by Chris Becker
Some more troubling news on the export front for Australia as an Asian regional slowdown seems underway, with Japan and South Korea reporting some woeful stats this morning.
The August print for Japanese industrial production came in well under expectations at -2.9% year on year and coupled with a core CPI read that is hovering just above 1%, it pays to ask the question if Abenomics is actually working.
More from David Scutt at Marketscuttlebutt:
South Korea logged a monthly decline of 3.8%, the sharpest contraction seen since December 2008, with the annual rate sliding to -2.8% from +3.9% in July. Coupled with the ugly Chinese print for August, +6.8% YY, a level not seen since December 2008, and you get a good understanding of why commodity prices continue to weaken aside from renewed USD-strength.
If you strip away the extremes of volatility caused by easy money flooding the commodity derivative complex, it still reveals the basic supply/demand dynamic that’s been in play since the start of civilization.
Its hard to deny the fact that alongside iron ore, which has dropped some 45% from its peak, the all important economic commodity copper is now down over 30% in a near two year long decline:
More from David:
While adverse weather may have played a role in some of the regional weakness, with three of Australia’s top four trading partners seeing activity falter, it will be more-than-concerning should we not see activity rebound in September. If, like me, you’re keen to see whether this is just a once-off or the start of a longer-lasting bearish trend, Chinese industrial production for September will be released on October 21.
The monthly read of manufacturing PMI for China is out just before lunch today – currently at 50.5 (just above expansion) – but a poor read could convince the otherwise perma-bulls that restructuring is afoot in China and its “dominions” across Asia.
This is going to have continued downside risk for the Australian economy as commodity prices in key exports of iron ore will continue their downward slope.