Dollar bites. Was it the Aussie dollar rising over 81 US cents overnight? Or was it more the fact that the greenback sank to a three-month low against its major trading currencies after US retail sales all but stalled in April (rising just 0.1% on a core basis with fuel stripped out)? Whatever the reason, it has underlined just how frustrating the currency continues to be for the Reserve Bank, which believes it should be at or under 70 US cents. The RBA and others in the official family of economic overseers might worry about the Sydney property and investor-driven housing boom unbalancing the economy and financial system but, very quietly, the resilient Aussie dollar has been wreaking its own brand of economic and financial havoc on earnings, jobs, exports and growth. The dollar’s rise underlines how monetary policy (specifically the two rate cuts this year) has lost much of its bite, and why Stevens and the rest of the central bank want governments of all types to run an expansive fiscal policy — which Tuesday night’s budget won’t, not with its forecast of the 2015-16 deficit to hit $35 billion. Joe Hockey and his master are out spruiking the $5.5 billion package to small business as evidence of their commitment to boosting the wider economy — and this should, in part. But the larger fall in the forecast size of the deficit, and the lack of any boost to new infrastructure spending in the budget will detract from growth, as will the continuing record slide in wages and the strong dollar. — Glenn Dyer
Memo Qantas. As the airline ponders whether to restart dividends (unlikely, given the lack of franking credits) or run a buyback to reward long-suffering shareholders, Qantas has a couple of examples in the US airline industry to follow. Both Delta and Southwest announced overnight boosts to dividends and buyback programs. The announcements came several weeks after they both reported solid rebounds in earnings — in Delta’s case, earnings tripled to US$746 million. The airline industry is rolling in cash, thanks to the slide in oil prices (which, it has to be pointed out, has halved with the recent rebound in prices). So Southwest (which is the global model for discount airlines) lifted its annual dividend by 25% to 30 cents a share, and announced a buyback of US$1.5 billion. A few hours earlier, Delta revealed plans to boost its quarterly dividend 50% to 13.5 US cents a share, and lifted its buyback from US$2 billion (it finishes in June) to US$5 billion. — Glenn Dyer
US blinks, Saudis win oil battle. In oil, it’s Saudi Arabia that has led Gulf producers in boosting production, not cutting it as world oil prices fell in late 2014 and earlier this year. They are still doing that, but US producers, especially those from the new shale-oil regions — who were full of hot air earlier about how they would blow OPEC out of the market — are now cutting, cutting, cutting. Overnight, the International Energy Agency (IEA), the global energy overseer, pointedly said that America’s oil producers appear to have lost their battle with OPEC over market share. OPEC added nearly 1 million barrels a day in production in April.
The IEA said that OPEC’s fightback against the re-emergence of the US as a major oil producer, had only just started: “The move by the group’s core Gulf members last November not to cut production in defense of prices was only the first step in a plan that includes actually ramping up output and aggressively investing in future production capacity.” Kuwait, Saudi Arabia and the United Arab Emirates are raising their rig counts, and Iraq and Libya are continuing to increase production, the IEA highlighted. Iranian supplies have also hit their highest since July 2012, it said in its monthly oil report. The message is there for BHP, Rio Tinto, Fortescue and Andrew Forrest, and Australian governments: don’t blink. If you do, others will take your market share. Twiggy Forrest is too intelligent not to understand that. Oil prices are, in fact, back above US$60 a barrel — a rise this year of 25% and more from the multi-year lows in January. Iron ore prices, at just over US$62 atonne, are up from the low of just over US$46 a tonne at the start of April. — Glenn Dyer
Europe booms, US stalls. Believe it or not, the much-derided eurozone has emerged as the new growth hot spot in the developed world (outside NZ, that is). Preliminary figures out overnight showed eurozone GDP grew 0.4% in the March quarter, from the December quarter when growth was 0.3%. The March GDP figure put annual growth at 1.6% (according to the American way of annualising the quarter-on-quarter figure). That was much faster than the US (around 0.4% annual) and UK (1.2% annual), according to preliminary estimates. That’s despite the recession returning to Greece, where GDP fell 0.2%, and a surprise slowing in Germany where GDP growth fell to 0.3% from the December quarter, when it jumped by 0.7%. — Glenn Dyer
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