Investor signposts as at 16th Sept 2012

Hello Clients, Associates and Friends,

The following is for your perusal and information with kind regards:-

The Experts

Investor signposts - week beginning 16 September 2012

by Craig James

The latest consumer confidence readings confirm that Aussies are cautious about their finances, their perception of how the economy is performing as well as the outlook for both their finances and the economy over the coming year. For those in other parts of the world, this ‘ho-hum’ view that we have adopted must appear remarkable. In Australia we have had 21 consecutive years of economic growth, inflation is near 2 per cent,unemployment is near 5 per cent and growth of consumer spending over the past year was, by all accounts, “normal”. 

So why the gloom? In part it reflects the enormity of change that is happening in Australia. Sure we are experiencing the same technological change as other countries and similarly finding it hard in coming to terms with the global economic gyrations such as the European Debt Crisis. 

But in Australia there is also the scale of change prompted by the emergence of China, especially for industries. The Aussie dollar is holding near generational highs; more consumers are buying goods online; consumers can’t rely on home prices or share prices continuing to rise and; there are new taxes, such as the carbon tax. 

And while consumers are still spending, it isn’t all ‘fun’ – most would prefer not to be forking out more on electricity, gas, water and council rates together with education fees. Little wonder that Aussies are seeing the glass “half-empty” at present.

The week ahead

If it wasn’t for the Reserve Bank, the coming week in Australia would be exceedingly dull with only a spattering of economic data readings. There are two talks by Reserve Bank officials and the release of minutes of the last Reserve Bank Board meeting. Overseas, the “flash” readings for the performance of manufacturing indexes dominate attention. 

In Australia, the week kicks off on Monday with data on new car sales. Industry figures have already been released and showed that vehicle sales were up by 6.2 per cent on a year ago. This should mean that seasonally adjusted sales in August rose by over 3 per cent after two small declines in June and July. 

Interestingly, while private and business sales of four wheel drives (sports utility vehicles) and light commercial vehicles were healthy in the month, passenger car sales were softer, dragged down by weakness of government purchases. The other interesting fact is that the Toyota Hilux is still the top selling model in Australia, ahead of cars such as the Toyota Corolla and Holden Commodore. Overall, car affordability is the best since the 1970s and this should continue to support private vehicle sales in coming months. 

After a fairly tame Monday, Tuesday is shaping up as a far busier day. Not only is the Bureau of Statistics releasing data on imports of goods (merchandise imports) but the Reserve Bank issues the minutes of the Board meeting held on September 4 and Reserve Bank Assistant Governor Guy Debelle delivers remarks to a luncheon in Adelaide. In addition the respective Government forecasters for commodities will be releasing their latest projections. ABARES releases its Agricultural Commodities publication while the Bureau of Resources and Energy Economics is expected to release its Resources and Energy 
Quarterly on the same day. 

The most interesting of these events is likely to be the release of the commodities publications, providing investors with the latest “official” forecasts, especially for commodities such as coal and iron ore. The Reserve Bank Board minutes are also worth a look, but they tend to be devoid of clues about the next move in interest rates. 

On Wednesday the Reserve Bank, IMF and Federal Treasury are hosting a conference entitled“Structural Change and the Rise of Asia”. And while there will be a range of speeches presented at the conference, one will be delivered by Christopher Kent, Assistant Governor (Economics) at the Reserve Bank. No doubt there will be plenty of discussion of the so-called mining “boom”, especially views on how long it’s likely to last. 

In the US, the week kicks off on Monday with the Empire State manufacturing index – an influential regional survey. And on Tuesday the current account (international accounts) figures for the June quarter are issued alongside the July figures on net capital inflows. While of interest to economists and some analysts in the capital markets, the data has few implications for economists. 

Also on Tuesday, August home price figures are expected to be released in China. 

On Wednesday, housing is in the spotlight with data on both housing starts and existing home sales scheduled for release. Economists expect that housing starts lifted around 2 per cent in August to a 760,000 annual level while new home sales may have lifted around the same magnitude to a 4.55 million annual rate. 

If the data prints in line with forecasts it will provide further confirmation that the housing market has turned the corner. Certainly it does appear that the housing “oversupply” situation has been corrected with home prices edging higher compared with a year ago. 

On Thursday, the usual weekly data on unemployment claims is issued together with the leading indicator series, the Philadelphia Fed regional survey and the “flash” reading on the manufacturing sector. The leading index is expected to have eased 0.1 per cent in August while the “flash” performance of manufacturing index may have eased from 51.5 to 51.0 in September. 

Also on Thursday, “flash” readings on the health of manufacturing sectors in other regions will also be released, such as a number of European countries as well as China.

Sharemarket, interest rates, currencies & commodities

A number of business groups have argued that the Aussie dollar is over-valued, saying that the Reserve Bank should be intervening to drive the currency lower. And on comparison with commodity prices, the Aussie dollar does seem a little on the high side, but not dramatically so. We would conclude – other things being equal – that the Aussie should be closer to parity against the greenback. 

But should the Reserve Bank intervene to affect the level of the Aussie? We don’t believe so, as any efforts to take on major players in the foreign exchange market would probably prove futile. And while the currency can be perceived as over-valued at one point, it doesn’t take too much to change that perception as we have seen by the sharp lift in iron ore prices over the past week. Not only has China ramped up spending on infrastructure projects, but the iron ore price lifted over 15 per cent in the space of three days. In each of the past three years China bought up iron ore at low prices, built up stockpiles and then ran them down. And the same strategy appears to have been applied in recent months.

Published: Monday, September 17, 2012

http://wp.me/p1qS3N-hY

Best regards,

Linda and Carlos Debello

http://www.ljgrealestate.com.au

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