Australian Economy

Commonwealth Bank CEO Ralph Norris, speaking at yesterday's American Chamber of Commerce in Australia luncheon in Sydney, has said that funding costs were to remain high. "All of the banks have a significant portfolio of debt that has been borrowed at lower rates, prior to the start of the crisis, which has continued to roll over at higher rates.

Businesses are looking bleak. Small and medium enterprises are the worst hit with the ongoing credit crisis around the world. According to the industry survey rising fuel prices, drop in consumer spending, rising inflation and the on-going world wide credit crisis has market a dent in sale and profits figures of the company.

Here's an update on Australian real estate. The "Australian Mortgage Industry Report", a joint research whitepaper by JPMorgan and Fujitsu Consulting, due to be published next month, makes the prediction that some 750,000 Australian homeowners will be subjected to "mortgage stress" in the coming months - which means more than 35 per cent of their income will be allocated to home-loan repayments alone.

Peter Costello, the Australian treasurer put out another warning yesterday at a Committee for Economic and Development of Australia lunch in Sydney. Costello said that "Those investing in resources stocks could end up being burnt, like those who invested heavily during the global information technology boom in the late 1990s. When you get into the middle of these booms - the property boom, the tech boom, the resource boom - the tendency is always to think it will last forever, but none of them do. This boom, like all booms, will come to an end. If you put all your eggs into resource companies you will be in as bad a situation in a couple of years' time as people who put all their eggs in the tech basket." Maybe he was trying to protect mum and dad investors hyped about the booming resources market and the spectacular returns being achieved in the market at the moment. Of course this is sound advice for the general public. But for people conducting share trading like us - this advice should not concern you too much. If you have proper risk management strategies in your stock trading plan then you should not worry too much about this downturn. In fact you should be looking forward to shorting opportunities.

The Australian Bureau of Statistics (ABS) found that total personal finance commitments lifted 2.1 per cent to an adjusted $6.490 billion in February - following a 3.6 per cent increase in January. This could be translated in a consumer confidence in the economy. This may be attributed to an unemployment rate at a 29 year low of 5 per cent and job advertisements at record levels.

Like all booms - they all must come to an end. And the Australian Federal Treasurer Peter Costello has warned that the boom will not last. "This won't last forever; it never does," Mr Costello told ABC radio. Australia's economy has recently been riding on high worldwide oil, mineral and commodity prices.

A surge in imports took Australia's trade gap with the rest of the world to $2.5 billion in November. But much of the blame for the ballooning deficit has been placed on a glitch with a new Customs computer program which created a backlog of imports. Figures from the Australian Bureau of Statistics (ABS) on Tuesday showed the trade deficit for November grew $1.1 billion to $2.47 billion, the 44th consecutive monthly trade deficit. The value of exports inched up one per cent to $15.12 billion, while imports jumped seven per cent to $17.59 billion.

In the view of UBS, 2006 will be a story of two halves for the Australian economy, where the first six months is likely to produce better results than the second six months.

The broker expects the current moderate recovery in economic growth to continue for the next few quarters, but the fact high commodity prices have been masking issues for the domestic economy is likely to be revealed in the December half next year.

The Australian dollar opened nearly one US cent higher on Tuesday as weaker-than-expected US economic figures underpinned the gains.

However, the local unit's moves are expected to be capped by a slew of data releases this week.

At 7am (AEDT), the local unit was trading at US74.30¢, compared with Monday's close of US73.40¢.

Overnight, it reached a low of US73.23¢ and a high of US74.53¢.

Westpac Bank senior currency strategist Richard Franulovich said the weaker-than-expected US home sales figures boosted the Australian dollar.