A couple of good snippets from the Domainfax blog today:
I have never experienced such overwhelming negativity on the outlook for the Australian economy and dollar in all my years marketing the Australian economy offshore!” exclaimed NAB economist Ivan Colhoun upon his return from visiting clients in the UK, Europe and Middle East.
“To be fair one investor did say that they were not that negative on Australia,” Colhoun said, but: “Another described the Australian economy as ‘toast'”.
Mining, China and housing were the usual suspects brought up by the overseas bears, Colhoun said.
Most of NAB’s overseas clients visited by Colhoun were “strongly of the view that the RBA would cut rates again”.
Colhoun disagreed, telling them it would take a big hit to Chinese demand for sectors like housing, tourism and education (areas that are boosting the economy) for the RBA to be motivated to cut again, and that “current trends did not support this occurrence and in fact the strengthening in non-mining activity argued strongly against the prospect of any near-term move”.
“In addition, the current weak areas of the Australian economy (commodity prices and mining capex) are not interest sensitive, suggesting monetary policy is not a particularly useful tool for macro management at the present time – and of course risks adding to potential excesses in some housing markets.”
Colhoun is wrong. It won’t take a “big hit” to housing. Prices will just need to stall, then spending will as well and the economy will be fully exposed to the emptiness that lies beneath. Rate cuts are inevitable. And:
Foreign ownership of Australian government bonds is at a five-year low, but global funds say it’s not yet time to buy.
Investors from overseas held about 65 per cent of its sovereign debt as of June, dropping from a peak 76 per cent in 2012, based on the most recent figures from the agency responsible for borrowing on behalf of the government.
While the Aussie has rallied for two weeks, it’s still down 20 per cent over the past 12 months as RBA chief Glenn Stevens cut interest rates to an unprecedented low and
sought a weaker currency to boost exports.Currency losses have more than wiped out gains generated by the local bond market as Stevens reduced the central bank’s benchmark interest rate twice this year and government debt rallied.
“We expect more devaluation,” said Kim Youngsung, the head of overseas investment in Seoul at South Korea’s Government Employees Pension Service. “After seeing commodities rebound or getting some good data from the Chinese economy, then that’s the right time to get in. Right now, we can’t see those signs.”
Toshifumi Sugimoto, the chief investment officer at Capital Asset Management in Tokyo, said he has stopped buying Aussie debt as a slowing Chinese economy saps demand for Australian resources.
“It looks like China is really bad, especially the manufacturing sector,” he said. “We’ll see less demand for natural resources. The Australian economy is still going down.”
Now you know why CBA is madly printing flyers telling the world that there’s no recession ‘ere.
