Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

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Tuesday, 6 January 2015

Trade Deficit Improves in November

Trade release

An upside surprise result today from the ABS International Trade in Goods and Services figures for November 2014. Let's take a short look through 6 charts.

Deficit improves in November

Market analysts had expected a trade deficit of $1.6 billion or greater in November, but in the event the seasonally adjusted trade deficit came in at a significantly lower $925 million for the month.

Although this was variously reported as a "decline" or a "widening deficit" on the previous month, this overlooked that there was a sizeable downwards revision to the October deficit from more than $1.3 billion to only $877 million.

The revision further underscores the volatility inherent in the monthly figures, but the net result was a decent improvement to the average deficit across the months of 2014 YTD to $766 million seasonally adjusted, which is potentially a moderately promising signal.


Commodities exports ramp up

There was a marked improvement in the total value of iron ore exports in raw terms in November, increasing from $4,940 million in October to $6,210 million - although these figures too are necessarily volatile. 

There were also decent rises in the export values of natural gas and coal, although monthly coal export values remain nearly 30 percent lower than where they were at the end of Q4 2011.

As noted here previously, the collapse in coal prices has led to an unhealthy proportion of Australia's coal production becoming unprofitable leading to inevitable closures and job losses. There is likely to be more pain ahead yet for coal mining towns and regions.

Coal and iron ore accounted for 27 percent and 14 percent of total merchandise export values respectively in November, with gas creeping up to an increasingly material 7 percent share. 

The trend in LNG exports is now strongly positive and this is expected to play an important role in turning around Australia's trade deficit position.

The uplift in iron ore export values in November was driven by an increase in volumes, but there have also been some somewhat questionable figures related to unit values so it is probably wise to follow the trend rather than become too aroused by monthly results.

It was a soft month for gold exports which recorded only a 3 percent share of total FOB values exported. 


China takes a 37 percent share

A rebound in the freight value of exports bound to China in November pushed the share of exports to the Chinese (excluding Taiwan and SARs) back up to 37 percent.

Previously the data had touched a massive 40 percent of monthly merchandise exports being recorded as China-bound, an extraordinary level of dependence on the fortunes of one country's economy!

India (3 percent share) and Korea (7 percent share) continue to lag well behind Japan (17 percent share) in terms of total monthly FOB values exported, the India export story having largely been a disappointment to date.


The monthly trade services balance dipped back marginally to -$824 million in November, with tourism services remaining fairly flat at $244 million.



State versus state

There has been much talk of a correction or "bust" in Western Australia. In reality as the engine room of Australia's commodity export boom the state is in the midst of a major transition from the construction phase through to production.

In raw terms Western Australian export values rebounded to a massive $10,929 million in November, a stonking 47 percent share of total monthly merchandise exports.

Queensland saw a small increase in monthly export FOB values to $4,016 million (a 17 percent share of total exports), with New South Wales (13 percent share) and Victoria (9 percent share) accounting for much of the remainder.

The increase in export values from South Australia (to only a 4 percent share) expected in some quarters has been severely hamstrung by pain-inducing declines in the state's key commodity prices, including copper.

As a result South Australia has recorded no notable uplift in export values for some years, with greater monthly FOB values being recorded as long ago as 2007.


State trade balances

As the powerhouse of Australia's exports Western Australia saw its trade surplus rebound from $6,946 million to a much healthier $7,976 million in November, while Queensland and South Australia continue to "pay their way".

Although the New South Wales state government benefited from a massive 40 percent stamp duty boost to its coffers in 2014 - largely driven by increased commercial and industrial property sales, with more expected to come in 2015 - from a trade balance perspective the largest states continue to run material deficits.


The Wrap

Overall this was a better-than-expected set of results with is a slight nod to the case for a succesful rebalancing of the Australian economy.

Elsewhere there were surprisingly positive improvements in services PMI figures for both the key trading partners of China (up to 51.4 from 51.1) and the Business Activity Index of Japan (up to 51.7 from 50.6) which resulted in the Australian dollar taking heart and jumping back above 81 cents.

According to HSBC Markit the China figures represented the strongest expansion of service sector employment in 18 months, while business activity in China has now expanded for an eighth successive month.

Bloomberg has also reported that China is to accelerate some $1.1 trillion of infrastructure spending, interpreted by markets as being a potential pre-cursor to more profligate fiscal spending or stimulus.

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