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Wednesday, 13 April 2016


8 year high for business conditions

Well, it's been quite some week for long shots!

First up the 5000 to 1 outsiders Leicester City all but wrapped up the English Premier League title, in the process seeing off the likes of wildly wealthy clubs including Manchester City, Manchester United, Chelsea, Liverpool and Tottehnam Hotspur, despite the Foxes being home to an entire squad built on a proverbial shoestring.

Then a bloke from Rotherham that nobody had heard of tore up the US Masters to win a major golf tournament on the final day (the broad Sheffield accents adorning the 18th tea, the purest of unscripted comedy).

And then last but not least, an absolute ripsnorter of a NAB Business Survey showed business conditions continuing to rise to their equal highest level in eight years since the financial crisis.

Source: National Australia Bank

The reading of +12 was massively higher than the long run average of +5, in the words of one prominent but here unnamed analyst, "as strong as feck".

And this was despite conditions in the mining sector being reported as "extremely weak".

The business conditions sub-indices showed that there was an improvement across all compenents. This included a hop in profitability (+14). And a bounce in the trading measure (+18). The employment gauge also leapt to a five year high (+5).

Capacity utilisation increased strongly to above its long run averages.

This was also reflected by a spring in business confidence, which doubled (+6). 

In NAB's own words, a "very strong survey" for the non-mining economy, and its indicative business conditions model points to continued growth in GDP.

Hooray! Low interest rates are working. 

The blue line in the chart above shows the business conditions during the global financial crisis, and just how far we've come since that time.

In another welcome little bonus, the price of Australia's most significant export commodity, iron ore, has jumped by +9.6 per cent in its two sessions to US$59.62/t (or above A$77 in Aussie dollar terms).

According to Metal Bulletin, the spot price has only been higher on two days since June 2015 (the price jumped by a reocrd margin of nearly $10 on March 7 before retracing) while Port Hedland iron ore exports hit their highest ever level of 39.5mt in March, with Gina Rinehart's Roy Hill project having come online.

After a slippery run, the oil price also surged by another +4.5 per cent to US$42.14/bl, the highest price we have seen in 2016.

If an interest rate cut in May ever was on the table, it isn't now, with interest rates deemed most likely to be on hold for the foreseeable future.

The wrap

A splendid result almost right across the board from the widely watched NAB survey. 

Whilst on the sporting theme, one is reminded of Merv Hughes caressing one through the covers for his first Test run after several abortive innings for a prolonged MCG standing ovation.

In the words of the Channel 9 commentary team: "Well, we make no apologies for getting excited about that - it's been a long time coming".