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.
[CSSBUTTON target="https://ems.gluskinsheff.net/index.ncl.html" color="002266" textcolor="ffffff"]Sign Up for David Rosenberg's Market Musings Newsletter[/CSSBUTTON]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.
