On the whole, recent news about the Australian economy has been encouraging. According to the latest data, the Westpac Melbourne Institute Leading Index, widely considered a reliable indicator of economic conditions three to nine months in advance, rose by 4.5% in August – well above the long term average of 3.3%. And in its latest business outlook report, Deloitte Access Economics expresses confidence that resource driven growth in Western Australia and Queensland will be sufficient to underpin strong overall growth in Australia for years to come.
Overseas, the latest news from China, Australia’s largest export destination, is not bad at all. Growth in the third quarter came in at an annualised rate of 9.1% according to National Bureau of Statistics of China – below both expectations (9.3%) and second quarter growth (9.5%), but a healthy figure nonetheless. On a year on year basis, industrial production, urban investment and retail sales were up 13.8%, 24.9% and 17.7% respectively in September.
In light of these developments, one may have thought business confidence in Australia would be on the rise. However this is not so. Sentiment fell by four percentage points in during the third quarter, according to the National Australia Bank’s Business Confidence survey.
Potentially, this could reflect the two-speed nature of the economy. Figures from the Australian Bureau of Statistics (ABS) showing a 1.5% fall in motor vehicle sales last month serves as the latest reminder that not all sectors of the economy benefit simply because a mining and resources boom is underway.
Moreover, not all of the news from overseas has been encouraging. In the United States, for instance, whilst the latest data shows rising housing starts and improving builder sentiment (albeit from a low level), a weak September reading in the in the Conference Board’s Leading Indicators (up by a modest 0.2% in September) underscores the continuing softness of the US economy. Weak building approval numbers, too – down from 625,000 housing units in August to 594,000 in September, do little to inspire much hope. In Europe, the long term outlook may become clearer after crucial details of a Eurozone crisis rescue plan are announced this week.
Despite this, in light of the Westpac Melbourne Institute data and the Deloitte Access Economics report, it is fair to say that on balance, the latest economic developments are encouraging.
Aussie holds its ground
The Australian dollar has held its ground against major currencies over the past week, closing up on Friday at USD1.026, JPY78.43 and EUR0.7415.
Much attention this week will revolve around inflation data, due out on Wednesday. Should the Consumer Price Index (CPI) come in lower than expected, odds of a rate cut will tighten, which will place downward pressure on the dollar.
Copper, Zinc inventory levels dive
In a sign that the demand/supply balance of some commodities affecting the building industry are tightening, inventory levels for both copper and zinc stand at their lowest level at any stage during the past six months. According to MetalPrices Online, inventory levels for copper stand at around 448,000 metric tons (MT) (480,000) whilst those for zinc are now just below 800,000MT. Given that at their peaks, inventory levels for the two metals stood at around 480,000MT and 900,000MT respectively, this represents a substantial tightening of the market.
Although supply levels for both metals are still high by long term standards, the recent tightening of supply may well be a sign of a return of upward pricing pressure. For now, however, as shown in the chart below, prices for both metals remain subdued.