David Rosenberg: Canada and Australia in the China Context

Tuesday, November 3rd, 2009

In today’s ‘Breakfast with Dave’ newsletter, David Rosenberg shares some interesting facts about key differences between Canada and Australia in the context of China’s growth, as well as an update on commodities and markets.

After yesterday’s wild ride in the U.S. equity market (and inability to hang on to the immediate post-ISM surge), investors are continuing to lock in profits today. Stock markets are down practically everywhere - by -1.6% in Asia (though Japan was closed for a holiday) and -2.0% currently in Europe. U.S. futures, at the time of this writing, are down sharply.

Commodities are off as well although gold has managed to hold onto most of its gain posted after the news came out that India’s central bank purchased 200 metric tons of the yellow metal from the IMF. The dollar has broken out this morning - to the upside - and the DXY index has actually firmed above its 50-day moving average. French officials came out today, by the way, and suggested that the recession in fact may not be over.

… the Reserve Bank of Australia hiked rates 25bps yet again, to 3.5% (this time it was expected by 18 of the 22 economists who follow Australia and the other four were thinking 50bps). The fact that the Aussie dollar has pared its gains after the rate hike is akin to the U.S. stock market doing likewise yesterday after the ISM came out. It is called the “sell the fact” syndrome, which is different than buy “green shoot hope” from March to September.

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While every country cut rates in tandem during the crisis, central banks will be marching to the tune of their own drum when it comes to tightening and so it would likely be a huge mistake to compare Australia to anyone else - especially given the massive fiscal stimulus there and the enormous link (especially compared to Canada) the country has to the accelerating growth being posted in China right now. Remember - only 3% of Canadian exports go to China; 75% head for the U.S.A. By way of comparison, 24% of Australian outbound shipments are destined for the hot Chinese economy while only 6% go to the U.S.A. In other words, relative to Canada, Australia enjoys 8x the Chinese exposure and has only 1/12th of the orientation to the much softer U.S. consumer market.

Tags: Aussie Dollar, Bank Of Australia, Canada, Canadian Exports, Central Banks, China, Commodities, David Rosenberg, Dxy Index, Emerging Markets, Fiscal Stimulus, French Officials, Gold, Imf, India, Interesting Facts, Ism, Metric Tons, Rate Hike, Recession, Reserve Bank Of Australia, S Central, Stock Markets, U S Stock Market, Wild Ride
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Commodities Performance in 2008

Sunday, December 28th, 2008

Commodity price performance has been a wild ride in 2008. The record of price movement is outlined in the table and chart below. For each commodity, the table details year-to-date (YTD) %-age change, drop from 52-week high, and start of year to the 52-week high.

Oil has had the roughest ride falling 62% YTD, 75% from its 52-week high, and preceded by a rise of 53% to its 52-week high. This was followed by Copper, Platinum, and Natural Gas, which had a meteoric rise to its 52-week high of 83%.

Most of the commodities, save Gold, have behaved in kind, thanks to the long-only commodity indices like GSCI which enabled investors of all kinds to invest naked in long-only baskets of commodities. They all went up together, and they all came down together. Platinum and Silver, the other two precious metals dropped along with other commodities, while Gold resumed its dual status as favoured currency and store of value during periods of turmoil.

Commodities are indeed more volatile than stocks. When, and if, we see the return of expansionary and/or inflationary (or worse, hyper-inflationary) conditions, however, these will be a key asset class to allocate to. With all of the printing presses at the Fed whirring right now, some would say its inevitable.

Tags: Array, asset class, Baskets, Commodities, Commodity Indices, Commodity Price, Copper, Currency, Dual Status, Gsci, Investors, Kind Thanks, Meteoric Rise, Natural Gas, Periods, Platinum, precious metals, Price Performance, Printing Presses, Table Details, Turmoil, Wild Ride
Posted in Commodities, Gold, Markets, Oil and Gas | No Comments »