Pressure of RBA to lift rates as inflation gauge falls: Economy Roundup

The TD-Securities-Melbourne Institute monthly inflation gauge remained flat during August after a 0.9% rise in July, with the annual pace of inflation slowing to 1.7% from 1.9% – well below the Reserve Bank target of 2-3%.

TD Securities senior strategist Annette Beacher said in a statement the result gives the RBA enough scope to keep interest rates at 3% for a while longer if the economy requires.

“As global conditions remain uncertain and volatile, the RBA has plenty of scope to ‘wait, watch and worry’, voicing a neutral bias to rates at least for the next few months,” she said.

“It can assess the upcoming data flow to see whether it confirms or denies the current expectation that the worst is over in terms of the Australian downturn.”

Prices fell for holiday, travel, accommodation, audio, visual, computing and financial services, while prices rose for motoring, alcoholic drinks and fruit and vegetables.

Shares higher, ANZ forecasts good results

The Australian share market has opened slightly higher today, following good results on Wall Street last week and positive news from the Australia and New Zealand Banking Group, but the index has dropped over the morning.

The benchmark S&P/ASX200 index was up just 4.4 points or 0.1% to 4494 at 12.00 AEST. The Australian dollar also gained ground to US84c.

Commonwealth Bank shares gained 1.4% to $45.77, with Westpac shares also up 1.3% to $24.63. NAB shares gained 1.8% to $28.30, with AMP shares also moving up 0.9% to $6.57.

Shares in ANZ have gained 4% after the group announced that its cash profit is tracking in line with last year’s forecasts, and said it is optimistic about the country’s economic outlook.

Additionally, chief executive Mike Smith said in a statement that total provision charges are tracking higher than expected.

“In Australia and in Asia, the economies are showing early positive signs of recovery and although the cycle is still playing out, there are reasons for cautious optimism,” he said.

“In New Zealand, economic conditions remain difficult with the economic recovery likely to be much slower.”

Smith also said the bank’s purchase of $US550 million worth of Asian assets from the Royal Bank of Scotland was continuing well, saying: “Asia Pacific will deliver an outstanding performance for the year”.

Elders has now sold the timber processing business ITC Timer to Gunns for $100 million, and has also requested a trading halt before it releases a statement regarding recapitalisation.

The company said the sale, which is still subject to regulatory approval, will “provide Elders with the strong and sustainable balance sheet with which it can pursue its strategy to be Australia’s leading rural services company”.

Australian gas boom to create demand in Asia

A new report suggests Australia will now become “the Middle East of gas” due to increasing demand for natural gas reserves throughout Asia, according to The Age.

State One analyst Peter Kopetz told The Age Australia is in the middle of a gas boom, fuelled by the recent $50 billion Gorgon liquefied natural gas project in WA.

“The numbers are phenomenal. When you look at them it’s mind-boggling,” he said. “Potentially, there could be many more projects coming on board.”

Overseas, the Nomura/JMMA Japan Manufacturing Purchasing Managers Index increased to a seasonally adjusted 53.6 during August – the highest level since November 2006.

“The index’s improvement suggests that the rebound in manufacturing is gaining momentum,” Minoru Nogimori, an economist at Nomura Securities told Reuters.

“Exports may be losing momentum,” Nogimori said. “We will have to focus on new export orders increasingly as one of the most important indicators regarding the outlook for Japan’s economy.”

Additionally, the Japanese Democratic Party has won the country’s federal election after nearly fifty years with the Liberal Democratic Party in power.

“The people are angry with politics now and the ruling coalition. We felt a great sense of people wanting change for their livelihoods and we fought this election for a change in government,” Democratic Party leader Yukio Hatoyama also told Reuters.