Australia’s iron ore agony. The details of China’s February foreign trade figures, released yesterday, illustrate Australia’s terms of trade crunch. Chinese imports of iron ore fell to just on 68 million tonnes in February, down from January’s 78.5 million tonnes (and over 87 million tonnes in December) but 11% higher than February 2014. Australian exports to China from the Pilbara mines were 30.25 million tonnes in February, up from 30.15 million tonnes in January. But the value of February’s exports fell 39% from February last year (despite the 11% rise in volumes), thanks to the plunge in global prices, which hit a new low of $58.20 a tonne overnight Friday.
Chinese coal imports fell 9% to 15.26 million tonnes from January, but they are down 33% on February 2014. And while China’s crude oil imports rose 11% from February of last year, their value was down 46%, which explains the coming pain for a lot of energy companies around the world. More data on China’s inflation rate (tomorrow) and production and retail sales (Wednesday). The consumer inflation data will be the most interesting for any further signs of disinflation turning into deflation, like it has for much of the country’s industrial sector for the past three years. — Glenn Dyer
Now that’s what we call jobs growth. The US and Australian economies grew at roughly the same pace in the final quarter of 2014 and for the year as a whole, but that’s where the similarities end. Later this week, we will engage in another bout of hand-wringing over a weak jobs report for February with much talk about the unemployment rate rising to 7%.
Last Friday night, the US jobs report for February showed 295,000 jobs were created last month and the unemployment rate fell to 5.5%. Naturally, the worryworts and hedge-funders on their cheap money panicked and said “rate rise looms” (which it does) and sold down Wall Street, dragging our market with it. Once again they have misjudged the jobs machine that the US economy is when things start going well for it. After the February report, the US has now experienced the longest streak of private-sector job gains on record, with 12 million jobs added over the last 60 successive months (five years), with 2014 the best for jobs growth since 1999.
Over the past year, the number of unemployed people has fallen by 1.7 million, while the number of long-term unemployed has fallen 1.1 million. Some desperates said the weakish 2% rise (annual rate) in wages in the year to February meant the Federal Reserve wouldn’t rush to lift rates. After all, with inflation around zero, a 2% rise in wages is solid and good for household spending. The Fed meets next week on March 16 and 17. The port meeting statement will be analysed to death, as usual. Ten-year US bond yields reckon a rate rise is on the cards as they jumped to 2.24% on Friday night (they were only 1.64% in January). But bond markets have been down this route before and misjudged the Fed. What the US economy does have at the moment is virtuous economic growth — strong jobs creation, solid GDP numbers and no inflation to undermine the situation, again disappointing all the inflationistas/gold bugs/survivalists and others among the tribes of hard-money nutters. — Glenn Dyer
From telephone to iPhone. The changing of the guard continues in the Dow Jones Index, and in the list of most valuable companies in the US, as the tech takeover continues. The company that gave us the smartphone, Apple, was named to join the index on Friday, replacing AT&T, the company that gave the world the telephone.
AT&T is the telco and internet services company trying to buy DirecTV for US$48 billion is out of the American sharemarket’s most exclusive club. For decades, AT&T in its various forms has been at the forefront of technological change, developing the US telephone network, making breakthroughs in physics that helped change the mode of communications. It joined the Dow in 1916 (a year after the first transoceanic phone call), was dropped in 2004, but reinstated the next year after SBC Communications renamed itself AT&T after a huge merger. SBC was one of the old companies of the AT&T network, formed after it was broken up in an anti-trust action in 1974. The last changes to the Dow occurred in 2013 when Goldman Sachs, Nike and Visa replaced Bank of America, Alcoa and Hewlett-Packard respectively. Apple’s seven-for-one share split last year helped expand the shareholder base, and made it more appealing for inclusion in the Dow. Its surge past US$700 billion in market value made it impossible to keep out. — Glenn Dyer
Apple ueber alles? Based on Friday’s close, Apple had a market value of US$736 billion, AT&T was worth $176 billion, and even if it is cleared to buy DirecTV, it will only be worth around US$220 billion after that deal. And last week (despite Friday’s big sell off), Google (US$394 billion) became the second-most valuable company in the US after Apple as it moved past ExxonMobil (US$363 billion). Tonight, Apple formally unveils its new Apple Watch product, including, according to leaked details ahead of the launch, a US$10,000 gold model.
But don’t be too bullish on Apple. Some hard heads in the US market reckons it’s overpriced because it will have to sell 3 billion iPhones in the next decade to justify its current valuation. The rise of the iPhone has turbocharged Apple. Since the iPhone’s introduction, Apple’s annual revenue has risen more than sevenfold, from US$24.6 billion in 2007 to US$182.8 billion in 2014. Maintaining that sort of growth into the future is going to be very tough. The watches will cost less than iPhones and therefore carry a smaller profit margin. Moreover, iPods and iPads are fading. Is Apple a one-trick pony? — Glenn Dyer
Texas busting out all over? Much was made of Australia’s population growth in the fast-being-forgotten Intergenerational Report (IGR) from the federal government. It forecast that:
“… based on patterns of migration, fertility and life expectancy (mortality), Australia’s population is projected to grow at 1.3% a year, which is slightly below the average growth rate of the past 40 years. If this were to occur, the population would reach 39.7 million in 2054-55, up from 23.9 million today.”
That’s certainly better than the likes of Italy, Russia, Germany and Japan, which all have shrinking populations. But then compare those estimates to one issued late last week by the Texas state demographer, which says the state’s population could double between now and 2050 to more than 54 million. Texas, the second-largest state in the US, currently has a population of just over 26 million (California is the largest with 39 million). The tight oil and gas boom, technology, lifestyle and an absence of a state income tax has made Texas attractive to other Americans who are moving there in droves. But should the current slide in oil prices trigger an economic bust then? — Glenn Dyer
Hey Joe, here’s an idea for the budget. There could be something in the ALP’s resurrection of its tax on multinational tax fiddling, announced last week, but bagged by Joe and Tony in an apparent genuflecting to the big end of town. According to London media reports yesterday, the UK Conservative government is planning on whacking a great new tax on multinational companies in the country’s upcoming budget, to be brought down on March 18. The media reports say the new 25% tax from Chancellor of the Exchequer George Osborne will be called a “diverted profits tax” and will be levied on multinational companies judged to have shifted profits overseas to avoid tax. At 25%, the levy would be higher than normal company or corporation tax, which is 20%. The UK reports have named Starbucks, Google, Facebook, Amazon and Apple as being among the multinational targets of such a tax. The reported tax is clearly an election policy move for the UK government with the looming May 7 election encouraging quite a few changes from the normally conservative administration of Prime Minister David Cameron. The Conservatives might be ahead in the polls, but they have no chance of winning government by themselves, which means Cameron might depart, leaving Osborne as the heir apparent. — Glenn Dyer
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