As a country's economy goes, so go its banks... China set to rescue Australia’s economy at just the right time...
Aussie Banks partying like 2008 is a definite red flag: Gadfly
(Bloomberg Gadfly) -- As a country's economy goes, so go its banks.
So what does it mean for Australia's richly valued lenders that the nation just put in its worst performance since 2008?
Gross domestic product contracted by 0.5 percent in the third quarter from the second, well below economists' estimates of a 0.1 percent drop. Even when you factor in the strong performance in the previous period, the growth rate of 1.8 percent from a year earlier was the equal weakest since 2009.
Australia's big four banks took all this as good news. Commonwealth Bank of Australia, Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd. rose 1.5 percent or more Wednesday to put in their best performance in almost a month, while National Australia Bank Ltd. gained 1.1 percent.
There's an obvious reason for this contrary response. Such a serious miss on growth increases the odds that the Reserve Bank of Australia will cut interest rates further in 2017. Capital Economics argues the cash rate may fall to 1.0 percent next year, from 1.5 percent at present. That would probably be good news for lenders, given how heavily they're leveraged to the country's housing market.
The bad news was buried deeper in the release. The biggest drag on GDP in the quarter came from investment in new buildings, which subtracted 0.3 percentage point. Home building was particularly hit, with fixed capital formation of private dwellings down 1.6 percent from the previous period.
That's consistent with new home approvals that fell to their lowest level in more than two years in October, and the regular reminders from the Reserve Bank that rents are growing at the slowest pace in decades.
China set to rescue Australia’s economy at just the right time
(Bloomberg) -- The news out of Australia isn’t all gloom.
While growth figures stank last quarter, the nation is again being cushioned by its status as the developed world’s most China-dependent economy. Surging coal and iron ore prices have helped ease an erosion of national income Down Under and, together with a slower slide in mining investment, signal better prospects ahead.
Australia can thank its No. 1 trading partner, whose old economy is reviving as fiscal stimulus gets smokestacks billowing again. Traditional Chinese industries seen as proxies for growth, such as electricity and rail cargo, have collectively bounced back to the highest level in three years. The big unknown: the durability of a turnaround that’s ended a more than 50 percent drop in commodity prices between 2011 and 2016.
“This story is a big one for Australia,” said Paul Bloxham, chief Australia economist at HSBC Holdings Plc, who previously worked at the nation’s central bank. “We’ve talked about the commodity price rise as being a game-changer.”
Bloxham says the extended price slump since 2011 brought investment in new mines to a halt and as a result commodities have passed their trough. He estimates the rebound, which has seen coking coal prices rise 280 percent this year, could add about 2 percentage points to nominal gross domestic product Down Under.
(Bloomberg Gadfly) -- As a country's economy goes, so go its banks.
So what does it mean for Australia's richly valued lenders that the nation just put in its worst performance since 2008?
Gross domestic product contracted by 0.5 percent in the third quarter from the second, well below economists' estimates of a 0.1 percent drop. Even when you factor in the strong performance in the previous period, the growth rate of 1.8 percent from a year earlier was the equal weakest since 2009.
Australia's big four banks took all this as good news. Commonwealth Bank of Australia, Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd. rose 1.5 percent or more Wednesday to put in their best performance in almost a month, while National Australia Bank Ltd. gained 1.1 percent.
There's an obvious reason for this contrary response. Such a serious miss on growth increases the odds that the Reserve Bank of Australia will cut interest rates further in 2017. Capital Economics argues the cash rate may fall to 1.0 percent next year, from 1.5 percent at present. That would probably be good news for lenders, given how heavily they're leveraged to the country's housing market.
The bad news was buried deeper in the release. The biggest drag on GDP in the quarter came from investment in new buildings, which subtracted 0.3 percentage point. Home building was particularly hit, with fixed capital formation of private dwellings down 1.6 percent from the previous period.
That's consistent with new home approvals that fell to their lowest level in more than two years in October, and the regular reminders from the Reserve Bank that rents are growing at the slowest pace in decades.
China set to rescue Australia’s economy at just the right time
(Bloomberg) -- The news out of Australia isn’t all gloom.
While growth figures stank last quarter, the nation is again being cushioned by its status as the developed world’s most China-dependent economy. Surging coal and iron ore prices have helped ease an erosion of national income Down Under and, together with a slower slide in mining investment, signal better prospects ahead.
Australia can thank its No. 1 trading partner, whose old economy is reviving as fiscal stimulus gets smokestacks billowing again. Traditional Chinese industries seen as proxies for growth, such as electricity and rail cargo, have collectively bounced back to the highest level in three years. The big unknown: the durability of a turnaround that’s ended a more than 50 percent drop in commodity prices between 2011 and 2016.
“This story is a big one for Australia,” said Paul Bloxham, chief Australia economist at HSBC Holdings Plc, who previously worked at the nation’s central bank. “We’ve talked about the commodity price rise as being a game-changer.”
Bloxham says the extended price slump since 2011 brought investment in new mines to a halt and as a result commodities have passed their trough. He estimates the rebound, which has seen coking coal prices rise 280 percent this year, could add about 2 percentage points to nominal gross domestic product Down Under.
