Cranes and other things lift the markets

APAC-News-Crane-Above-Martin-Place-Sydney-RLB-Australian-Crane-Index

The number of cranes across Australian cities remains at a high level with the strength in Sydney and Melbourne

More cranes above city skylines point to economic activity as other market indicators show positive signs  

25 October 2019

AMP Capital’s Shane Oliver is looking to the skies this week, counting the number of cranes, saying it’s a positive pointer of activity in construction, which, of course feeds into the rest of the Australian economy. The latest RLB Crane Index Report, a measure of the total number of cranes erected across Australia, has found that metric of building activity remains strong.

Research firm RLB (Rider Levett Bucknall) reported 757 cranes across Australia’s major cities in Q3, up from 735 in Q1. The majority, 68.2 per cent, were employed in residential construction. The report concluded, “There were no cities within the index that recorded crane falls in the double digits, a sign that the industry has not yet entered into the economic cycle of falling demand as predicted by some.

“One hundred percent of cranes removed from completed developments were placed back into the industry on new developments.”

Oliver says, “The number of residential cranes in Sydney and Melbourne remaining high indicates that there is still a lot of unit supply to hit the market…(however) falling approvals point to a reduction in cranes doing residential apartments ahead though and an eventual sharp drop in new supply.”

RBA holds its line

On the direction of the RBA and interest rates, Governor Philip Lowe’s recent comments have created a bit of market uncertainty. “It’s doubtful he really said anything new,” reports Oliver, “Growth is likely to remain subdued and below trend for longer than the RBA is allowing. This will keep unemployment higher for longer and wages growth and inflation below target for longer. Our view remains that further rate cuts and monetary stimulus are likely.”

Australian data was soft. Skilled vacancies fell again in September for the ninth month in a row and are down 7.1% from a year ago pointing to a slowing in jobs growth ahead. The CBA’s business conditions PMIs fell back in October led by services with the composite falling to 50.7 and leaving it in the same softish range it’s been in all year.

The past week saw major share markets push higher helped by generally good US earnings reports, benign geopolitical news and optimism that global recession will be avoided. US and Eurozone shares rose 1.2%. Japanese shares gained 1.4%, Chinese shares rose 0.7% and Australian shares gained 1.4%. US shares are now just 0.1% below their July record high and Australian shares are just 1.5% below their July record high.

Australian shares benefitted from the positive global lead with strong gains in resources, utilities, consumer discretionary, health and property stocks. Bond yields rose in most major countries except in Australia. Oil, metal and iron ore prices rose but the Australian dollar fell slightly.

US earnings and trade talks generally positive

US September quarter earnings results are reasonable so far. About 40% of S&P500 companies have reported to date, with 82% beating earnings expectations by an average of 4.3% and 63% beating on sales. Consensus earnings forecasts for the quarter have increased to -0.8% year on year (from -3% two weeks ago) but are likely to end with a small positive.

While the news on the trade front was generally favourable over the last week with the US saying it’s close to finalising some aspects of its “phase one” trade deal with China and more from Trump about talks “doing very well with China” and “they want to make a deal very badly.

There has been lots of Brexit noise over the last week and there is still room for a stuff up (what’s new?). A no-deal Brexit is looking unlikely in the short term, however, this does not mean that it won’t happen at the end of 2020! If Johnson’s Brexit deal gets up as appears likely it’s no guarantee that there won’t be a hard or no-deal Brexit down the track. In other words, the Brexit comedy is far from over. 

The data above and comments are edited from AMP Capital Chief Economist, Dr Shane Oliver’s weekly market report.

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