Zenith Monthly Economic Report October 211 ECONOMIC STATISTICS SUMMARY Cash Rate Inflation Rate (%) Unemployment Rate (%) GDP Annual Growth (%) Country Latest Last Change Latest Change Latest Change Past Year Change Australia 4.75 +.25 (Nov-1) 3.6 5.3.4 1.4.4 USA.25 -.75 (Nov-8) 3.8.2 9.1 1.6.1 Japan.1 -.2 (Nov-8).1.1 4.3.4-1.1.1 UK.5 -.5 (Feb-9) 5.2.2 7.9.2.6.1 China 6.56 +.25 (Jul-11) 6.2.3 NA 9.5 AUSTRALIAN ECONOMIC COMMENTARY The RBA Board met on October 4 and decided to keep the official cash rate on hold at 4.75%. RBA Governor Glenn Stevens stated that while there remains good reason to expect solid growth over the medium term, the indicators for the pace of near-term growth have continued to look weaker than was expected. The RBA is continuing to monitor the impact of a weaker than expected inflation, with data during the month showing lower than expected underlying price rises. The question remains over how the RBA will view the ECBs measures to avert a banking crisis, with some bond investors paring bets we will see a repeat of the rate cuts that followed the Lehman Brothers Holdings Inc s collapse in 28. Economic data was mostly poor, with the business and consumer confidence remaining low. The employment market continues to look uncertain with job advertising dropping 2.1% in September. The Australian manufacturing sector continued to contract for the third straight month, with the Index continuing its decrease to 42.3 from 43.3.The Construction Index also continued its negative run dropping to 3. from 32.1, however Building approvals on the other hand bounced back strongly, outperforming even the most optimistic forecast up 11.4% month to month. The Business Conditions Index rebounded back into positive territory in September as the economy began to show signs of stabilising, businesses took comfort from a lower AUD, stronger sales and talk of interest rate cuts. The Westpac indicators continued to give mixed signals with the annualised growth rate of the Westpac Institute Leading Index which aims to indicate the pace of economic activity three to nine months in the future was in line with its long term trend of 3.1%, however the Coincidence Index which gives an idea of current Australian economic activity continued well below its long term trend of 2.8% at.2%. GLOBAL ECONOMIC COMMENTARY The European Central Bank announced on October 6 that while it would leave interest rates unchanged at 1.5%, it would launch a new covered bond purchase programme (CBPP2). Beginning in November the ECB will offer up to 4billion, in addition banks also have access to two additional unlimited loans of 12 and 13 month durations. With President Trichet stating the ECB will continue to lend banks as much money as they need in their regular financing operations at least until July 212. Equity investors responded well to this greasing of banks wheels with French bank Natixis (KN) climbing as much as 13% on the news and the Euro making a weekly gain after two weeks of losses. While this temporary measure will help with short term bank liquidity, much anticipation remains in the fixed interest markets with regard to the rescue package due to be announced in November. Key issues such as banking capital, sovereign funding, fiscal integration and legal constraints regarding EFSF funds need addressing. Economic data from the EU region contained no major surprises, consumer confidence continued to decrease down to -19.1 from -16.5, unemployment remained flat in August at 9.5%, while expected inflation increased to 3% in September. Seasonally adjusted inflation in Britain increased to 4.5% in the month of August due to the end of seasonal discounts, with expectations of it rising further in the near future on the back of rising utility prices. The BoE continues to fight an uphill battle, with inflation more than double its target rate and a very sluggish economy. UK manufacturing production contracted.3% m/m, with the revised numbers now showing three consecutive months of negative production growth. [1]
US Economic data released late September to early October was mixed, real GDP for Q2 was revised up to 1.3%. Industrial Production continuing to expand at the slower rate of 3.4% and consumer confidence improved slightly to 45.4. Negatively September s job cuts (115,) were the highest since April 29, US lenders also tightened their belts with Consumer Credit down $9.5B m/m the first negative result in 12 months. US inflation increased slightly to 3.8% and second quarter real GDP growth in the US was adjusted again up 3bps to 1.3%. This was a result of decreasing imports, increased government spending and an increase in nonresidential fixed investments. Manufacturing in the US surprised analysts on the upside for a second month running with the ISM picking up slightly to 51.6. The index continued to show resilience not dropping into negative territory. The ECRI Index continued on its path deeper into negative territory finishing September at - 8.1, the index continuing to indicate tough times ahead for US economic growth. Japan showed some economic resilience as its unemployment rate dropped 4bps to 4.3%, however this figure did not include the three prefectures hardest hit by the March natural disasters. Exports were up for the first time since the March earthquake with exports to the US and China both increasing, however this was not enough to stop a huge trade deficit, as imports grew much faster at 19.2% due to utility firms increasing imports of fuel to meet electricity requirements with many nuclear reactors still off line. China started to see results for their efforts to cool the economy with inflation dropping by 3 bps from its three year high of 6.5%, however they will undoubtedly be looking for a further decrease from their tight monetary policy. China also continued its low level of manufacturing growth, with the PMI Index remaining positive as forecasted at 51.2 in September. ECONOMIC DATA RELEASE - (MID SEPTEMBER TO MID OCTOBER) Release date Country Data Actual Forecast Prior 2/9/211 US Building Permits.62m.6m.6m 2/9/211 China HSBC Flash Manufacturing PMI 49.4-49.9 22/9/211 France Flash Manufacturing 47.3 48.6 49.1 22/9/211 Germany Flash Manufacturing 5. 5.2 5.9 22/9/211 US Unemployment Claims 423K 419K 432K 26/9/211 US New Home Sales 295K 296K 32K 27/9/211 US CB Consumer Confidence 45.4 46.2 45.2 3/9/211 China Manufacturing PMI 51.2 51.2 5.9 2/1/211 Japan Tankan Manufacturing Index 2 2-9 2/1/211 AUS AIG Manufacturing Index 42.3-43.3 3/1/211 AUS Cash Rate 4.75% 4.75% 4.75% 3/1/211 AUS Building Approvals m/m 11.4% 1.1% 1.8% 3/1/211 AUS Trade Balance 3.1B 2.14B 1.82B 4/1/211 UK Construction PMI 5.1 51.7 52.6 4/1/211 AUS Retail Sales m/m.6%.3%.6% 6/1/211 UK Official Bank Rate.5%.5%.5% 6/1/211 EU Minimum Bid Rate 1.5% 1.5% 1.5% 6/1/211 Japan Overnight Call Rate <.1% <.1% <.1% 6/1/211 AUS AIG Construction Index 3. - 32.1 7/1/211 US Unemployment Rate 9.1% 9.1% 9.1% 9/1/211 AUS ANZ Job Advertisements m/m -2.1% - -.7% 11/1/211 UK Manufacturing Production m/m -.3% -.1% -.2 11/1/211 AUS Home Loans 1.2% 1.1% 1.9% 12/1/211 AUS Unemployment Rate 5.2% 5.3% 5.3% [2]
ECONOMIC DATA GRAPHS Inflation Rate (Annualised) 1. 8. 6. 4. 2.. 2. 4. Sep 6 Mar 7 Sep 7 Mar 8 Sep 8 Mar 9 Sep 9 Mar 1 Sep 1 Mar 11 Sep 11 AUSTRALIA UNITED STATES JAPAN BRITAIN CHINA EUROZONE 12. Unemployment Rates 1. 8. 6. 4. 2.. Dec 7 May 8 Oct 8 Mar 9 Aug 9 Jan 1 Jun 1 Nov 1 Apr 11 Sep 11 AUSTRALIA UNITED STATES JAPAN BRITAIN CHINA EUROZONE GDP Growth 15 1 5 5 1 15 Jan 8 Jul 8 Jan 9 Jul 9 Jan 1 Jul 1 Jan 11 Jul 11 AUSTRALIA UNITED STATES JAPAN BRITAIN CHINA EUROZONE [3]
ECONOMIC DATA GRAPHS Business and Consumer Confidence & Conditions 13 12 11 1 9 8 7 6 Mar 8 Sep 8 Mar 9 Sep 9 Mar 1 Sep 1 Mar 11 Sep 11 4 3 2 1 1 2 3 4 CONSUMER CONFIDENCE (LHS) BUSINESS CONFIDENCE (RHS) BUSINESS CONDITIONS (RHS) Retail Sales Rolling 12 Month Change 15. 1. 5.. 5. 1. 15. Dec 7 Jun 8 Dec 8 Jun 9 Dec 9 Jun 1 Dec 1 Jun 11 AUSTRALIA UNITED STATES JAPAN BRITAIN Leading Indicators 3 2 1 1 2 3 4 Mar 6 Mar 7 Mar 8 Mar 9 Mar 1 Mar 11 1 8 6 4 2 2 4 6 8 ECRI (LHS) WESTPAC (RHS) Coincidence (Index) [4]
ECONOMIC DATA GRAPHS Shipping and Commodities 14 12 1 8 6 4 2 6. 5. 4. 3. 2. 1.. Mar 8 Sep 8 Mar 9 Sep 9 Mar 1 Sep 1 Mar 11 Sep 11 BALTIC DRY (LHS) CRB SPOT COMMODITIES INDEX Manufacturing Data 65 6 55 5 45 4 35 3 25 Dec 5 Dec 6 Dec 7 Dec 8 Dec 9 Dec 1 PMI CHINA ISM DATA SOURCE: BLOOMBERG Author: Jonathan Baird Investment Analyst Zenith Investment Partners (3) 9642 332 jonathan.baird@zenithpartners.com.au [5]
BLOOMBERG DATA SERIES CHART CASH RATES CPI GDP UNEMPLOYMENT RETAIL SALES HOUSE/LAND PRICES HOUSEHOLD CONSUMPTION CONSUMER & BUSINESS CONFIDENCE LEADING INDICATORS BLOOMBERG DATA SERIES Australia RBA Cash Rate Target Federal Funds Target Rate US Bank Of Japan Target Rate of Unsecured Overnight Call Rate Expected UK Bank of England Official Bank Rate China 1 Year Best Lending Rates ECB Main Refinancing Rate Australia CPI All Groups Goods Component YoY US CPI Urban Consumers YoY NSA Japan CPI Nationwide YoY China CPI YoY UK RPI YoY NSA Australia GDP SA YoY GDP US Chained 25 Dollars YoY SA Japan GDP Real Chained NSA YoY% UK GDP Chained GDP at Market Prices YoY China GDP Constant Price YoY US Unemployment Rate Total in Labor Force Seasonally Adjusted Australia Labor Force Unemployment Rate SA Japan Unemployment Rate SA UK Unemployment ILO Unemployment Rate SA Australia Retail Sales YoY SA US Adjusted Retail & Food Services Sales Total Yearly % Change SA Japan Retail Trade YoY NSA UK Retail Sales All Retailing Sales Per Week Chained Volume YoY SA Australia House Price Index Established Homes YoY 23-24=1 S&P/Case-Shiller Composite-2 City Home Price Index YoY (US) Japan Land Prices Nationwide All YoY% UK Nationwide House Prices All Houses YoY NSA China Land Transaction Price YoY Australia GDP Final Consumption Expenditure Households QoQ SA Eurostat GDP Constant 2 Prices Eurozone Household Consumption Expenditure QoQ Japan GDP Chained Real Private Consumption QoQ% SA UK GDP Final Consumption Expenditure Chained Prices Household Expenditure QoQ GDP US Personal Consumption Chained 25 Dollars % Change SAAR Westpac-Melbourne Institute Consumer Confidence Consumer Sentiment Westpac-Melbourne Coincidence Index National Australia Bank Business Indicators Business Confidence SA Baltic Dry Index CRB Spot Commodities Index ISM Manufacturing PMI SA Manufacturing PMI China Australia Westpac Leading Index Annualised Growth YoY% ECRI Weekly Leading Index Growth Rate DISCLAIMER: This report is prepared exclusively for clients of Zenith Investment Partners (Zenith). The information contained in the report is believed to be reliable, but its completeness and accuracy is not guaranteed. Opinions expressed may change without notice. Zenith accepts no liability, whether direct or indirect arising from the use of information contained in this report. No part of this report is to be construed as a solicitation to buy or sell any investment. The material contained in this report is subject to copyright and may not be reproduced without the consent of the copyright owner. [6]