Aussie Car Sales Up – Wages Not So Up

Australians could be forgiven if they missed a new record in their economy this week.

Motor vehicle sales, one of the nation’s least-watched economic data, reached an all-time monthly high in May as buyers splashed out on more than 100,000 new vehicles. The buoyant trend appears to defy central bank and economists’ warnings about weak consumer spending amid record-low wage growth and record-high household debt.

Or perhaps things aren’t so bad and Aussies are getting used to tight-fisted employers. While household consumption rose only 0.5 percent in the first quarter, the measure is still just under its 10-year average. At the same time, some things are getting cheaper: car prices have been flat or falling in recent years, and rising slower than workers’ wages, according to Craig James, an economist at Commonwealth Bank of Australia’s securities unit.

“While consumers at the moment aren’t overly chipper about life I think they’ll get used to the fact that wages are growing at a much slower pace than what they’ve done in the past,” said James. “Things have been getting more affordable and that just reflects the fact that our standard of living has been continuing to increase.”

Sales of new motor vehicles rose for the third straight month in May, with annual purchases of sports utility vehicles and other more commercial-type vehicles near record highs. Buyers still aren’t feeling too well-heeled though, with annual growth of luxury cars at five-year lows, according to the Commonwealth Bank.

The Reserve Bank of Australia is hoping Aussies don’t get too complacent about their miserly pay gains. Governor Philip Lowe said as much on Monday, when he encouraged workers to ask for larger wage rises. Company profits are soaring and fatter pay packets would of course help core inflation return to the bank’s 2 to 3 percent target.

But workers’ fears about job security are a big factor holding them back from making demands. And while cars may be an affordable luxury, houses aren’t.

One of the RBA’s biggest concerns is that a mortgage mountain that’s driven household debt to 189 percent of income becomes a long-term strain on spending. While consumption is yet to fall off a cliff, the savings rate dropped to the lowest in almost nine years in the first quarter.

“People are still spending,” said James.  “They’re just spending in different ways.”

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

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Aussie Snapshot

If you’re wondering how Australia’s overall economy has been faring lately, especially since Australia’s Q1 GDP report will be released next week and the RBA would be giving another rate decision and statement, also next week, then today’s economic snapshot is just for you.

Growth

  • Australia’s Q4 2016 GDP printed a 1.1% quarter-on-quarter expansion, beating forecasts for a 0.7% increase.
  • The rebound means that Australia avoided a technical recession after Q3’s disappointing 0.5% contraction.
  • The 0.9% increase in household spending (+0.4% previous) was the main driver for the recovery, since it added 0.5% to GDP growth (+0.2% previous).
  • Private business investment was also a driver, adding 0.2% to GDP growth (-0.1% previous).
  • This marks the first increase in private business investment after nine consecutive quarters of declines.
  • Government investment became a major driver again after being the main drag in Q3.
  • Government investment increased by 7.7% (-7.8% previous), adding 0.3% to total GDP (-0.4% previous).
  • The 34.2% surge in national defence investment, in turn, was the main driver for total government investment.
  • Net trade was also a driver, adding 0.2% to total GDP, thanks to the 2.2% increase in exports.
  • Trade was a dud back in Q3, since exports and imports cancelled each other out.
  • Year-on-year, Australia’s economy grew by 2.4% in Q4.
  • Also, Q3’s +1.8% annual growth, which was the slowest year-on-year expansion since 2009, was upgraded to +1.9%.
  • The major driver for the faster year-on-year growth was net trade, since it added 1.5% to total GDP growth (+0.7% previous).
  • Household spending was also a major driver, adding 1.5% to annual growth (+1.4% previous).
  • Meanwhile, private business investment was less of a drag, subtracting only 0.8% from GDP growth (-1.4% previous).

Employment

  • Australia’s seasonally-adjusted jobless rate dropped from 5.9% to 5.7% in April.
  • This is the best reading since January 2017.
  • Meanwhile, the labor force participation rate held steady at 64.8%, which is the shared best reading since July 2016.
  • This means that the drop in the jobless rate was due to the number of unemployed blokes and sheilas falling from 751K to 732K.
  • This further means that the drop in the jobless rate is a healthy one.
  • In terms of job growth, the Australian economy generated a net increase of 37.4K jobs.
  • This is a smaller increase compared to the 60.0K increase in March, though.
  • Moreover, the net increase in jobs was due to the 48.96K increase in part-time employment, which was partially offset by the loss of 11.60K full-time jobs.
  • This is the first decrease in full-time jobs after two straight months of solid increases.
  • Still, the Australian economy has been generating jobs for seven months straight, which is something.

Inflation & Wage Growth

  • Headline CPI rose by 0.5% quarter-on-quarter in Q1 2017, matching Q4 2016’s reading.
  • Year-on-year, CPI advanced by 2.1%, accelerating from the previous quarter’s 1.5%.
  • This is the best reading in 10 quarters and also marks the third consecutive quarter of improvements for the annual reading.
  • Moroever, headline CPI is now within the lower bound of the RBA’s target range.
  • For reference, the RBA’s target range for annual headline inflation is 2-3%.
  • Meanwhile, the annual core reading rebounded from 1.6%, a low not seen since 1998, to 1.9%.
  • This is the best reading in five quarters.
  • On a quarter-on-quarter basis, 6 out of the 11 sub-components printed increased while the rest took hits.
  • Year-on-year, only 3 of the 11 sub-components got hit.
  • Interestingly enough, the biggest driver for quarter-on-quarter CPI was the 0.8% increase from the housing component, which added around 0.2% to CPI.
  • And of the housing component, the 2.2% increase in the cost of utilities accounted for 0.11%, the 1.0% rise in the price of new dwellings accounted for about 0.09%, the 0.1% rise in rent added 0.01%, and the rest only had very minimal contribution.
  • The soft rise in rent and higher cost of utilities was anticipated by the RBA, but the higher cost of dwellings was not.
  • Moving on to wage growth, total hourly rates of pay (excluding bonuses) in both the private and public sector increased by 0.5% quarter-on-quarter during Q1 2017.
  • This is a tick faster than the +0.4% reported in Q4 2016.
  • Wage growth has been holding steady at or around +0.5% since Q2 2015 after trending lower from a peak of +1.0 back in Q1 2012.
  • Year-on-year, the wage price index increased only by 1.9%, which is the same pace as in Q4 2016.
  • This is the shared weakest year-on-year increase since comparable records began in Q3 1998.
  • As for trends, wage growth has been steadily slowing since Q3 2012.

Business Conditions & Sentiment

  • The National Australia Bank’s (NAB) business confidence index rebounded from 6 to 13 index points in April.
  • This is the highest reading since 2010.
  • Also, business sentiment has been positive since September 2013.
  • As for NAB’s business conditions index, it climbed even higher from 12 to 14 index points.
  • According to NAB, “employment conditions drove most of the improvement in the month, while profitability was steady. A drop in trading conditions (sales) was only partly offsetting and it remains the strongest component despite the moderation.”
  • In addition, “Solid levels of business conditions have begun to look more uniform across industries, although transport and retail drove most of the improvement in the month of April.”
  • NAB’s labour costs index, meanwhile, finally increased from 0.8% to 1.0%, which is a promising sign for wage growth.
  • Moving on to the Australian Industry Group’s (AIG) performance of services index (PSI), the reading jumped from 51.7 to a three-month high of 53.0.
  • This marks the second month of improving readings.
  • The improvement was broad-based across sub-indices, with the sales sub-index rising by 1.2 points to 55.0 and the new orders sub-index climbing by 2.2 points to 54.5.
  • Unfortunately, the employment sub-index fell by 3.1 points to 51.9.
  • The reading is still above the 50.0 neutral level, though, so payrolls still increased, albeit at a weaker rate.
  • Going to AIG’s performance of manufacturing index (PMI), it recovered to 59.2 after sliding to 57.5 previously.
  • The new orders sub-index shed 1.1 points and dropped to 61.5.
  • However, the production sub-index picked up the pace by jumping 3.1 points to 60.7.
  • Exports also soared by 7.5 points to 58.6.
  • As for business loans, that printed a 0.4% increase in April.
  • Year-on-year, business loans only increased by 3.1%.
  • This is the weakest year-on-year reading since May 2014, as well as marking the fourth straight month of ever poorer readings.

Consumer Spending & Credit

  • Retail trade turnover in Australia fell by 0.1% month-on-month (seasonally-adjusted) in March.
  • This is a softer fall compared to February’s -0.2%.
  • Nevertheless, it still marks the second month of declines.
  • Moreover,retail trade turnover for all of Q1 only increased by 0.27% quarter-on-quarter.
  • In contrast retail trade turnover for Q4 printed a 1.07% increase, so consumer spending very likely took a hit in Q1.
  • Looking at the details, 4 of the 6 major retail store types reported decreases in retail trade turnover.
  • The biggest drag was the 0.5% fall in retail sales from food stores (+0.2% previous), followed by the 0.6% fall (-0.1% previous) in sales reported by cafes, restaurants, and & takeaway food services.
  • Year-on-year retail trade turnover only increased by 2.5%.
  • This is the weakest annual reading in 44 months.
  • In addition, this marks the fifth month of worsening annual readings.
  • As for personal loans, both the monthly and annual readings were in negative territory again in April.
  • Personal credit, on both a monthly and yearly basis, has been falling since January 2016.
  • On a monthly basis, personal credit fell by 0.1% in April, which is a bit softer than the 0.2% fall in March.
  • Year-on-year, personal credit slumped by 1.5%, the same rate of decline as in March.
  • This is the shared biggest year-on-year contraction since April 2012.

Housing

  • After slumping by 10.3% in March, building approvals increased by 4.4% in April, thanks mainly to the 9.6% increase in approvals of private sector dwellings excluding houses.
  • Housing loans to owner-occupiers continue to grow at a steady pace, printing another 0.5% month-on-month increase.
  • Year-on-year, it slowed from +6.2% to +6.1%, which is the lowest reading since September 2015.
  • As for housing loans to investors, they increased by another 0.6% month-on-month in April.
  • On an annual basis, housing loans to investors grew by 7.3%, which is the highest reading since January 2016.
  • Also, housing loans to investors have been steadily picking up the pace after bottoming out at an annual pace of 4.6% back in August 2016.
  • This may mean that speculative pressure on the Australian housing market is still picking up, increasing the chance of a housing bubble.
  • Trend wise, overall housing credit maintained the +6.5% reported in March.
  • Total housing credit bottomed out at 6.3% back in November 2016 and looks like it has been slowly rising since then.
  • As for AIG’s performance of construction index (PCI), it modestly improved from 51.2 to 51.9 in April.
  • Overall construction activity fell, thanks to the drop in housing and commecial building construction being partially offset by the large increase in apartment building construction and engineering works.

Trade

  • Australia seasonally-adjusted trade surplus narrowed to $3,107 million in March.
  • Still, this marks the fifth consecutive month of surpluses.
  • That’s in Aussie dollars, by the way.
  • The smaller surplus was due to imports jumping by 4.6% after contracting by 4.7% previously.
  • This was able to offset the 2.4% increase in exports (+0.1% previous).
  • But on an upbeat note, total exports increased by 5.44% between Q4 2016 and Q1 2017.
  • Imports did increase by 2.44%, though.
  • Even so, the net surplus for all of Q1 is bigger than the surplus back in Q4, so trade was likely a driver in Q1.

Cheerio

The Pinstripe and Bowler Club Shares information with MF Solutions Ltd

LNG New To Me ?

When natural gas is chilled, it becomes liquefied natural gas, or LNG.

LNG is a big deal in Australia, with the Australian Petroleum Production & Exploration Association stating that it is “driving an unprecedented level of investment” in the country.

What’s more, according to the International Gas Union, in 2016 Australia was the world’s second largest exporter of LNG after Qatar, and had a 17.2 percent share of the market.

More than two hundred kilometers off the coast of Western Australia, a vast LNG project is taking shape and looking to further bolster Australia’s status as an LNG powerhouse.

The Ichthys LNG Project stems from the discovery of the vast Ichthys gas and condensate field in the year 2000, a finding described by energy company Inpex as “the largest discovery of hydrocarbon liquids in Australia in 40 years.”

“LNG is a cooled version of natural gas,” Chris Blackburn, an operations superintendent at Inpex, said. “It’s liquid, and with liquid the size of the fluid is much smaller. The gas form of LNG is 600 times bigger, so when it’s smaller we can transport it and then re-gasify it for the market.”

The scale of the project, which is under construction, is impressive. An 890 kilometer pipeline is set to transport gas and condensate from the field to onshore facilities near the northern city of Darwin.

Vince Kenny, Inpex’s general manager for onshore construction, described the pipeline as being “the longest… in the southern hemisphere.”

“The project itself will produce 8.9 million tonnes per annum of LNG, 1.6 million tonnes per annum of LPG (liquefied petroleum gas), and approximately 100,000 barrels of condensate per day,” Kenny went on to explain.

Watch this space.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Wine Down Under

Americans are falling in love with pricey New Zealand wines at the expense of cheaper vino from Australia and Argentina.

The value of New Zealand wine shipped to the U.S. jumped 11 percent last year to $400 million — the biggest gain among the top eight importers — and exceeding Australia’s earnings there for the first time, according to figures from Gomberg, Fredrikson & Associates. Aussie shipments dropped 8 percent and Argentina’s fell 4 percent.

New Zealand is reaping dividends from pushing quality wines at higher prices to the lucrative American market, where drinkers are becoming increasingly discerning. Exports to the U.S. have doubled in the past five years, making it the largest market for producers like Constellation Brands, whose Kim Crawford sauvignon blanc is the No.1 seller in the U.S.

“We are seeing newer generations who have grown up around wine, and are more comfortable around wine, graduating to more expensive wine earlier in their drinking lives than the baby boomers ever did,” said Marc Soccio, a Melbourne-based analyst at Rabobank, who helps produce a quarterly report on the wine industry. “These trends have naturally played into the hands of a country like New Zealand.”

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Hong Kong Peak

Hong Kong housing prices are close to their peak and economically “unsustainable,” said Cusson Leung, managing director at J.P. Morgan Chase & Co.’s Asia Pacific equity research unit.

Price increases in the world’s most expensive home market have outpaced Hong Kong’s gross domestic product growth “significantly” since 2009, and any external shocks could trigger tighter liquidity in the city’s banking system, increasing home buyers’ borrowing costs, Leung said in an interview.

“I won’t buy,” said Leung, who expects that new home prices will remain unchanged this year. “If the bubble bursts, buyers will not only lose their own money, they will also lose all of their parents’ money.” Buyers have been using all of their assets as well as leveraging parents’ existing homes as collateral to help make residential property deposits, he said.

The resurgent housing market has posed a headache for Hong Kong’s leaders. After a short-lived dip, existing home prices have set new records in recent weeks. Still, the market isn’t immune to risk as the Federal Reserve has signaled it will continue on a path of interest-rate hikes this year.

New property projects prices have also heated up, with Cheung Kong Property Holdings Ltd. last week offering 40-square-meter flats in east Hong Kong island for at least HK$10.3 million ($1.33 million), Apple Daily reported. The amount could buy a two-bedroom, inner-city Sydney apartment with a car park, according to rental aggregator Domain.com.

Despite efforts by Hong Kong Chief Executive Leung Chun-ying to curb the rally in home prices, investors have found ways to breach barriers. Qualifying as first-time buyers and buying multiple new flats on a single contract is an option wealthy purchasers have pursued, enabling them to skirt a measure that would increase stamp duty to 15 percent for existing property owners. The government is considering ways to plug the loophole, the Hong Kong Economic Journal reported last week.

Closing ways to bypass measures would make the property market “less crazy,” while the government could increase supply by selling public flats under its rental housing program, Leung said.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Aussie Dollar Update

Reserve Bank of Australia (RBA)

Still no policy changes!
For a sixth month in a row since cutting it in August, the RBA’s interest rates remains at 1.50%.

Apparently, Philip Lowe and his gang believe that “holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.” Not really surprising after Lowe has all but said that they’re done cutting rates for now!

The global economy is fine
The RBA barely made any changes from its outlook last month. It still believes that improvements in the global economy have boosted commodity prices, which have provided “significant” boosts to Australia’s income. It’s also still iffy about China’s recovery, saying that the composition of growth and the pace of borrowing still pose risks. Lastly, it recognized that higher inflation rates are partly due to higher commodity prices.

Ditto for the domestic economy
The central bank noted that the economy is “continuing its transition” from the mining boom by growing by 2.50% in 2016. It nodded to exports that have “risen strongly”as well as “non-mining business investment that has risen over the past year.”

The RBA also emphasized that its optimistic outlook is supported by low interest rates and exchange rates. It repeated that the Aussie’s depreciation since 2013 has “assisted the economy” from the mining boom, and that a stronger Aussie would “complicate” the adjustment.”

As for the labor market, the RBA still thinks indicators are mixed, but this time it conceded that employment growth is concentrated in part-time jobs. This, as well as the subdued labor cost growth, is why the central bank expects underlying inflation “to stay low for some time” even as headline inflation is expected to hit above 2.0% in 2017.

AUD bulls saw red
Remember market players were mostly expecting the RBA to strike against the Aussie’s recent gains by jawboning a bit.

But with Lowe and his team mostly maintaining their stance last month, traders have moved on to expect rate hikes from the central bank this year. After the release, futures pricing showed a 33.3% (up from 29.9%) possibility of a rate hike before 2017 while rate cut speculations slipped from 3.4% to 3.3%. Not surprisingly, the Aussie ended the day higher against its counterparts.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Aussie Bull Run

AUD – Large speculators were really bullish on the Aussie, since they added fresh longs while drastically reducing their short bets. Also, this marks the seventh consecutive week that the Aussie has been taking ground from the Greenback. Positioning activity on the Aussie likely shows speculation that Australia’s Q4 GDP report would show a rebound, or even print an upside surprise after the RBA’s meeting minutes said that the “fall in GDP in the September quarter had reflected some temporary factors.” And as we now know, Australia’s Q4 GDP report did print an upside surprise. Other than that, the bullish positioning activity doesn’t really make sense, since most economic reports at the time were disappointing. Construction work in Q4, for example, fell by 0.2% quarter-on-quarter and 7.8% year-on-year. Capital expenditure in Q4, meanwhile, dropped by 2.1% quarter-on-quarter and 15.5% year-on-year.

Also, note that the COT ( Commitment of Traders ) report shows that the Greenback lost substantial ground to the Aussie while having a mixed performance, so positioning activity was therefore very likely being driven by events, reports, and other catalysts specific to each currency as well.

I’d watch this pair for a week so that Trump and Yellen’s wise words can be factored in to the direction which may see a pull back and then another run.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd