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

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Global Round Up

Here are some of the key events coming up:

  • More Fed officials will be speaking as the FOMC’s June 13-14 meeting approaches. Robert Kaplan will be in New York on Wednesday.
  • The U.S. jobs report Friday may bolster the case for a rate hike, with a gain of 180,000 positions expected.
  • Brazil’s central-bank decision Wednesday will probably see a cut of 75 to 100 basis points from the current 11.25 percent, according to economists.
  • The EIA is due to release its monthly supply reports Wednesday.

Here are the main movers in markets:

Stocks

  • The MSCI Asia Pacific Index dropped less than 0.1 percent, paring its advance for May to 2.6 percent. The Stoxx Europe 600 Index fell 0.1 percent, trimming a monthly gain to 0.8 percent.
  • The Shanghai Composite rose 0.2 percent, after nearly wiping out an earlier gain of 1.1 percent. The manufacturing purchasing managers index remained at 51.2 for a second straight month in May, compared with a median estimate of 51 in a Bloomberg survey of economists.
  • Hong Kong’s Hang Seng was flat, heading for a fifth straight monthly gain, the longest winning streak since 2013, as improving earnings outweighed concerns about China’s campaign to cut leverage.
  • Japan’s Topix fell 0.3 percent, following two days of gains.
  • Futures on the S&P 500 rose 0.1 percent. The benchmark index slipped 0.1 percent Tuesday, retreating for the first time in eight days. The Nasdaq 100 Index advanced for an eighth day to an all-time high.

Currencies

  • The pound dropped 0.3 percent to $1.2817. The euro was little changed, heading for a monthly gain of 2.7 percent, its best performance in more than a year.
  • The yen weakened 0.1 percent to 110.93 per dollar after rising 0.4 percent Tuesday. The South African rand strengthened 0.4 percent, after tumbling for two days.
  • The onshore yuan climbed 0.4 percent, poised for its highest closing level since November.
  • The Bloomberg Dollar Spot Index was little changed for a third straight day. The gauge is down 1.3 percent for the month.

Commodities

  • Iron-ore futures in Dalian fell 5.4 percent to 429.5 yuan a ton, the lowest since Nov. 7.
  • Gold was little changed at $1,262.69 an ounce, extending a 0.4 percent loss Tuesday.
  • Oil dropped 0.6 percent to $49.35 a barrel after retreating 0.3 percent in the previous session. OPEC and Russia’s deal last week to extend output limits through March was met with a selloff as it didn’t include deeper cuts, a plan for the rest of 2018 or a new ally.

Bonds

  • The yield on 10-year Treasuries rose two basis point to 2.23 percent, after declining four basis points in the previous session.
  • Benchmark yields in the U.K. rose one basis point, after a drop of two basis points Tuesday.
  • Australia 10-year yields fell less than one basis point to 2.39 percent.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Trump Bomb Boosts Gold

Gold’s getting a boost from the turmoil in Donald Trump’s West Wing. The haven rose for a fifth day as the president’s latest controversy prompted references to the 1970s Watergate scandal that helped to sink predecessor Richard Nixon, hurting the dollar as investors cut back on risk.

The president “perhaps is facing his toughest time in the office,” said Naeem Aslam, chief market analyst in London at Think Markets U.K. Ltd. Investors are questioning whether there is “any possibility of impeachment becoming a reality, because certainly that would hit the confidence massively.”

Bullion for immediate delivery climbed as much as 0.6 percent to $1,245.07 an ounce, the highest since May 3, and was at $1,243.78 at 9:41 a.m. in London, according to Bloomberg generic pricing, as the Bloomberg Dollar Spot Index sank to the lowest since November. The precious metal’s winning run is the longest such stretch in a month, and takes gains this year to 8.4 percent.

Gold has risen after Trump’s firing of FBI Director James Comey a week ago, and following reports he shared intelligence with Russia. In the latest twist Trump is said to have asked Comey in February to drop an investigation into a former national security adviser, raising questions that he may have obstructed justice. The problems are seen as drawing the administration’s focus away from policies to aid growth, and have spurred recollections of former President Nixon, who was ensnared in Watergate and resigned.

“It’s a political dogfight,” Ole Hansen, head of commodities strategy at Saxo Bank A/S in Copenhagen, said by phone. “That does mean that his ability to act as a president, and to do what he’s promised, is sharply reduced and in that lies the risk of dollar weakness.”

Democrats say reports Trump asked Comey to drop the investigation into Michael Flynn amount to obstruction of justice, if true. “I hope you can let this go,” Trump told the FBI director, according to a Comey memo, as cited by the New York Times. The White House has denied that version of events.

‘Ability to Deliver’

On Trump’s position and the Comey fallout, “it’s much too early to say,” Hansen said, when asked whether the current situation is reminiscent of the Watergate era. “I don’t think the sum of that adds up to something that could potentially lead to the removal. But what it does do, is really just is bucking down the White House and the ability to deliver on promises.”

The concerns surrounding the White House may slow economic policy decisions, according to Westpac Banking Corp., which recommends investors short the dollar. “Regardless of the ultimate conclusion of the political storm over Trump’s actions on Russia and the security services, it will at the very least linger as a distraction that makes it more difficult for the White House to pass pro-growth policies,” said Sean Callow, a senior currency strategist.

“The rise in gold is largely a dollar play, with the dollar weakening because of Trump,” said Barnabas Gan, an economist at Oversea-Chinese Banking Corp., who also flagged overseas tensions. “There’s still more downside risk to gold in the long run, but in the short-term, given what the North Koreans are doing and what Trump is doing, the dollar is inherently weak.”

Bullion has advanced in 2017 — posting a run of four monthly gains through April — even as the Federal Reserve tightens monetary policy, with a rate rise in March and more increases likely to follow. Higher rates tend to curb the appeal of non-interest-bearing assets like gold.

While this year is a “pretty hazy year for bullion, the path of least resistance is on the bearish side,” said Singapore-based Gan, highlighting the Fed’s tightening cycle. “If we divorce away all the uncertainty, the rate-hike story should at least bring gold prices to $1,100.”

Cheerio.

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

Commodity Rally – Maybe !

Commodity prices usually rally as the U.S. Federal Reserve heads into a hiking cycle, but it might be different this time, Goldman Sachs said in a note Monday.

Historically, “commodities perform the best when the Fed is raising rates,” Goldman said. “This makes intuitive sense because the reason why the Fed raises interest rates is that the economy displays signs of overheating. Strong aggregate demand and rising wage and price inflation are precisely the time when commodities perform the best.”

It added that rising interest rates in China also tend to coincide with better commodities performance, noting the mainland’s “outsized role” in demand.

That’s a driver of Goldman’s overweight call on commodities, with expectations for solid performance over the coming year as the Fed raises rates and the labor market runs at full employment.

But Goldman pointed to three risks that could derail its view.

Firstly, it noted that technology changes and U.S. shale oil production could have “a profound impact” on commodity returns.

“While conventional oil production takes time to ramp up, the response time for shale is much shorter,” it said. “This has increased the oil supply elasticity, which may contribute to lower commodities returns relative to historical experience even as demand strengthens.”

Secondly, Goldman said the China tailwind may be waning.

As an example, it cited China’s demand for refined copper, which rose to 10.2 million tons in 2015 from 660,000 tons in 1990, totalling 90 percent of the total global growth in copper demand.

“Going forward, the growth in the Chinese demand for industrial metals is likely to be much more muted, also contributing to lower commodities returns relative to historical experience,” Goldman said.

Finally, Goldman also pointed to a risk from the Fed’s hiking cycle itself, noting that the current pace has been much slower compared with previous cycles amid a gradual US and global economic recovery.

“While our U.S. economists expect three hikes this year and another four hikes in 2018, the fact that this hiking cycle has been different from previous hiking cycles imply that commodities returns may also differ from their historical performance,” it said.

Cheerio

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

 

Gold Rising

Gold has traded in a range since the end of March, but Todd Gordon sees a rise in market volatility coming that could send the yellow metal higher.

The trader commented Thursday that recent comments by the Federal Reserve could spell more uncertainty in the market. Potential rate hikes aside, Fed minutes released on Wednesday from the March meeting stated its intent to start shrinking its $4.5 trillion balance sheet later this year.

“We’re seeing some volatility in the markets,” said Gordon. “I actually want to look at the gold market, which could be moving up here” off the uncertainty that could result from the Fed.

To determine just how high gold could climb, Gordon looked at a long-term chart of GLD, the ETF that tracks gold, dating back multiple years. According to Gordon, a “triple-test trendline” can be drawn on GLD starting from its peak back in 2012, with the line finishing just above current levels in GLD at the $123 to $125 mark. This leads Gordon to believe that should GLD bounce, it can hit the trendline again at around those levels.

“There are a couple sources of volatility and concern in the markets,” explained Gordon. “I think that’s going to be enough to punch the market through resistance to test that long-term downtrend from 2012.”

Cheerio.

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

Call Options Whatever You Want

Traders are buying so many S&P 500 call options right now that the ratio of those contracts to put options hit an all-time high Wednesday, according to Credit Suisse.

A call option is the right to acquire a stock in the future at a preset price. A put option is the right to sell.

“The biggest trend, the most notable thing, is the resumption of the call buying in the S&P,” said Mandy Xu, derivatives strategist at Credit Suisse. With “Trump coming out with a new tax plan, we’ve seen that upside demand in the market.”

Xu calls this ratio the “call skew” and here’s the chart the bank sent clients Wednesday showing the metric at a record level.

The jump in the ratio of call-to-put buyers came ahead of the Trump administration’s afternoon announcement on a highly anticipated tax proposal.

Call skew began climbing after the November U.S. presidential election, and the last time call skew hit a record was Feb. 14, Xu said. The S&P 500 climbed about 3 percent in the following days before setting its most recent closing record on March 1.

Stocks and call skew levels then dropped as Republicans pulled their health-care bill, creating worries about whether market-friendly tax reform would be passed. Growing concerns about geopolitical tensions from North Korea to anti-EU sentiment in France also pressured stocks.

So far this week, the S&P 500 has rallied nearly 2 percent after the first round of a French presidential election on Sunday that showed centrist candidate Emmanuel Macron remaining the favorite against far-right populist candidate Marine Le Pen.

That said, stocks don’t have an all-clear signal. Congress has yet to vote on tax reform, while overseas surprises could rock markets again.

Xu also thinks the bullish bet from call options buyers is probably near its limit around these record levels.

“It’s pretty extreme as it is. In order for it to go higher we probably need something more concrete or substantial to extend that,” she said.

But that’s obviously not the whole Options story. S&P 500 is but one vehicle amongst a myriad of many such as commodities and metals with both Gold and Silver looking attractive right now. Oil – well, nah.

Cheerio.

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

No End To The Love Of A Nugget

A partnership between Randgold, AngloGold Ashanti Ltd. and state-owned Sokimo, Kibali shipped 642,720 ounces of gold worth more than $700 million in 2015. That helped increase production of the precious metal in the country from almost nothing in 2011 to more than 25 tons a year.

Production last year fell to 585,946 ounces after technical challenges in the first six months, but output is scheduled to peak at 750,000 ounces in 2018 as the underground operation reaches full capacity, Randgold says.

Other miners have been less successful in Congo. Randgold’s partner, AngloGold, suspended operations in 2013 at the Mongbwalu project, also in northeastern Congo, saying that it couldn’t make the economics of the project work. In the past decade, mining majors Rio Tinto Group, BHP Billiton Plc, Vale SA and De Beers have all held and abandoned mining licenses in Congo for different minerals without making headway.

In short, gold has been in demand for thousands of years, is in huge demand right now and gold has a massive future because everybody loves gold.

Cheerio.

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