Multi-billion dollar write-down? Ho-hum: Economy round-up

A $US9.4 billion write-down of sub-prime exposed mortgage assets by global investment banking giant Morgan Stanley has not been enough to trigger another selling avalanche on Australian markets this morning.

At midday the S&P/ASX200 was slightly down to 6198.6, a 0.3% fall on yesterday’s close, while the Australian dollar was trading at US85.95c, down from yesterday’s US86.24c close.

The mild response suggests markets are growing accustomed to hearing bad sub-prime related news from investment banks. Along with its write-down, Morgan Stanley announced a fourth quarter 2007 loss of $US3.56 billion, the first such loss in its history.

And like fellow ailing investment banks Citigroup and UBS, Morgan Stanley announced a big capital injection from an offshore sovereign fund along with its losses – in its case a $US5 billion injection from a Chinese Government backed investment company.

Data released suggests the underlying problem, the weakness of the US housing market, is set to continue. New housing starts fell 3.7% in November and the rate of issue of new building permits reportedly also fell to a 14 year low.

Today’s relatively relaxed Australian market may also have something to do with two happenings that served to remind investors that the resources boom is still going on.

Bluescope Steel announced the purchase of IMSA Steel Corp, a North American steel company, sending its shares up 5.56% to $9.49c.

And Merril Lynch produced a report arguing that China is largely insulated from the woes currently being experienced by the US economy, a fact that should mean the current commodity price supercycle still has some way to run.

In Australia, total borrowing by the non-financial domestic sector (everyone but the banks) was $69.2 billion in the September 2007 quarter, $25.2 billion lower than the previous quarter estimate, according to new figures from the ABS.

An interest rate driven decline in household borrowing to $19.4 billion – down $33 billion on the June quarter – was the key reason for the drop.

And the NSW Government yesterday published its mid-year budget review. It predicts the NSW economy will grow 2.75% in 2007-08, fuelling a budget surplus of $506 million.