This week’s economic reports from the Australian Bureau of Statistics (ABS) show that the Australian economy again surprised to the upside. World economies are faltering in their economic recovery, particularly in the EU and in the United States, however the GDP and trade reports this week, confirm that the Australian economy continues to outperform.
Trade Figures
Yesterday the Australian Bureau of Statistics (ABS) confirmed that Australia recorded its smallest current account deficit since the first quarter of 2002. The seasonally adjusted deficit improved by almost $11 billion to $5.64 billion in the June quarter, as commodity exports boosted earnings.
The improvement was primarily driven by a sharp rise in the value of commodity exports, largely due to a shift to shorter-term contracts. The value of iron ore and mineral exports surged 43 percent with a 39 percent jump in prices, while coal exports jumped 52 percent with a steep rise in both prices and volumes. Sales of rural goods also rose, up 6 percent on the quarter.
Economic Growth
Yesterday the ABS confirmed that Australia’s economic growth for the June quarter rose a surprising 1.2 percent, the biggest quarterly gain in economic growth for 3-years. This translates to a 3.3 percent annual GDP growth which significantly exceeded analysts forecasts. It is reassuring that the private consumption drove the result. The public spending contracted in the June quarter, while consumer spending grew at a much stronger than expected 1.6 percent in the quarter, up from 0.5 percent in the March quarter.
There is no doubt that the Labor Government will claim credit for these figures, saying these robust figures are due to the stimulus measures they undertook, which were designed to get Australia through the GFC. Treasurer Wayne Swan described the report as “outstanding”.
Overseas Economic Growth
China remains the key focus for world economic growth. Yesterday the much anticipated Chinese PMI manufacturing report surprised to the upside. Manufacturing in China grew at a faster pace in August after the weakest performance since early 2009, indicating that the Chinese government engineered economic slowdown will be limited. The purchasing managers’ index (PMI) rose to 51.7 from 51.2.
The U.S. recently downgraded their second-quarter economic growth (GDP) to 1.6 percent. Last night we got another view of the U.S. economy with their leading indicator, the ISM manufacturing index, and unemployment data will be out on Friday.
The Trade
Trading volumes have been anemic in the month of August which is a concern. Investors should be using their time to evaluate stocks that outperformed in the recent earnings period.
The Aussie dollar rose on this “outstanding” news, as did the share market. However investors should note that September is the worst month for stocks in the U.S. and the Aussie market is seasonally weak mid-September through to mid-October.
Since April our markets have been closely correlated to stock price movements on Wall Street, so it is a time for caution. However this may be giving Aussie investors a chance to enter the markets at a lower level, as many stocks are undervalued and are very oversold on a technical basis. On a contrarian basis, investor pessimism is at levels not seen since March 2009, which was the low of the market rally out of the GFC.
Pick the stocks you want to own in your portfolio and use any weakness in the markets to accumulate a position. In the near term it will pay to protect your position, through options.
By Michael Hevern
Head of Research
