Sunday, June 14, 2009

Australian & New Zealand Weekly : Strong views from our Offshore customers

Week beginning 15 June 2009

  • Strong views from our offshore customers
  • RBNZ faces 'hard sell' to keep markets from pricing in tightening
  • Australian data: leading index, Westpac-ACCI survey previewed
  • US: Empire & Philly Fed surveys due - the original 'green shoots'
  • Other US data includes May inflation, housing starts and IP
  • Key economic & financial forecasts.

Over the last two weeks I have been visiting offshore investors in London and Europe.

There were some very clear messages that came out of my meetings.

Probably the most important message was the almost unanimous conviction of the hedge funds (those that have survived of course) that 'risk seeking' trades were the way to go for the foreseeable future. The dominant catalyst is the strong conviction that the recent growth recovery in China is sustainable and will build. The view on the US was that the data had turned and was either improving or at least deteriorating at a slower pace and that steady progress could be expected, while the problems with the US financial sector had been essentially fixed.

The risk seeking trades fall into a neat suite of strategies: buy credit; buy commodities; buy equities; buy commodity currencies; sell USD; sell bond markets in countries that benefit from rising commodity prices; sell US bonds but sell the spread between AUD bonds and US bonds.

There were considered to be self reinforcing opportunities for the 'buy commodities' trade - firstly China's growth momentum would create rising demand while gradual improvement in G3 would play a supporting role; secondly the falling USD would support commodity prices.

The main source of pressure on the USD would be the difficulties experienced with the US government's task of covering the sharp increase in supply of bonds. Yields would rise and the yield increase would be exacerbated if the Fed increased its quantitative easing by accelerating its purchase of bonds. The yield increase would not be enough to attract investors and there would have to be an associated fall in the USD to clear the overhang.

Further difficulties in clearing the bond overhang were the redirection of funds into credit and the sheer reduction in available pools of investable funds as valuations had collapsed. There was, surprisingly, little strong conviction from the USD bears that it would lose its reserve currency status and Asian investors would diversify out of USD's.

A key factor behind this hedge fund enthusiasm was the recent substantial improvement in their access to credit. The Lehmann disaster and the associated dislocation of prime broker arrangements had severely limited hedge funds' access to credit and this had only really eased significantly in the last 2 months.

The real money managers were generally no where near as confident about the risk seeking trades. They were more circumspect on the China story and certainly more concerned about the ability of the data in the US and particularly Europe to justify the speed with which equity markets had rallied; credit spreads had contracted; bond rates had risen and curves had steepened. Concerns with the US consumer and the European banking system were common areas of discussion.

It is also reasonable to argue that there will be some 'automatic stabilisers' that ensure commodity prices (particularly oil) and bond rates cannot move too much further. Sharply higher bond rates will undermine the fragile improvement in the US housing market while rising oil prices will reduce the discretionary spending capacity of the consumer. Long consistent upward movements in bond yields and commodity prices can only be sustained in a robust economy that can withstand the associated feedback effects - the global economy in 2009 and (probably) 2010 does not fit that description.

Concerns with the impact of the inadequate capital base and likely further writedowns of the European banks dominated discussions. The preferred trade of many of these managers was to go long European bonds - clearly implying a much more relaxed attitude towards the likely scope for US Treasuries to increase in yield. However there was a real indication of frustration amongst these investors implying that they had missed the successful risk seeking trades - particularly in credit.

One European manager summed it up by noting that his customers had lost in equities; then switched too late to bonds and lost; and he was now set to move them into credit with potentially disastrous results.

My assessment is that this risk seeking style of trading has some way to run as these 'late comers' ensure that the momentum is extended well beyond the capacity of the underlying economies ( including China) to justify pricing. However when it turns the move will be sharp and painful as the economic momentum points to no inflation pressure (falling wages; low capacity utilisation in labour and capital); disappointing growth; and further concerns with bank balance sheets, particularly in Europe.

Those real money managers who had entered the risk seeking trade early are now adopting a much shorter time frame for holding positions. Over the years my experience with these people has been for them to be patient with short term adverse movements in positions. However the poor performance of fund managers over the last few years has given them less latitude to hold positions which have move against them. That suggests that if we are right and the underlying weakness of the economy eventually signals a reversal of the risk seeking trades then there will be less 'stable' hands than in previous market reversals.

One well respected risk manager takes a much more bearish position than the real money managers. He argues that the deterioration in the US economy will have a much bigger negative impact on the 'hold to maturity' loans on bank balance sheets than is currently estimated by the banks in both US and Europe. A sharp increase in write downs probably timed for the fourth quarter of 2009 would precipitate a new highly damaging round of financial sector concern with devastating implications for the risk seeking trades. This approach seems too bearish to me although I can only note the strong record of this 'recalcitrant' in the past.

Attitudes toward Australia

Of course Australia sits at the top of the economies that fit into the risk seeking investment mode. Buy the AUD; buy commodities; sell Australian bonds and swaps; and buy Australian credit - particularly floating rate government guaranteed bank issues which are generally heavily oversubscribed.

Hedge funds in particular argue that Australians are way too pessimistic about growth prospects in their own economy - the RBA's so called easing bias is not taken too seriously. Investors compare the approach of the RBNZ which opined that rates may have bottomed only then having to deal with a sudden increase in fixed rates as traders and retail borrowers started bringing forward the timing of rate hikes. In order to discourage any further steepening of the front end of the curve (therefore implying early rate hikes) the RBNZ issue a statement that it did not expect to raise rates before the end of 2010 - the sort of guidance RBA would be very unlikely to ever contemplate. However, maintaining a serious easing bias (with potentially little intention of delivering on it) might be designed to achieve the same objective.

Unfortunately that easing bias does not sit particularly logically with consistent speeches and emphases on 'talking up' the economy. The net result has been that, consistent with the risk seeking trade, (sell bond markets in commodity economies) markets are now pricing in around 200bps of rate hikes in 2010 by the RBA.

Customers complained that Australian brokers were promoting the 1 year /1 year long trade when only 100bps of rate hikes were priced into the curve out to end 2010 - very unattractive given the subsequent steepening.

Needless to say, my view that rates were unlikely to rise at all in 2010 was treated with disbelief by the risk seeking traders and the common criticism was that Australian's were too pessimistic about their own economy which surely in the eyes of the risk seeking traders was a classic to buy the currency and sell the bond market.

I expect that my careful arguments about sharply increasing unemployment, falling inflation and the potential for increases in mortgage rates by the banks independent of RBA (since vindicated by CBA's move to raise its variable rate 10bps) might soon have an impact on even the risk seekers as the short end of the curve reaches ridiculous levels from the perspective of the implied path of monetary policy.

No doubt these risk seekers will have derived some satisfaction from the extraordinary jump in Westpac's Consumer Sentiment Index this week (second largest jump since survey began in 1974); and the loss of only 1700 jobs in May compared to market expectations of 30,000 (range of market forecasts from 15,000 to 50,000 losses).

Our view is the likely demise of the risk seeking trade as the data can not keep pace with the pricing. We are supremely confident that the extent of rate hikes currently being priced into the curve will prove to be wildly exaggerated but given the momentum of the risk seeking trades can not necessarily call that market pricing on rates has already peaked.


Market thinking is currently dominated by the 'risk seeking' trade either by those in the trade or those who angst about being left behind. That situation is likely to persist for some weeks/months until inevitably (I believe) the pace of economic recovery will not match market expectations. At that time look for a substantial market correction and a reversal of the risk seeking trades.

Implications will be more realistic pricing of the likely RBA response (no hikes in 2010) and a lower AUD.

Australia: Data Wrap

May ANZ job ads

  • Total job ads fell 0.2% in May after a 7.5% fall previously, their 13th consecutive fall although the smallest fall over that period, hinting at some stabilisation. However, total trends remained in sharp decline at -5.6%mth and -50.5%yr (vs -7.1%mth and -47.9%yr prev), the weakest annual pace on record (on Westpac estimates back to Jul-1983). In the 1990-91 recession, annual trend growth bottomed in Dec-1990 at -49.8%yr.
  • With job ads a flow variable but employment a stock, it makes more sense to look at trends in the level of total job ads as a predictor of future employment growth. We compare that level of total job ads to their longer run trend (expressed as a % deviation from trend) as a seven month lead for annual employment growth. On this basis, with the trend in ads still falling despite the headline stabilisation this month, the current level is a % deviation from trend of -42.3% (vs -39.3% prev), the weakest since October 1991, approaching the 1990-91 recession low of -52.5%. This is a level historically consistent with jobs growth deteriorating towards -2%yr by end-2009.

May NAB business survey

  • Business conditions deteriorated by 4.2pts to -14.2, a reading that still points to contracting domestic demand. The index has, with month to month volatility, trended sideways since falling sharply last October. Trading conditions deteriorated from a relatively favourable level and the employment index weakened by 6.8pts to -24.6.
  • Despite this, overall business confidence became markedly less negative in May, with the index rising 11.6pts to -2.0, the best reading since February 2008.
  • By state: Qld & WA reported the weakest conditions, followed by Victoria. SA, while reporting poor conditions, was the best of the major states. NSW was the second best.
  • By industry, a trend improvement is apparent in retail (benefitting from the cash handouts to households) and mining (benefitting from a rise in global commodity prices and strong demand from China). Construction and manufacturing both deteriorated marginally and remain the weakest sectors.

Jun Westpac-MI Consumer Sentiment

  • The Westpac-Melbourne Institute Index of Consumer Sentiment rose by 12.7% in June from 88.8 in May to 100.1 in June. This is a truly remarkable result. It is the second largest recorded increase in the Index since the survey began in 1974 and the largest increase in the last 22 years.
  • It is very likely that the dominant factor behind this extraordinary rise was the release of the March quarter GDP data which was widely hailed in the media as indicating that Australia had avoided a recession (defined as two consecutive quarters of negative growth).
  • The significance of the word 'recession' to consumers was previously highlighted in 2001 when the Index fell by 13.2% following the release of the December quarter 2000 national accounts which showed negative growth then snapped back with an 11.6% jump when March quarter data showed the economy rebounding.
  • As such, we warn that the positive reaction in June is probably premature. The March quarter national accounts still portrayed a very weak economy with domestic spending falling by 1%. Indeed, we expect GDP to register consecutive negative quarters of growth through the middle of the year, re-establishing the 'recession' label. This points to a significant potential negative shock to sentiment when the June quarter GDP figures are released in September.
  • Nevertheless, the Index is now at its highest level since January 2008. Four of the five components of the Index increased in June, led by economic expectations: "economic conditions over the next 12 months" up by 37%; "economic conditions over the next 5 years" up by 20.2%. Assessments of family finances were also strong with "expectations of family finances over the next 12 months" up by 11.1% and "family finances vs a year ago" up by 8.1%. The only component that fell was "time to buy major household items" which was down by 1.6%.
  • However, with purchases of housing and vehicles seen as the most cyclical components of expenditure there was further good news on "Time to Buy a Dwelling" and" Time to Buy a Car " indices. The former is up 2.5% since March and now 80% since last June, while the later is up 8.7% since March and 51% increase since last June.

Apr housing finance

  • The number of loans to owner-occupiers increased by 0.9% in April. That was a solid result, building upon recent strong gains. New lending to owner-occupiers, increasing for eight consecutive months, is up 32% from the low of last August. Households are responding strongly to the lowest variable mortgage rates since 1968 and to the boost to the First Home Buyer Scheme.
  • Investors had been the missing element in the housing recovery to date, with tighter lending standards a headwind. The April figures suggest investors have moved back into the market with the value of finance to investors up 8.9% in the month, to be up 15% from the low of February.
  • Another positive is that finance to owner-occupiers for the construction of new dwellings increased yet again. Lending for this was up 1.3% in the month and has surged by 43% since the November low. The rise is also reflected in private new dwelling approvals (up 20% over the three months to April), with housing construction clearly set to add to growth during the 2009H2.
  • Lending to first home buyers increased further in April, up an estimated 3.4%, to be 85% above the level of last August. FHBs now account for a record 28% of loans. Upgraders are also responding to the historically low interest rates, with lending to this segment up 16% so far this year, despite a 1.1% dip in the month. We expect upgraders to become a more dominant driver of the housing finance upswing - with lending to this segment still well below historic highs.
  • The fundamentals remain supportive of further rises in housing finance, namely; pent-up demand for housing, strong population growth and the dramatic improvement in affordability from extremely low interest rates. While unemployment is set to rise history shows that the interest rate sensitive housing sector continues to recover. However, what makes this cycle different, is the potential threat from pressure on bank funding costs.

Jun WBC-MI unemployment expectations

  • Consumers' unemployment expectations recorded their 4th consecutive fall in June, affirming their recent downtrend from their Feb peak. Moreover, it was a sizeable fall in June, with the unemployment expectations index dropping 7.9% to 159.87 after a 1.0% decline previously. This leaves the index down 12.7% from its peak. The index has now been trending lower since February, with trend growth now -2.0%mth and +28.6%yr (vs -2.0%mth and +33.9%yr previously). The trend deviation from the full history average has also edged lower over the last three months, to 34.8% in June from 40.6% in May, the lowest since December 2008. However, this is still above the peak of the 1990-91 recession (31.2%) and on par with the peak of the 1982-83 recession (35.3%), and remains consistent with a rapid deterioration in jobs growth over 2009 to around -2%yr, consistent with our forecasts.

Jun MI inflation expectations

  • Consumers' inflation expectations bounced in June, with the median expectation rising from 2.3% to 2.8%, the highest since November 2008. This was sufficient to reinstate a mild uptrend in expectations from the March low, rising to 2.48% in June from 2.40% in May, the highest since January. The median expectation of managers and professionals bounced to 2.6% from 1.6%, also reinstating an uptrend from the April low, rising to 2.06% in June from 1.95% in May, the highest since January. The trend net balance expecting higher prices overall rose to 55.6% from 51.9%, up from a low of 44.0% in February.

May employment and unemployment

  • Total employment proved more resilient than expected in May, falling only 1.7k after a downwardly revised 25.4k rise previously. This result was stronger than all forecasts, which ranged from -50k to -15k (consensus -30k).
  • However, the underlying trends in employment continued to deteriorate. Trend total employment fell for the 6th consecutive month, and annual trend growth fell to +0.14%yr from +0.24%yr previously, the weakest since May 1993.
  • Additionally, the breakdown was weak this month, sufficient to continue the more rapid deterioration in full-time employment trends. Full-time employment fell 26.2k after a 47.2k rise previously, the 7th fall in the last 10 months. The resilience in total employment was explained by a 24.5k rise in part-time employment suggesting employers are reducing utilisation of existing labour and reducing hours worked - a negative for income growth beyond the downtrend in total employment.
  • The participation rate rose to 65.5% from 65.4% previously, pushing the unemployment up sharply as expected. With the unemployment rate rebounding to 5.7% from an upwardly revised 5.5% previously, the uptrend in the unemployment rate has continued: rising also to 5.7% from an upwardly revised 5.6% previously, the highest trend rate since December 2003 and up from a low of 4.1% in April 2008.
  • While lead indicators of labour demand are showing signs of bottoming out, there has yet to be sufficient improvement to signal a turn in the employment outlook. We retain our view for jobs growth to deteriorate towards -2%yr at end 2009, lifting the unemployment rate towards 8%.

Round-up of local data released last week

Date Release Previous Latest Mkt f/c
Tue 9 May ANZ job ads -7.5% -0.2% -
May NAB business survey -10.0 -14.2 -
Wed 10 Jun Westpac-MI Consumer Sentiment 88.8 100.1 -
Apr housing finance 4.9% 0.9% 1.6%
Thu 11 May employment chg, '000 25.4k -1.7k -30k
May unemployment rate 5.4% 5.7% 5.7%
Jun WBC-MI unemployment expectations -1.0% -7.9% -
Jun MI inflation expectations 2.3% 2.8% -

New Zealand: Week ahead & Data Wrap

Down so long, feels like up

The RBNZ left the cash rate unchanged at 2.50% this week, which was seen by financial markets and most domestic forecasters as the most likely outcome. The RBNZ repeated the message from the April OCR review that further modest rate cuts are possible (though not their central view), and that the cash rate is expected to remain at or below the current level until the latter part of 2010.

The RBNZ noted that the economic outlook is weaker than in their March Monetary Policy Statement, and with substantial risks to the downside. But they now seem to be more convinced by the extent and sustainability of the 'green shoots' in the economy, in the form of a stabilisation in activity indicators offshore (particularly in Asia) and a pickup in housing and net migration in New Zealand. In fact, a large portion of the MPS was devoted to teasing out the extent and sustainability of the eventual recovery. This focus on the next cycle might seem premature to some, but it's consistent with the RBNZ's focus on activity and inflation pressures one to two years ahead.

Their interest rate projections were markedly different from the March MPS. The 90-day rate is expected to remain around the current level of 2.8% until late 2010 - they had said as much in the last two OCR reviews. The more notable change was that the following tightening cycle is projected to be extremely slow, with 90-day rates only reaching 4% by early 2012. This is clearly a message aimed at financial markets to keep a lid on short-term wholesale rates, where recent OCR cuts have been most effective.

The recent tightening in financial conditions remains a bugbear for the RBNZ, although long-term interest rates came in for less attention than in April. The press statement noted that "although rising longer-term interest rates overseas are placing upward pressure on longer-term lending rates here, there is room for further reductions in shorter-term lending rates" - a statement that serves double duty as a nudge to banks to pass on more of the recent OCR cuts, and as a reminder to borrowers that short-term fixed mortgage rates are the cheapest point on the curve at the moment and are likely to remain so for some time.

The strength of the New Zealand dollar received more attention - although 'strength' is a relative concept, as the trade-weighted index is still a touch below its long-term average. The issue is whether currency markets have moved too far ahead of the recovery in the real economy, to the extent that a stronger currency could stifle a recovery in exports.

We'd argue that if the market is correct in anticipating a pickup in global demand, a higher currency won't provide a complete offset, whereas if market optimism is overdone then it will reverse of its own accord. The only problem would be if the currency remained strong while the global economy remained weak - an inconsistent mix that's unlikely to be sustained for long. Yet it seems to be incorporated into the RBNZ's central view anyway: "The concern that a premature tightening in financial conditions could undermine the recovery is one of the reasons why we expect the OCR to remain around current levels until the latter part of next year."

The RBNZ's real fear, as detailed in an alternative scenario in the MPS, is that a stronger NZD presages a return to the economic imbalances of recent years: rising house prices driving an increase in household spending, while a stronger currency hammers the export sector. We think it's a valid concern - little has happened since the credit crisis to alter the relative appeal of debt-fuelled consumption versus saving and investment - and keeping interest rates at record lows for the foreseeable future certainly wouldn't help to address the balance.

The RBNZ believe they are done with the 'big picture' phase of the easing cycle, though they retain the option of further tactical rate cuts if needed. The difficulty they now face is communicating the message to the market that an improving economy doesn't equate to rate hikes. Rising unemployment and lower capacity utilisation mean that the RBNZ are a long way from having to worry about any substantial inflation pressures building in the domestic economy. Their forecasts see GDP running at more than 4% below potential over the next year, and even with strong growth in later years, the economy isn't expected to close this gap before 2012.

The market reaction to the MPS suggests that this message will be a hard sell: two- to five-year swap rates rose by more than 30bp on the day. Markets are now pricing in up to 200bps of tightening by the end of next year, taking their lead from a similar trend overseas. Inevitably this will lead to calls for the RBNZ to 'do something', such as cutting rates again to send a message to the market. While we are leaning towards further cuts this year, we think they would need to be justified by the fundamentals. Lowering rates, simply to send a message that rates aren't going up, seems futile and potentially risky - it's just as likely to be viewed as something that will need to be unwound in the near future. The RBNZ would be better served by maintaining their 'no hikes' message, and in the meantime trying to steer the public debate away from growth and back towards inflation - specifically, the lack of it.

Round-up of local data released last week

Date Release Previous Latest
Tue 9 Jun Q1 building work put in place -6.1% -0.7%
Wed 10 Jun Q1 terms of trade -1.0% -3.0%
May electronic card transactions 0.8% 0.7%
Thu 11 Jun RBNZ OCR review 2.50% 2.50%
May REINZ house prices %yr -1.4% -2.2%
Fri 12 Jun Apr retail sales -0.4% 0.5%
May food prices -0.6% 0.3%

Data Previews

Aus Apr Westpac-MI Leading Index

Jun 17, Last: -5.1% annualised

  • The annualised growth rate of the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was -5.1% in March, well below its long term trend of 2.8%.
  • All monthly components improved in April: equity markets continued to rally (ASX up 5.5%); dwelling approvals also posted another solid 5.1% rise in the month; money supply growth rebounded with a 1.1% rise after a flat March; and even US industrial production registered a smaller decline, down just 0.5% compared to the 1.7% drop in March.
  • The April Leading Index will also incorporate series from the Q1 national accounts. The better than expected positive result saw improvements in the components that feed into the Index with corporate profits down a milder 0.3% (vs -7.5% in Q4) and productivity rebounding after two quarterly declines.

Aus Q2 Westpac-ACCI Survey of Industrial Trends

Jun 18, Last: Actual Composite Index: 34.0

  • The Q1 Westpac-ACCI Survey showed a further fall in the Actual Composite Index to 34.0 (lowest since 1991Q2) from 40.4, consistent with a sharper contraction in manufacturing activity, amidst a backdrop of deteriorating global growth and trade, weak domestic demand and constrained finance. The Labour Market Composite net balance plunged 17pts to -33 implying a rapid fall in jobs growth through 2009. Perceptions of labour market tightness fell to a level consistent with a rise in unemployment above 8%. The net balance reporting finance as 'harder to get' remained at its highest since 1974. Business confidence (-61%) was steady at a more than 18 year low.
  • The June quarter survey (concluded week ended June 12) will provide an important update on how conditions, expectations and confidence have fared in Q2 amidst emerging "green shoots" of a recovery in global demand.

US June NY and Philly Fed surveys

Jun 15, New York Fed: Last: -4.5, WBC f/c: -8.0

Jun 18, Philadelphia Fed: Last: -22.6, WBC f/c: -15.0

  • These surveys helped kick off the now ubiquitous "green shoots of recovery" story in March-April, though the reality is that despite the recent higher readings (sharply higher in the case of the NY Fed), both remain at levels consistent with declining output, albeit at a slower pace than in Q1.
  • Without local agents on the ground it is difficult to forecast these regional surveys of just 100 business people. However, if they accurately reflect what we suspect is actually going on in the economy - ie it is still contracting, but at a moderating pace - then the most likely outcomes would be a modest pull-back in the NY Fed, but a further improvement in the Philly Fed index.
  • These outcomes would be broadly consistent with the subdued May factory ISM (whose survey period overlaps with the regional June surveys), which rose from 40.1 to just 42.8.

US May inflation indicators

Jun 16, PPI headline Last: 0.3%, WBC f/c: 0.9%

Jun 17, CPI headline Last: 0.0%, WBC f/c: 0.4%

  • The headline PPI peaked at 9.9% yr in July 2008 but turned negative in Dec and was down -3.7% yr in April. The monthly PPI fell from Aug to Dec last year, but has been volatile around a flat trend so far this year. In May, an upswing in energy prices will push the PPI headline higher, but the core rate should be constrained to 0.1% by discounted auto prices. Our 0.9% PPI headline rise would see the annual rate fall to -4.3% yr.
  • The annual CPI turned negative in March and April, and the monthly data resumed modest declines after a temporary spike in Jan-Feb. In May, a 20% jump in retail gasoline prices will be the key driver of the 0.4% rise we forecast for the headline CPI, while the core rate is expected to round to 0.2%, not up to 0.3% as it did in April. Auto price discounting should also be a feature.

US May housing starts and permits

Jun 16, Starts: Last: -12.8%, WBC f/c: 6.0%

Jun 16, Permits: Last: -2.5%, WBC f/c: 2.0%

  • On a range of indicators, housing has shown tentative signs of bottoming out after several years of tumbling prices and activity. Single family house starts have not posted a fall since January, although total starts fell in March and April due to steep falls on the multiples side, reversing a 66% Feb gain.
  • Single family housing permits posted gains in Feb and April more than offsetting their Mar decline - further evidence of bottoming out. Indeed Apr's single family permits annualised pace of 373k was a little higher than starts on 368k, suggesting a starts gain in May. Add in a multiples bounce for a 6% total starts rise.
  • With homebuilder confidence rising sharply in April-May from its record lows in Q1, it follows that more permits to build may have been sought. We expect a 2% rise, though ongoing multiples volatility could distort the picture.

US May industrial production to drop again

Jun 16, Last: -0.5%, WBC f/c: -1.0%

  • Industrial production posted declines of between 1.0% and 2.2% between November and March, although in April the slippage moderated to 0.5%, consistent with survey evidence pointing to a slower pace of decline in factory output and indeed the broader economy.
  • Indications ahead of the May result, however, suggest that the pace of industrial contraction probably steepened again. Hours worked in factories fell 2.1% last month, and primary industries and the utilities also recorded falling hours.
  • That said, the May factory surveys generally showed an improved (but still negative) production reading, and factory orders, especially for durables, rose in April. These factors point to a decline in industrial production of around 1.0% in May.

Westpac Institutional Bank


All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.