Australia’s Export Slump Intensifies Rate-Cut Pressure: Economy
Australia unexpectedly posted back- to-back trade deficits as coal and metal exports slumped, sending the currency lower and intensifying pressure on the central bank to resume cutting interest rates.
Imports outpaced exports by A$480 million ($493 million) in February, from a revised A$971 million deficit a month earlier, the first consecutive shortfalls in two years, a Bureau of Statistics report showed in Sydney today. That contrasted with the median estimate in a Bloomberg News survey for a A$1.1 billion surplus as exports dropped 2 percent after a 9 percent decline in January.
The data boost the case for Reserve Bank of Australia Governor Glenn Stevens to lower rates at the May 1 policy meeting because overseas shipments account for about a quarter of gross domestic product. The Australian dollar rose in six of the past seven quarters, propelled by A$456 billion in resource projects by companies such as BHP Billiton Ltd. (BHP) that are trying to meet Chinese demand.
Today’s trade figures are “ringing alarm bells,” said Annette Beacher, the Singapore-based head of Asia-Pacific research at TD Securities Inc., who expects the central bank to lower borrowing costs in May and again in June.
Exports fell in February to A$24.4 billion, the lowest level in a year, the report showed. The value of coal exports, the nation’s second-biggest commodity export after iron ore, plunged 21 percent to A$3.4 billion, the least since March 2011.
Overseas sales of goods and services to India, Japan and Korea, which buy about 25 percent of Australian exports, all declined, it showed.
Dollar Falls
The Australian dollar touched $1.0264 in Sydney, the lowest level since Jan. 16, from $1.0306 before the data were released. The S&P/ASX 200 Index of stocks weakened 0.1 percent to 4,332.60 at 2:39 p.m. in Sydney, and three-year notes yielded 3.44 percent, heading for a third straight week of declines.
Imports also weakened, slumping 4 percent to A$24.9 billion on a 14 percent decline in consumption goods and a 12 percent drop in machinery and industrial equipment, the report showed.
Traders are pricing in an 87 percent chance the RBA will reduce borrowing costs by a quarter percentage point at the next policy meeting, a Credit Suisse Group AG index showed.
Stevens lowered the overnight cash rate target twice late last year to 4.25 percent. the highest benchmark among major developed economies. He paused yesterday for a third straight meeting, while signaling the central bank may resume cutting rates as soon as next month if weaker-than-expected growth slows inflation.
Weather Distortions
The trade data may have been distorted by weather for a second month, economists said. Cyclones in the nation’s northwest disrupted iron ore exports in January and floods in February swept across Queensland and northern New South Wales, both key coal producing regions, said Su-Lin Ong, head of Australian economic and fixed-income strategy at RBC Capital Markets in Sydney.
“While weather distorted, today’s trade data add to the view of an economy that is struggling,” she said. “Forecasts for first-quarter GDP are likely to be revised down with net exports set to detract more significantly from growth.”
China is Australia’s biggest trading partner and its demand for iron ore, coal and energy drove the nation’s terms of trade, or export prices relative to import prices, to a record high last year. Shipments to China gained 14 percent in February after slumping a month earlier as trade slowed during the Lunar New Year holidays.
Fed, China
Asian stocks fell today for the first time in four days as the U.S. Federal Reserve signaled it may refrain from more monetary stimulus. The MSCI Asia Pacific Index declined 1 percent as of 12:27 p.m. in Tokyo and Standard & Poor’s 500 Index futures lost 0.4 percent.
Chinese Premier Wen Jiabao highlighted challenges facing his nation during a provincial tour over April 1-3, saying some economic indicators are slowing, according to a statement from the state-run Xinhua News Agency last night.
Volumes of bulk commodities transported in the nation are dropping, indicating heavy industries such as steel, cement and non-ferrous metals encountered difficulties in the first quarter related to a slowdown in infrastructure construction, Wen said. The government will release policy fine-tuning measures as soon as possible, he said, adding that a key area is ensuring funding for ongoing investment projects.
The government plans to roll out new, large-scale projects under the country’s five-year plan that can have a big effect on the economy, he said.
European Monetary Policy
Elsewhere, the European Central Bank will leave its benchmark rate unchanged at 1 percent, according to all 57 economists surveyed by Bloomberg News before today’s decision.
Reports may show that the euro-region economy is struggling to regain strength after shrinking in the fourth quarter.
Euro-area retail sales probably fell for the second time in three months in February, according to an economists’ survey. A monthly survey of purchasing managers will probably affirm the initial measures, which showed euro-area services and manufacturing contracted in March, economists predict.
U.K. house prices probably fell for the fourth time in five months, economists predict. The gauge provided by Lloyds Banking Group Plc’s Halifax mortgage-lending unit probably fell 0.2 percent from February, according to the median forecast of eight analysts.
German Factories
Still, German factory orders probably rose in February after unexpectedly falling the previous month. Orders rose 1.5 percent, according to the median forecast of 35 economists.
In the U.S., a report may show that companies added fewer workers in March than a month earlier. Figures from ADP Employer Services may show companies added 206,000 workers, according to the median estimate of 37 economists. That’s down from 216,000 more workers in February.
Services industries in the U.S. probably grew at a slower pace in March, the Institute for Supply Management’s non- manufacturing index may show. The index fell to 56.8 from 57.3 in February, according to the median forecast of 68 economists.
The slower pace of recovery adds to the case for no change in U.S. interest rates. Policy makers yesterday affirmed its plan, first announced in January, to hold interest rates near zero through late 2014.
QE3 Plans
The Fed also signaled it is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target, it said in minutes released yesterday of its March 13 meeting.
Australia’s economy lost 15,400 jobs in February as the sustained strength of the currency hurt employers in tourism and manufacturing, pushing up the unemployment rate for the first time since August. Even so, at 5.2 percent the nation’s jobless rate is still less than half the euro area’s 10.8 percent level.
Earlier today, a private survey showed Australia’s services industry shrank in March, the fifth contraction in the past six months, as the stronger currency cut sales and curbed new orders.
To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
Australia Posts Back-to-Back Trade Deficits on Export Slump
Ian Waldie/Bloomberg
The value of coal exports, the nation’s second-biggest commodity export after iron ore, plunged to $A3.4 billion, the lowest level since March 2011.
The value of coal exports, the nation’s second-biggest commodity export after iron ore, plunged to $A3.4 billion, the lowest level since March 2011. Photographer: Ian Waldie/Bloomberg
April 4 (Bloomberg) -- Stephen Walters, chief Australia economist at JP Morgan Chase & Co., talks about the nation's economy and trade with Asia. Australia unexpectedly posted a trade deficit for a second straight month in February as coal and metal exports slumped, sending stocks and bond yields lower and the local currency tumbling to a 2 1/2-month low. Walters speaks from Sydney with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
April 4 (Bloomberg) -- George Boubouras, head of investment strategy at UBS AG's Australian wealth-management unit, talks about global financial markets and economies following the release of U.S. Federal Reserve minutes. The Fed is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target. Boubouras speaks from Melbourne with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
April 4 (Bloomberg) -- Todd Elmer, head of Group-of-10 foreign-exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore, talks about the outlook for the U.S. and Australian dollars, the yen and his trading strategy. Elmer speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
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