Pete Wargent blogspot

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

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Wednesday, 6 July 2016

Services export boom rubbed out!

Trade services boom erased


Not only did the trade deficit miss expectations coming in at $2.2 billion, the ABS also found an extra $1.34 billion of deficit from the previous ten months - not the first time that revisions have come back to bite recently!

Imports were also up by +2.2 per cent in May, placing a bit of additional pressure on the deficit in May (not all bad news - the increase was driven by telecommunications imports, possibly signaling increasing infrastructure investment). 

On the plus side, the trade deficit for the second quarter is still on track to be up to 30 per cent better than the miserable showing in Q1, thanks to a somewhat overdue improvement in export values.

Australia has run up trade deficits totaling more than $36 billion over the year to May. 

First, the good news: resurgent commodity prices saw export values in May much higher year-on-year for iron ore (+17 per cent), natural gas (+16 per cent), and particularly gold (+116 per cent).

Coal exports, erm, not so flash, down 3 per cent. 

Unfortunately, services exports, previously thought be booming, erm, actually aren't booming at all.

Trend services exports were still up by +6 per cent over the year, but the previously upbeat results have been mercilessly revised down. 

The one relative bright spot in the services sector continues to be tourism.

Exports resurgent

Stronger merchandise export figures in the month were largely driven by a 19 per cent month-on-month increase in exports to China, essentially representing a greater value of iron ore cargo shipped from Western Australia. 

The value of iron ore exports have been staging a steady fightback since January.

However, the best performer over the past year has been gold, with $16.1 billion of exports in the year to May (up some +19 per cent from $13.5 billion last year). 

Correspondingly exports from Western Australia are on the rise again, as the value of the Pilbara's iron ore exports increase.

With commodity prices having rebounded, Western Australia (iron ore) and Queensland (natural gas) have recorded improved trade balances since the beginning of the year.

The wrap

Overall, as you can see in the figures above there have been quite a few positives from the rebound in commodity prices.  

Unfortunately these were erased by adverse revisions to services exports, which have not been performing anywhere near as well as previously expected.

The trade deficit was therefore a miss in May. Throw in another underwhelming result for retail trade today and inevitably future markets are tentatively teeing up another interest rate cut for August.

The Reserve Bank of Australia left rate on hold today, but another benign inflation print later in the month would in all likelihood see the cash rate cut to a record low of 1.50 per cent. 

Australia's 10 year government bond yield made history in declining to its lowest ever level just a few at just 1.945 per cent.