Keynote Address – Investing in Mining Indaba: Bringing Foreign Investment to Fuel Asian Resources Supply

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Keynote Address – Investing in Mining Indaba: Bringing Foreign Investment to Fuel Asian Resources Supply

  1. 1. MONTHLY    R  EPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    OCTOBER    2012                                                             OCTOBER    2012 DAVID HALE GLOBAL ECONOMICS STILL MUDDLING THROUGH:  WILL INNOVATIVE MONETARY POLICY REVIVE THE GLOBAL ECONOMY?KEY  CONCLUSIONS TABLE  OF  CONTENTS• The   US,   European,   and   Japanese   central   banks   have   all   Key  Conclusions  ...............................................................................................  1 ini�ated  new   unconven�onal   monetary   easing  ac�ons   in   the  face  of  deteriora�ng  economic  condi�ons G-­‐3  central  banks  unleash  new  unconventional  measures  .......................  2• Although   US   job   growth   has   been   anemic,   the   housing   Weak  economic  data  prompts  Bernanke’s  actions  ........................................  2 sector   is  seeing  accelera�ng  growth   and   consumer   confi-­‐ dence  is  increasing Fiscal  cliff  brinksmanship  set  to  increase  after  elections  .............................  3• If   the   elec�on   produces   an   outcome   that   causes   both   The  Federal  Reserve  embarks  upon  open-­‐ended  quantitative  easing  ......  4 policy  gridlock  and  the  US  to   fall  off  the  fiscal   cliff,  income   taxes   could   increase   significantly   and   a   value-­‐added   tax   Is  CEO  confidence  a  precursor  to  disappointing  profit  growth?  .................  5 may  become  a  necessity Will  Rajoy’s  intransigence  undo  Draghi’s  efforts?  ........................................  5• Spanish   PM  Mariano  Rajoy   is  trying  to   hold   off  on   apply-­‐ ing  for   a   formal   rescue   program   un�l   he   receives   assur-­‐ Other  peripheral  countries  still  face  a  daunting  road  to  growth  .................  7 ances   that   further   substan�al   austerity   demands   are   off   the  table Will  Hollande  address  France’s  own  competitiveness  crisis?  ......................  7• Eurozone   GDP   will  contract  this  year,  but  easing  of  auster-­‐ Eurozone  growth  should  turn  positive  in  2013  .............................................  8 ity   in   the   periphery   next   year   should   lead   to   posi�ve   growth  in  the  euro  area  in  2013 Will  austerity  be  deferred  in  the  UK?  ...............................................................  8• The   Japanese   economy   may   actually  shrink   in   the   third   Why  the  Japanese  economy  could  contract  in  the  third  quarter  ...............  8 quarter  due  to  weak  auto  sales  and  exports Will  Chinese  leaders  hit  their  7.5%  growth  target  for  2012?  .......................  9• China  is  set   to   experience  a  U-­‐shaped  recovery  in  the  year   ahead   instead   of  the  V-­‐shaped   recovery  that   occurred   in   Advanced  Asia  is  lagging  behind  emerging  Asias  growth  .........................  10 2008-­‐09• While   the   advanced   economies   in   East   Asia   con�nue   to   Indian  reforms  could  propel  future  growth  if  fully  implemented  .............  11 grow   slowly,   developing  East   Asian   economies   are  seeing   stronger  growth Australian  growth  outlook  remains  near  trend  rates  .................................  11• Recently   announced   Indian   reforms   will   increase   future   Is  the  Canadian  housing  market  starting  to  deflate?  ..................................  12 growth  rates  if  they  are  not  diluted  over  �me Brazil’s  economy  is  rebounding  ....................................................................  12• The   Australian   dollar   has   become   a   safe-­‐haven   asset   in   the  eyes  of  central  banks  around  the  world Strike  resolutions  could  set  a  dangerous  precedent  for  South  Africa  ......  13• Brazilian  economic  growth  is  accelera�ng,  but  the  finance   Developing  countries  continue  to  diversify  reserves  with  gold    ................  13 ministry  is   having   to   ac�vely  protect   the  recent   compe�-­‐ �veness  gains  it  has  achieved BBC  Interview:    US  elec�on  -­‐  Economy  focus  of  TV  debate  ..............  14• If   the   pla�num   price   con�nues   to   decline   and   miners’   About  David  Hale  Global  Economics  ............................................................  14 wages  increase  at  double-­‐digit   rates,  South  African   mines   may    b  e      f  orced    t  o    s  hut      d  own                                                                                                                                                                                                                                                                                                                                                                                        DAVID  HALE    GLOBAL  ECONOMICS 1                                                                                                          
  2. 2. MONTHLY    REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    OCTOBER    2012 G-­‐3  CENTRAL  BANKS  UNLEASH  NEW           The   good  news  has  come   from   the   housing  sector.  Exis�ng  home   sales  rose   7.8%  during  August  a�er   a  2.3%  gain  in  July.  The  confi-­‐ UNCONVENTIONAL  MEASURES dence   index   of   the   Na�onal   Associa�on   of   Homebuilders   rose   The  dominant   factor  driving  financial   markets  during  recent  weeks   three   points   to   40   in   September,   the  highest   reading  since   June   has  been   monetary  policy.   The  Federal   Reserve   and   the  Bank   of   2006.  Housing  starts   rose   2.3%  in  August  to  750,000   and  are  now   29.1%  above  their   level  one  year   ago.  The  Case-­‐Shiller  Twenty-­‐City   Japan   have   announced  plans  to   expand  their   balance  sheets.  The   Home  Price  Index  rose  1.2%  during   July  and  is  now  1.2%  above  its   European   Central   Bank  has   indicated   that   it   will  support   the  bond   level   one   year   ago.  Fannie   Mae   conducts  a   survey   of   consumer   markets   of   troubled   debtor   countries   if   they   seek  formal   rescue   programs  from  the  European  Financial  Stability  Facility  or  European   a�tudes   towards   the   housing   market.   In   August   35%   of   the   re-­‐ Stability  Mechanism.  The  promise   of   further   monetary  accommo-­‐ spondents  expected  house  prices  to   increase  while  11%  expected   a   decline.  One   year   ago  20%  expected   a  price   increase   while   27%   da�on   from   major   central   banks   has   boosted  equity  markets   and   expected  a  decline.  As  a  result  of  the  recent  up�ck  in  home  prices,   the   gold   price.   There   is  no   guarantee  that   these   monetary  policy   the  Federal   Reserve  now  es�mates  that  the  value  of  the  countrys   changes  will   directly  bolster   economic   growth,  but   investors   have   learnt   from   past   experience   that   they  can   influence   market   psy-­‐ residen�al   housing   stock   has  increased   by  $700   billion   since   last   chology  in   a  posi�ve   direc�on.  The   Fed  chairman  himself   has  said   December.   The   housing   sector   made   no   contribu�on   to   growth   during   the   first  two   years   of   the  economic   recovery.  It   began  to   that   rising  equity  prices  are  one  of  the   variables  through   which   a   revive   one   year   ago   and   should   contribute   0.2-­‐0.3%   to   output   quan�ta�ve  easing  program  can  bolster  the  economy. growth   this  year.  The  upturn  occurring  in  house  prices  should   also   bolster   household   confidence   and   consumer   spending.   As   the   WEAK  ECONOMIC  DATA  PROMPTS         economy   lost   2.3   million   construc�on   jobs   during  the   downturn,   the   recovery  in   homebuilding   has  the   poten�al   to   create   several   BERNANKE’S  ACTIONS hundred   thousand   jobs   during   the   next   two   years   as   well.   The   housing   recovery   has   so   far   produced   only   59,000   construc�on   The  Federal  Reserve  decided  to   pursue   another  round  of   quan�ta-­‐ jobs   in   the   official   figures,  but   the  Bureau   of   Labor   Sta�s�cs  has   �ve  easing  because  much  of  the  economic  data  released  during  the   past   month   has  been   disappoin�ng.  The  economy  produced   only   just  produced  a  comprehensive   revision  of   the  na�ons  labor  data   which   suggests   that   the   economy  might   have   produced   an   addi-­‐ 96,000  jobs   in   August.  Industrial   produc�on  fell   1.2%.   Core  retail   �onal  85,000  construc�on  jobs.   sales   (those  excluding  gasoline,   autos,  and   building  materials)  fell   0.1%.  There  has  been   a  clear  loss  of  momentum  in  the  manufactur-­‐ Rela�onship  Between  Building  Permits  and  Future   ing  sector  and  the  August  level  of  produc�on  was  slightly  below  the   Construc�on  Employment:  1982-­‐2012 first  quarter   average.  The  rise  in  gasoline  prices   since  June  has   also   once  again  squeezed  consumer  spending.   US  Manufacturing  Produc�on  Growth  Rate:  2002-­‐2012 *  Lines  represent  a  4-­‐quarter  moving  average Source(s):  Bureau  of  Labor  Sta�s�cs,  Census  Bureau There  has   recently  been  a  break  in   oil   prices   which   should  lower   Source:  Board  of  Governors  of  the  Federal  Reserve  System the  CPI  during  the  next  two  quarters  and  help  to  boost  consumer   spending.  2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        DAVID  HALE    GLOBAL  ECONOMICS
  3. 3. MONTHLY    REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    OCTOBER    2012The  CPI  may  increase  at   only   a  2.0%   annual   rate  during  the  fourth   overseas  auto   shipments  (-­‐4.9%).  Sales  to   Europe   and  Canada  were  quarter  and  at  less  than  a  1.0%  annual  rate  during  the  first  quarter   down   11.9%  while   sales   to  Japan   fell   6.4%.  The  ISM  export   index  of  2013.   has  fallen  to  48.5  in  September  from  53.5  in   May.  The  weakness  of   exports   is   one   of   the  reasons   manufacturing   output   has   stalled.  As  the  growth  rate  of  wage  and  salary  income  has  been  restrained   Exports  account   for   one-­‐third   of  US  manufacturing   shipments.  The  by  high  unemployment,  the  household  sector  needs  lower  infla�on   export   sector  is  likely   to   have  li�le  effect   on  real  GDP   growth  dur-­‐to  bolster   its  spending.  It  could  not   increase  discre�onary  spending   ing  the  third  quarter  a�er  contribu�ng  nearly  half   of  output  growth  during   August   when   the   CPI  rose  by  0.6%.  Real   PCE   ex-­‐food   and   during  the  second  quarter.energy  rose  by  only  0.1%  as  the  savings  rate  fell  to  3.7%  from  4.1%.Despite  the  recent  upsurge  of  gasoline   prices,  there  has  been  sur-­‐prising  resilience   in  surveys  of  consumer   confidence   during  recent   FISCAL  CLIFF  BRINKSMANSHIP  SET  TO      weeks.  The  University  of  Michigan  survey  of   consumer   confidence   INCREASE  AFTER  THE  ELECTIONSrallied   4.9   points   to   79.2   during  early  September.   The   up�ck  re-­‐flected   greater   op�mism   about   the   job   market.  The   Conference   There  con�nues   to   be  li�le  visibility  as   to   how   Congress  and   the  Board  confidence  survey  also  rose    nine  points  to  70.3  during  Sep-­‐ White   House   will   resolve   the   threat   of   large   tax   increases   and  tember   because   of   greater   op�mism  about   the   labor   market.  The   spending  cuts  during  the  first  quarter  of  2013.  There  appears  to  be  "jobs   hard   to  get   index"  slipped   to   39.9%  from  40.6%  the   month   li�le  support   in  either  party  for   extending  the  payroll   tax   cuts   an-­‐before  while   the  "jobs  plen�ful  index"  rose  to  8.3%  from  7.2%.  It   is   other   year.   If  they  expire,  there  will   be  an  $85   billion  tax  increase  remarkable  that   the   household   sector   is   repor�ng  a   be�er   envi-­‐ equal   to   about   0.6%   of   GDP.  The  great   disagreement   centers  on  ronment  for   job   crea�on   when  the  government   is  repor�ng  weak   the   Bush  tax  cuts.  The  Republicans  want  to  extend  them  for  every-­‐employment   gains.   The   Na�onal   Federa�on   of   Independent   one.  The  president  wants  to  increase  top  marginal  income   tax   rates  Business  reports  that  small   firms  have  begun   to   increase  their   hir-­‐ back  to  40%   for   those  earning   over   $250,000  per  annum.  Both   the  ing,  but  the  gains  have  so  far  been  quite  modest.  The  improvement   White  House  and  congressional  leaders   say  they  want  to   avoid   the  in   consumer   confidence  is  a  clear  posi�ve   for   the  presidents   ree-­‐ risk  of   a   so-­‐called  "fiscal   cliff"  in   January,  but   they   have   not   indi-­‐lec�on   campaign.  It   suggests   that   the   household   sector   does  not   cated  how  they  will  compromise  on  this   issue.  If   they  cannot  reach  perceive  as  much  weakness  in   the  labor   market  as  recent   govern-­‐ a   compromise,   they   could   simply   vote   to   extend   the   tax   cuts  ment  data  or  the  Republicans  allege  to  exist.   through   March   and   promise   to   con�nue  nego�a�ng   through   the   first  quarter. University  of  Michigan  Consumer  Sen�ment  Index:  1990-­‐2012 The  November   elec�on   could   influence  how  the  nego�a�ons  pro-­‐ ceed.  If   the   president  is  reelected,  he  will  feel   that   he   has  a  man-­‐ date   to  increase  taxes.   If,  by   contrast,  the  Republicans   retain  con-­‐ trol  of  the  house   or   gain   control  of   the   Senate,  they  will  perceive   they  have  a  mandate  to   restrain  taxes.  In  such  a  scenario,  it   will  be   difficult  to  avoid  gridlock  in  the  short  term. The  stakes   with   this   issue   are   high.  The  CBO   is   projec�ng   that   if   Congress   does   not   intervene,  the   tax   share   of   GDP  will   rise   from   15.7%  of  GDP  in  2012  to  18.4%  in  2013,  19.6%  in  2014,  and  20.3%   in   2015.  If  the  tax  increases   are  repealed,  by  contrast,  the  tax  share   of   GDP   would   increase  to   just   16.3%  next   year.  The  CBO  projects   that  if  all  the  tax   increases  and  spending  cuts   occur,  real  GDP  could   decline  by  1.5%   during  the   first   half   of   next   year   and  push  unem-­‐ ployment   back   over   9.0%.  The   sheer   uncertainty  about   tax   policy  Source:  Thomson  Reuters/University  of  Michigan appears  to  already  be  having  a  nega�ve  impact   on   business  confi-­‐ dence,   employment,  and   investment.   The   CEO   economic   outlook  The   US  trade   deficit   widened  marginally   to  $42   billion   during   July   index  plunged  23  points  during  September  to   its  lowest  level  since  as  exports  fell   for   the  first  �me  in  three  months.  The   level   of   real   the   economy  emerged  from  recession.  This   pessimism  may  help  to  goods  exports  sagged  2.2%  a�er  a  gain  of   2.0%  during  the   second   explain   the   recent   weakness   of   orders   for   non-­‐defense   capital  quarter.  The   weakest   sectors  were   industrial   supplies  (-­‐5.6%)   and   goods  excluding  aircra�.3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        DAVID  HALE    GLOBAL  ECONOMICS

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