Economy watch: remember the economy? It’s health has been overshadowed by the noise around the resource super tax, but this week it takes centre stage. The Reserve Bank’s June board meeting will leave rates alone tomorrow and on Wednesday we get March quarter GDP. We also get retail sales, trade and building approvals for April. We had business indicators and the balance of payments for the March quarter today and tomorrow we get government finance figures for the three months to March. Then we get the growth figures on Wednesday. The best bet is for growth of about 0.4%, or 2.4% for the year, down on the 0.9% in the December quarter, or 2.7% annually.
Credit watch: slowed in April with the small uptick in March disappearing as business lending and owner-occupied and investor housing finance all eased. Other personal lending rose as margin loans increased. Overall private credit rose 0.2 over March, which rose 0.5% from February. That left total credit up a steady 2.1% in April from a year ago. Housing credit rose 0.5% in April, down from the 0.7% rate in March. Over the year, housing credit rose by 8.4%, down from the 8.5% rate in March and the first fall in 11 months. Owner-occupied lending rose 0.5% in April (0.6% in April), and the annual rate eased to 9.5% from 9.8% and was the lowest annual rate since last August. Investor housing lending rose 0.6% in April to be up 6% over the year, the highest yearly rate since late 2008. Business credit fell a surprisingly sharp 0.4% in April after the 0.1% rise in March. That left business credit down by 7% over the year to April, up from the minus 6.9% in March. Other personal credit rose 0.2%, after the 0.5% rise in March. In the year to April it was up 3.1%, better than the 2.5% annual rise in the 12 months to March.
Inflation watch: according to the monthly TD Securities/Melbourne Institute inflation gauge, cost pressures rose to a 19-month high in May, driven by the rise in federal tobacco taxes. The gauge was up .5% to give a headline annual rise of 3.7%. TD Securities said that discounting for the excise hike, inflation was still close to the upper limit of the Reserve Bank’s inflation target of 2%-3%. But with activity sluggish on the consumption side of the economy and the continuing fear and loathing from European markets, don’t expect a rate rise to result.
Trade watch: the latest figures from the Australian Bureau of Statistics showed a big improvement in our quarterly current account deficit, thanks to a rise in exports. The ABS said the seasonally adjusted deficit fell $1.991 billion to $16.551 billion in the March quarter. Exports rose 4% or by $2.113 billion, while imports were 2%, or $1.124 billion, higher. In seasonally adjusted chain volume terms, the ABS said the deficit rose $1.5 billion to $7. 983 billion. This is expected to detract 0.5 percentage points from growth in the March quarter 2010 volume measure of Gross Domestic Product (the impact in the December quarter was a negative 1.3 percentage points, so an improvement). Australia’s net International Investment Position fell $5.5 billion or 1% to a net liability position of $757.2 billion the March quarter 2010. Australia’s net foreign debt liability increased $5.8 billion (1%) and Australia’s net foreign equity liability decreased $11.3 billion (10%).
Inventories, profits, wages: according to the latest business indicators, the seasonally adjusted estimate for business inventories rose 0.5% in the March quarter, with sales for manufacturers up 1.3% and wholesales down 0.6%. The seasonally adjusted estimate for company profits rose 3.9% and wages and salaries were 1.9% higher. All point to positive contributions to third quarter growth from stocks, profits and wages.
Oil watch: as BP struggles to stop the oil spill in the Gulf Of Mexico, the unthinkable is being whispered in share markets and boardrooms: the company will not survive the disaster. Some simple sums. BP says it has already spent more than $US760 million (The latest word on insurance claims is an estimate of $US700 million, which is being opposed by Lloyd’s of London, including QBE). Some US estimates put the total cost of the clean-up and settling legal cases at between $US6 billion and $US12 billion. More important numbers are: about $US50 billion has been wiped off the company’s market value since mid-April. At $US134 billion on Friday, BP’s capitalisation is half Exxon’s and less than the $US165 billion value of Shell, which has traditionally traded at a discount to BP. The continuing problems in shutting down the flow of oil from the leak increasingly exposes the company to the threat of being taken over by either of the big two. There should be no competition problems; BP only controls an estimated 6% of global reserves with state-owned groups in the Middle East, Russia and China holding much larger stakes. If it needs to raise cash, asset sales could happen.
US bank watch: five more banks failed on Friday, taking to 74 the number of collapses this year. The latest included three banks in Florida, owned by the one listed holding company and a bank in Nevada and one in California. The failures will cost the Federal Deposit Insurance Corporation about $US320 million.
US economy watch: US consumers went all shy in April, lifting their savings and cutting spending. Savings rose to 3.6% as a proportion of disposable income in April, after falling in the previous two months. Figures from the US Commerce Department on Friday showed the rate was up from 3.1% in March and was the largest rise since August 2009. The increase came from a rise in personal income, which was up 0.4%, similar to the rise in March. Consumer spending was flat in the month after March’s rise of 0.6%. US consumer sentiment remained below its February and March levels, according to an update from the Reuters/University of Michigan survey. The consumer sentiment index rose 1.1 points to 73.3 in mid-May, compared with 73.6 in the previous two months.
Mining watch: According to Reuters, Brazilian media reports say Vale, the world’s biggest iron ore miner, is looking for a big price rise for its exports in the September quarter. The report said the giant would ask for $US145 a tonne, a rise of 35% on the current quarter’s price. That’s about the maximum that can be demanded because global spot prices have fallen to about the same level as fears about the Chinese economy have spread in the past month. Vale, BHP Billiton and Rio Tinto have switched to quarterly pricing based on some form of index (Platts, The Steel Index and Metal Bulletin Iron Ore Index are the providers). So watch now for how long it takes BHP and Rio to make any announcement on price rises. They will wait and try and not get the price rises mixed up in the resource tax profit brawl. More big price rises for iron ore would merely underline just profitable iron ore (in reality, dirt mining) is.
Deal watch: UK insurer Prudential’s company-transforming deal to buy the Asian operations of American International Group is floundering. Big share holders are going to vote down the deal at a Pru meeting next Tuesday in London. So the Pru’s board and management has gone back to AIG to try and get a price cut from $US35 billion to about $US30 billion. Seeing AIG is controlled by the US government, which wants to maximise the returns from bailing out AIG, asking for a cut of $US5 billion or so seems hopeless. The Asian businesses of AIG are its best and most profitable assets. The Pru has already been forced to raise more capital to keep UK regulators happy. Now this last-minute attempt to cut the price and keep the deal alive, and keep their jobs, of course. The Pru has a holiday Monday and an extra day in which to try and get a new deal. The Obama Administration would not like to be seen doing a deal more favourable to a private group such as the Pru and not to US taxpayers.