Reuters video: Nicholas Zhu, ANZ Bank head of macro-economic data Asia, examines iron ore stockpiles at Qingdao port.
[gigya src=’http://www.reuters.com/resources_v2/flash/video_embed.swf?videoId=235214214&edition=BETAUS’ type=’application/x-shockwave-flash’ allowfullscreen=’true’ allowScriptAccess=’always’ width=’460′ height=’259′ wmode=’transparent’]
Hat tip to Houses and Holes
“We really are in a secular shift for greater demand for fixed income securities in Australia,” John Wilson, the head of the global bond giant’s [Pimco’s] Australia operations told Deal Journal Australia. “That’s why you will see increasing issuance in the domestic market by domestic issuers.”
“We are seeing this notably in our flows in the wealth management business. Private investors are seeking recurring income and capital stability,” he said.
In recent weeks some of Australia’s national champions–such as retailing giant Woolworths and conglomerate Wesfarmers–have issued local currency debt even as some of the country’s other big corporates have skipped local investors and borrowed elsewhere.
via Pimco Eyes Aussie Bond Boom – Deal Journal Australia – WSJ.
Just as the United States was not the only country posting a large current account deficit, so too it was not the only country that experienced asset price booms. Figure 2 shows that countries with large current account deficits in 2006 also tended to have larger house price increases. Of course, there are exceptions. For example, China has experienced rapid house price appreciation despite its enormous current account surplus. But, in general, house price appreciation and current account deficits appear to have been positively associated across many countries.
via FRBSF Economic Letter: Asset Price Booms and Current Account Deficits (2011-37, 12/5/2011).
Colin Twiggs: ~ There appears to be a general rule that large current account deficits lead to asset price booms. But to prove the rule researchers need to address why Japan experienced a massive asset price boom in the 1980s, and why China experienced a similar boom over the last decade, when both were running current account surpluses.
As we know, the Western world has passed an historic moment when credit driven growth is no longer viable. We are in the early years of a decades long deleveraging. And, as we know from the sectoral balances of macroeconomics, an economy can only grow through the expansion of the external sector or by expanding credit in either the government or private sectors. Is it useful, therefore, to be comparing Treasury’s triumphant victory over the seventies bogies of wage breakouts and inflation via a tradable goods destroying currency appreciation when the world is now set on a course in which the ONLY economic growth that has lasting value in this new milieu is that driven by expansion in the external sector?
For me the answer is absolutely not.
Treasury is busy fighting the last war. The new war is for export revenues to drive investment and growth to offset the enormous debt stocks that exist in the public and private sectors of Western economies, including Australia. That’s why destroying parts of your tradable goods sector in order to make room for other tradable goods is about as sensible as cutting off a leg so that you’ve lost weight. Sure you have, but now you just gonna sit there and eat.
via Canberra is fighting the last war – macrobusiness.com.au | macrobusiness.com.au.
DAVID MURRAY: The lending system for housing has resulted in a house price which is higher than it should be and part of the net foreign liabilities that are higher than they should be.
I believe that will be worked through by a stabilisation of house prices and steady increase in incomes and hopefully that’s the outcome but based on a price to income test, house prices in Australia are higher than they should be.
The regulations in the banking sector significantly promoted that outcome because the risk weight on housing is very low, so the gearing for housing is high. Historically the write-off rate’s been low. People believe that will last forever, which is always a worry. And this is purely with the benefit of hindsight, particularly on my part.
The SMH has [a] very important story this morning on the funding crisis that is bearing down on the major banks:
Australian banks are preparing for a potential freeze in global funding markets as Europe’s worsening stresses threaten to send the world’s financial markets into a tailspin. Renewed funding pressures for the big banks, which need to raise $16.3 billion over the next two months, are likely to make it tougher for business and some consumers to access credit.
via The credit crunch is coming – macrobusiness.com.au | macrobusiness.com.au.
HSBC issued the preliminary “flash” version of its monthly manufacturing purchasing managers index survey – a closely watched non-government view on how China’s economy is faring. The survey fell to a contractionary reading of 48 for November, compared to a mildly expansionary reading of 51 last month. A reading of 50 separates expansion from contraction.
via Australian sharemarket extends losses after weak China survey | The Australian.
European banks in recent years dramatically boosted lending to emerging markets and were among the biggest cross-border lenders in these countries. Their retreat has tightened credit in industries—from aircraft to media to mining — squeezing economies already feeling the effects of reduced demand from the developed world for their exports….”We’re in a very vulnerable position that’s definitely impacting global growth,” Gail Kelly, chief executive of Australia’s Westpac Bank said at The Wall Street Journal CEO Council last week. “It’s certainly impacting in my country and in Asia.”
Nominal house prices are falling. Not collapsing, certainly. But falling very consistently, roughly 6% peak to trough. 8.5% in real terms. This has had a number of well documented effects including high savings rates, historically conservative levels of retail sales and stalled services sector investment.
…..Now, in August, the latest month for which we have data, coal and iron ore earned Australia $12 billion in export income. Assuming the price falls we have seen get no worse (or better), by the time new prices filter through the various contract systems, those same commodities will earn us roughly $9 billion in January next year (all things being equal with the currency).
via Why the RBA should cut rates – macrobusiness.com.au | macrobusiness.com.au.
What would a China slowdown mean for the rest of us? In the main, three things will become evident.
