Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

'Huge fan of your work. Very impressive!' - Scott Pape, The Barefoot Investor, Australia's #1 bestseller.

'Must-read, must-follow, one of the finest analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Business Insider.

'I've been investing 40 years yet still learn new concepts from Pete; one of the finest young commentators' - Michael Yardney, Amazon #1 bestseller.

'The most knowledgeable person on Aussie real estate - loads of good data & charts...most comprehensive analyst I follow in Oz' - Jonathan Tepper, Variant Perception, 2 x NYT bestseller.

Tuesday, 4 October 2016

Some bounce to the ounce...finally (national income to rise in Q3)

Rebound continues

The Reserve Bank's Index of Commodity Prices rose again by +1.9 per cent on a monthly average basis in September, following on from a revised +1.9 per cent gain in August.

Hurrah! After five desperate years the the index has actually stopped crashing!

Let's hope it doesn't slip on another oil slick.

In Aussie dollar terms the index rose by +2.3 per cent in the month.

In SDR terms the index is now up by +3.1 per cent over the past year, led higher by strengthening gold and coking coal prices, though the strength of the Aussie dollar is proving to be quite a persistent headache.

These charts a tad fiddly, but you can expand them by clicking on them. Or swiping them. Whatevs.

While the cash rate was predictably left unchanged today at 1.50 per cent, the "appreciating exchange rate" was noted in the associated monetary policy statement, a "complication" which could ultimately result in further interest rate cuts in the cycle (most goods and services that Aussies trade on the international markets are bought and sold under US dollar denominated contracts).

In plain Pommie, the strong Aussie dollar is not helping exporters get a very handsome price for our iron ore, coal, or gas.

Bulks bounce

Australian's index is naturally enough heavily dependent upon the performance of its key component bulk commodities.

Namely these are iron ore, for which the price outlook is arguably very dim, and coal, which perversely is absolutely screaming higher. 

Indeed, the RBA's index based on spot prices for the bulk commodities is a thunderous +17.2 per cent higher than a year ago. 

In respect of the the key commodities the RBA's figures are based upon monthly average estimated export prices, and so to date have not yet reflected the incredible +164 per cent boom in coking coal spot prices (where a supply side 'perfect storm' has caused the price to more than double within a matter of only six weeks).

Even the bulk commodity index based upon spot prices is still playing catch up here, since it is based upon an average across the month. 

If sustained, therefore, commodity prices could rise quite a bit further over the remainder of the year, particularly if oil and LNG prices don't poop themselves again.

However, stockpiles suggest that the market for iron ore is well oversupplied, and in all likelihood the price declines in the post here will offset most of the gains from the coal price bonanza.