saw the definite return of risk on markets last night, with near 2% rises across the board on major stock markets. For trend traders it doesn't get much more beautiful than this chart of the S&P500 futures below: If we zoom out to the dailies its another splendifirous and classic chart pattern: the double pin bottom, swing through clearly defined oversold levels and solid up-days (with yesterdays hammer candle profile showing enormous buying support): So the S&P500 was up nearly 2%, the NASDAQ up 2.4% and the narrow DJ30 up 1.4% for the night. Pay day! But,...
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Charlie Aitken says buy iron ore

l8yg Charlie Aitken reckons iron ore and oil have bottomed: Importantly also for Australia, and I may well be on my own saying this, but I think the iron ore price has bottomed for the year and will track higher ($95t target) on seasonal restocking from China. It also appears spot Oil prices have bottomed and will also edge higher. Last night the base metal complex also bounced on Chinese GDP data and if I am right and our key commodity prices have stopped falling, and in fact start edging a little higher, you will see buying coming into the beaten up Australian resources sector. You can ONLY make...
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RBA warns property investors of macroprudential

ScreenHunter_4598 Oct. 22 08.18 By Leith van Onselen RBA deputy governor, Phil Lowe, gave a speech yesterday afternoon to the Commonwealth Bank of Australia's 7th Annual Australasian Fixed Income Conference, whereby he expressed overwhelming frustration that the prolonged period of record low interest rates had not generated genuine productive investment, and had instead been channeled into existing assets, like property, inflating values: Interest rates are as low as they have ever been in most advanced economies... This shadow has created a difficult environment for savers and those managing savings. Perhaps at the risk...
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Australia’s world-leading property addiction

ScreenHunter_4503 Oct. 15 07.54 By Leith van Onselen Capgemini and Royal Bank of Canada (RBC) has released their 2014 Asia Pacific Wealth Report, which reveals that Australia's high net worth individuals (HNWIs) have the biggest appetite for residential property in the world despite increasing concern that there might be a property bubble developing in Australia: At 33.1%, the allocation by Australian HNWIs to real estate was the highest in the world [global average 19.5%], though it represented a drop from 40.6% a year earlier. Record low interest rates in the country could be sowing fear of a property bubble, explaining...
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Hockey warns as Chinese property bubble pops

imgres Joe Hockey is finally making some sense on commodities, from the AFR: Treasurer Joe Hockey warned ­Australia must prepare for any short-term pain from Beijing’s efforts to deflate the country’s “housing bubble”. ...“Obviously there is a housing bubble here [in China] that is coming off, that will create some ripples through the economy,” he said. “It can have an impact on our ­nominal growth with the terms of trade coming off and we’re trying to budget for that. It [the decline in the terms of trade] are worse than we expected at this stage, but it’s not panic...
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China’s credit kleptocracy

image001- Cross-posted with permission from George Magnus. Among the many things that perplex and intrigue China watchers and thinkers is China’s credit boom, which has already propelled non-financial, largely corporate and local government, to around 250% of GDP, up 100% over a decade. The widest published measure of credit, total social financing, which probably understates credit availability, is slowing down. But at 15% growth in the year to September 2014, it’s still growing not that much less than two times nominal GDP. Jon Anderson of EM Advisors Group has a fascinating report out (subscriber only)...
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Daily iron ore price update (Hebei)

anvil1-200x20011 Find the latest iron ore charts below: Paper markets were mixed. Although Dalian 6 month future were firm, they are still pricing in the mid $70s for January delivery once taxes and charges are removed. 12 month swap weakness is a concern. These markets have been way oversold yet the working off of excesses is taking the form of a sideways grind not a bounce, illustrating muted support. The spread to spot is very wide even allowing for the premium on Qingdao prices and will close one way or another. If the swap market doesn't pick up, spot will fall. Underlining the physical versus paper...
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Iron ore juniors not waving, drowning

drowning The race is well and truly on now. Locally, Cape Lambert Resources is thought to be ready to: ...announce it will contribute around $US20 million ($22.7m) into a financing package that will be funnelled into a distressed bulk commodities asset in Africa. In return, it will pick up a royalty on future production that could start generating money for Cape Lambert before the year is out. The obvious candidate for the package would be London Mining... London Mining is a 5-6 million tonnes operation out of Sierra Leone that is projected to reduce costs to $40 per wet metric tonne (wmt) when it's...
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World steel growth stops

From the World Steel Association today: World crude steel production for the 65 countries reporting to the World Steel Association (worldsteel) was 134 million tonnes (Mt) in September 2014, a slight decrease of -0.1% compared to September 2013. China’s crude steel production for September 2014 was 67.5 Mt, the same compared to September 2013. Elsewhere in Asia, Japan produced 9.2 Mt of crude steel in September 2014, a decrease of -0.5% compared to September 2013. In September 2014, India produced 6.8 Mt of crude steel, an increase of 2.5% compared to the same month 2013. South Korea produced 5.7...
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Baltic Dry rockets most ever

article-1341521-0C93F69C000005DC-905_964x639 I've given up on this index as a leading indicator of anything but it's probably worth noting that the Baltic Dry capesize component rocketed the most ever yesterday, from Bloomie: Daily rates for Capesize vessels hauling about 160,000 metric tons of the commodity jumped 38 percent to $12,580 today, according to the Baltic Exchange in London, a shipping bourse tracking freight rates on more than 50 routes. The advance was the biggest in percentage terms in data starting in March 1999. Costs climbed by more in dollar terms in December. ...“We’re seeing an increased push towards Chinese volume...
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Links 22 October 2014

ScreenHunter_01 Apr. 02 06.19 Global Macro / Markets / Investing: How oldies are killing the world economy - and could yet rescue it - The Telegraph What do pros really think about the market - Humble Student Why the low volatility anomaly should persist - Monevator Why regulating high frequency trading is so difficult - Dealbook North America: U.S. to ease repurchase demands on bad mortgages - LA Times Fannie Mae will buy 97% LTV mortgages - Housing Wire Fannie, Freddie to accept lower down payment mortgages - New Moving Markets How Much Will Student Debt Drag on Housing? - Wall Street Journal Why...
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