Nov. 11 (Bloomberg) -- Australia's economy, which cruised through the 1997 Asian financial crisis and the dot-com bust, is facing the prospect of its first recession in almost two decades.
Waning global demand for commodities threatens to staunch a five-year flood of export earnings that helped boost Australian incomes by the most in more than 30 years. Without shipments overseas, the economy would have contracted in the second quarter.
China's performance may be the key to whether the economy shrinks: A slowdown in Australia's fastest growing export market would hurt shipments of iron ore, coal, copper and cotton. Treasurer Wayne Swan said this week Australia may be hit harder than expected as the global slowdown spreads to the emerging markets that are among the nation's main trading partners.
``It'll be no mean feat for Australia to stay out of a recession,'' said Rory Robertson, an economist at Macquarie Group Ltd. in Sydney. ``Consumers and business are hunkering down across the world, almost as we speak, shocked to the core by the financial dislocation.''
Rio Tinto Group, the world's second-largest iron ore exporter, said yesterday it will cut output at its mines in Western Australia by 10 percent.
Waning commodity prices are forcing miners such as Oz Minerals Ltd., the world's second-biggest zinc producer, and Minara Resources Ltd. to cut jobs. They are also shelving spending on investment, which accounts for about a quarter of gross domestic product, up by about half since the start of the decade, according to Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney.
``All the economy's eggs are in the mining basket,'' said Walters. ``The ripple effects through the economy for the next two years will be massive.''
Economy to Contract
Walters predicts GDP will contract in the six months through March, trimming 2009 growth to 0.7 percent. Unemployment will more than double to 9 percent, he said.
A drop in shipments is also bad news for Australia's indebted consumers. The mining boom fueled a 30 percent surge in household incomes in the past five years, more than any other developed economy, according to the central bank.
Many households used the cash to take on debt, which almost doubled since 1999 to around 160 percent of incomes, a higher ratio than the U.S. and U.K., according to Shane Oliver, senior economist at AMP Capital Investors in Sydney. The median national house price soared about 140 percent in the same period.
House prices fell 1.8 percent in the third quarter and retail sales slumped the most in more than three years last month.
``The average person in the street senses something is wrong,'' said Macquarie's Robertson. ``Households and businesses are pulling in their horns. Whatever people were planning two or three months ago, much of it has been put on hold.''
Showing posts with label World-Markets. Show all posts
Showing posts with label World-Markets. Show all posts
Monday, November 10, 2008
Ruble Devaluation Looms on Oil; Troika Sees 30% Drop
Nov. 10 (Bloomberg) -- Russia's currency reserves, the third-biggest in the world, are no match for tumbling oil prices and an exodus of capital that may force the central bank to accept a devalued ruble.
Just 10 years ago, Russia let the ruble fall as much as 71 percent as the government defaulted on $40 billion of debt and world stock and bond markets collapsed. Now, the combination of a 60 percent drop in oil prices from their peak in July, slowing economic growth and increasing investor concern about emerging markets are draining Russia's foreign reserves, which fell 19 percent to $484.6 billion in the 12 weeks through Oct. 31.
Russia, which uses reserves to curb swings in the ruble that hurt the competitiveness of exports, may find the resistance futile after the currency fell 13 percent against the dollar since Aug. 1. The central bank sold a record $40 billion in October, according to Moscow-based Trust Investment Bank. Troika Dialog, the country's oldest investment bank, said the currency may slump as much as 30 percent in the event of a devaluation.
``When oil falls, capital runs out of Russia and the ruble weakens, it's not justified to hold your positions,'' said Anas El Maizi, who
When Russia defaulted in August 1998, it caused an investor stampede to the safest assets. Yields on 10-year U.S. Treasury notes dropped more than half a percentage point to 4.98 percent that month and the Standard & Poor's 500 Index slumped 15 percent. Hedge fund Long-Term Capital Management LP collapsed after losing about $4 billion, prompting a Federal Reserve- backed bailout by Wall Street. Gross domestic product in Russia shrank 6.5 percent and inflation accelerated to 84 percent.
100 Billionaires
Since then, rising prices of oil, gas and metals such as nickel and aluminum provided Russia with 10 years of economic growth under former President Vladimir Putin and his hand-picked successor, Medvedev. Foreign reserves grew to $598.1 billion in August, the world's biggest behind Japan's and China's, from $18.4 billion just before the 1998 default.
With average economic growth of about 7 percent a year since 1999, rising commodity and stock prices created more than 100 Russian billionaires, including aluminum magnate Oleg Deripaska and soccer club owner Roman Abramovich. In December last year (2007), Time magazine named Putin ``Person of the Year'' for bringing his country ``roaring back to the table of world power.''
Growth Slows
Russia's current account, the widest measure of flows in goods and services, is now headed toward a deficit. Investors pulled about $147 billion out of the country in the past three months, according to BNP Paribas SA, sending the dollar- denominated RTS Index of stocks down 52 percent.
`You can't stimulate a slowing economy by keeping the currency fixed,'' said Lars Christensen, head of emerging- markets currency strategy in Copenhagen at Danske Bank A/S. ``They will have to change their attitude to using reserves for the sake of the economy.''
Russia's reserves are 25 times bigger today than on the eve of the default, central bank data show. The world's biggest energy exporter, Russia still earns $700 million a day from oil, compared with $100 million 10 years ago, according to Chris Weafer, chief str
Just 10 years ago, Russia let the ruble fall as much as 71 percent as the government defaulted on $40 billion of debt and world stock and bond markets collapsed. Now, the combination of a 60 percent drop in oil prices from their peak in July, slowing economic growth and increasing investor concern about emerging markets are draining Russia's foreign reserves, which fell 19 percent to $484.6 billion in the 12 weeks through Oct. 31.
Russia, which uses reserves to curb swings in the ruble that hurt the competitiveness of exports, may find the resistance futile after the currency fell 13 percent against the dollar since Aug. 1. The central bank sold a record $40 billion in October, according to Moscow-based Trust Investment Bank. Troika Dialog, the country's oldest investment bank, said the currency may slump as much as 30 percent in the event of a devaluation.
``When oil falls, capital runs out of Russia and the ruble weakens, it's not justified to hold your positions,'' said Anas El Maizi, who
When Russia defaulted in August 1998, it caused an investor stampede to the safest assets. Yields on 10-year U.S. Treasury notes dropped more than half a percentage point to 4.98 percent that month and the Standard & Poor's 500 Index slumped 15 percent. Hedge fund Long-Term Capital Management LP collapsed after losing about $4 billion, prompting a Federal Reserve- backed bailout by Wall Street. Gross domestic product in Russia shrank 6.5 percent and inflation accelerated to 84 percent.
100 Billionaires
Since then, rising prices of oil, gas and metals such as nickel and aluminum provided Russia with 10 years of economic growth under former President Vladimir Putin and his hand-picked successor, Medvedev. Foreign reserves grew to $598.1 billion in August, the world's biggest behind Japan's and China's, from $18.4 billion just before the 1998 default.
With average economic growth of about 7 percent a year since 1999, rising commodity and stock prices created more than 100 Russian billionaires, including aluminum magnate Oleg Deripaska and soccer club owner Roman Abramovich. In December last year (2007), Time magazine named Putin ``Person of the Year'' for bringing his country ``roaring back to the table of world power.''
Growth Slows
Russia's current account, the widest measure of flows in goods and services, is now headed toward a deficit. Investors pulled about $147 billion out of the country in the past three months, according to BNP Paribas SA, sending the dollar- denominated RTS Index of stocks down 52 percent.
`You can't stimulate a slowing economy by keeping the currency fixed,'' said Lars Christensen, head of emerging- markets currency strategy in Copenhagen at Danske Bank A/S. ``They will have to change their attitude to using reserves for the sake of the economy.''
Russia's reserves are 25 times bigger today than on the eve of the default, central bank data show. The world's biggest energy exporter, Russia still earns $700 million a day from oil, compared with $100 million 10 years ago, according to Chris Weafer, chief str
China’s benchmark CSI 300 Index is still down 66 percent this year,
Nov. 11 (Bloomberg) -- China may have more work ahead to revive investors’ confidence in the world’s worst-performing major stock market after unveiling a 4 trillion yuan ($586 billion) stimulus plan.
The government’s announcement on Nov. 9 followed three interest-rate cuts in two months and the end of a tax on equity purchases. China’s benchmark CSI 300 Index is still down 66 percent this year, twice the drop of the Dow Jones Industrial Average.
A slowdown in Chinese growth may keep buyers away, said Nick Chamie, the Toronto-based global head of emerging-markets research at RBC Capital.
“You really need the retail investors to be jumping in with both feet in order to get the market hopping,” Chamie said. “I just don’t see that materializing over the next year or so as we get increasing reports of jobs losses, factories shutting down and slower growth and export activity.”
Gun Shy’
China’s gross domestic product expanded 9 percent in the third quarter, the slowest pace in five years. Exports may cool to 18.1 percent in October from a year earlier, compared with 21.5 percent in September, according to a Bloomberg News survey of economists. China’s stimulus package, worth almost a fifth of its output, is aimed at sustaining domestic demand as the credit crunch slows economic expansions around the world.
QFII Restrictions
About 8.9 million brokerage accounts were opened this year through October in China, compared with 38 million in 2007, when the CSI 300 surged 162 percent, according to the China Securities Depository & Clearing Corp. Last year’s rally pushed the index’s price-to-earnings ratio as high as 53.1 in October 2007, the most expensive valuation among the biggest equity markets. The P/E ratio has since tumbled by 76 percent to 12.7.
Individual investors accounted for 54 percent of the Chinese stock market at the end of last year, China Securities Regulatory Commission data show. Only 67 overseas institutions could invest a combined $10 billion in yuan-denominated securities under the qualified
The government’s announcement on Nov. 9 followed three interest-rate cuts in two months and the end of a tax on equity purchases. China’s benchmark CSI 300 Index is still down 66 percent this year, twice the drop of the Dow Jones Industrial Average.
A slowdown in Chinese growth may keep buyers away, said Nick Chamie, the Toronto-based global head of emerging-markets research at RBC Capital.
“You really need the retail investors to be jumping in with both feet in order to get the market hopping,” Chamie said. “I just don’t see that materializing over the next year or so as we get increasing reports of jobs losses, factories shutting down and slower growth and export activity.”
Gun Shy’
China’s gross domestic product expanded 9 percent in the third quarter, the slowest pace in five years. Exports may cool to 18.1 percent in October from a year earlier, compared with 21.5 percent in September, according to a Bloomberg News survey of economists. China’s stimulus package, worth almost a fifth of its output, is aimed at sustaining domestic demand as the credit crunch slows economic expansions around the world.
QFII Restrictions
About 8.9 million brokerage accounts were opened this year through October in China, compared with 38 million in 2007, when the CSI 300 surged 162 percent, according to the China Securities Depository & Clearing Corp. Last year’s rally pushed the index’s price-to-earnings ratio as high as 53.1 in October 2007, the most expensive valuation among the biggest equity markets. The P/E ratio has since tumbled by 76 percent to 12.7.
Individual investors accounted for 54 percent of the Chinese stock market at the end of last year, China Securities Regulatory Commission data show. Only 67 overseas institutions could invest a combined $10 billion in yuan-denominated securities under the qualified
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