Wed, 10 Jan 2018  |  

The illion (formerly Dun & Bradstreet) Business Expectations Survey presented an confident outlook for the economy as 2018 kicked off.

According to the survey, a resilient Construction sector and resurgent Manufacturing industry have the most confident outlook for the first quarter of 2018, according to illion’s latest Business Expectations Survey. Driven by strong expectations for profits, selling prices, capital investment and employment, both sectors topped the final indices for the March quarter, with manufacturing confidence at its highest level since June 2003.

2018 is starting on a positive note for the economy with both business expectations and the actual performance of the business sector at multi-year highs. It would appear that the positive tone from a stronger global economy, together with low interest rates and a competitive level for the Australia dollar are all providing a tail wind for the business sector.

The full survey is available at this link: 



Tue, 09 Jan 2018  |  

This article first appeared on the Yahoo 7 Finance website at this link: 


Australia has a trade problem

Australia’s international trade position is getting markedly worse.

The bad news is that exports are falling, despite a strong global economy and some strength in commodity prices. At the same time, imports have picked up partly because of the overvalued level of the Australian dollar and partly because of an increase in capital goods imports which are picking up in line with the improvement in business investment.

In November, Australia registered a monthly deficit of $628 million on trade in goods and services which was the second deficit in a row and it sits in stark contrast to the monthly trade surpluses around $3 billion in late 2016 and early 2017. The weakness in exports is surprising. The world economy is strong with growth getting close to the best in a decade. Commodity prices are rising in line with the global strength which should be adding significantly to our export receipts. The fact that exports have been falling for nine straight months in trend terms is probably best explained by the strength of the Australian dollar which is more than offsetting the positive influences. The strong Aussie dollar, it should be noted, is being held up by Australia’s relatively high interest rates.

In the 34 years since the Australian dollar was floated, there have been numerous examples of how a high (overvalued) Australian dollar has eroded the international competitiveness of the export sector.

Mon, 08 Jan 2018  |  

Eight days into 2018 and the Corelogic price series shows that Sydney house prices have edged a further 0.1 per cent lower since 31 December 2017.

Not a large fall, to be sure, but it builds on the falls in Sydney house prices recorded in October, November and December. It is signaling the impact of the quadrella of headwinds in the form of new supply, tighter lending rules, rising interest rates for investors and better investment opportunities in other asset classes.

From the peak in early September 2017, Sydney house prices have fallen by 2.5 per cent. That’s about $25,000 on a $1,000,000 property.

The price decline, to date, has been orderly and still small in the context of house prices doubling over the previous decade. But it does mean that some of the powerful wealth effects that helped to fuel the New South Wales economy will be missing in 2018, and perhaps beyond. If the falls become more acute, there could be some spill-over problems to the broader economy.

Fri, 05 Jan 2018  |  

The betting markets are fielding on the next Federal election and at the moment, the punters are saying Australians are set to elect the Labor Party to office.

There are several bookies offering odds and the best odds available are $1.62 for Labor and $2.60 for the Coalition. Allowing for the bookies margins, the probabilities are approximately 65 per cent chance of a Labor win and about a 35 per cent change of a Coalition win. This means Labor are a 2 in 3 chance of winning, with the Coalition a 1 in 3 chance. Enough of the lesson of odds.

Betting markets are not particularly reliable when elections are 6 to 12 months away. But the close the election is, the more accurate they become. Recent high profile exceptions were Brexit and Trump, but even there, the odds of both of those results was no wider than $5 a week or two from polling day.

Thu, 04 Jan 2018  |  

This article first appeared on the Yahoo 7 Finance website at this link: 


Housing vs stocks – where to invest in 2018?

2018 is kicking off with the share market trading at its highest level in almost a decade and the housing market starting to weaken, with prices falling in Sydney, Perth, Darwin and Melbourne, and flat-lining or slowing in Adelaide, Brisbane and Canberra. House prices in Hobart are the only shining light amid the increasing nation-wide gloom on housing.

These unfolding trends present an interesting choice for investors, who in recent years have generally been well rewarded with a high allocation of investment funds towards housing and a lesser allocation to stocks.

This is changing and could well be set to continue through the course of 2018 and beyond. The prospect of half a decade of flat or falling house prices is not conducive for investors, almost regardless of the alternatives.

The dynamics of housing are well understood. Extraordinary prices gains over the past decade or so have delivered stellar returns, albeit with a relatively low rental yield, rising costs of ownership (council rates, insurance and the like). The very low interest rates that provided financial comfort to investors as many maximised their debt on the expectation house price rises would offset those costs is less and less relevant as prices start to fall. In other words, with house prices now flat and falling, these dynamics mean that investing in housing is at best marginal, even with the absurdly generous tax policies in the form of negative gearing. Add to that a rise in the interest rate the banks charge investors as a result of the regulatory changes imposed by the Australian Prudential Regulatory Authority, and it is fair to say housing, as an investment, has almost no appeal.

So what alternatives for investors are available?

Wed, 03 Jan 2018  |  

It’s that time of the year – to stick necks on the forecasting chopping block in an attempt to anticipate important trends in the economy and financial markets.

It is important to have some idea where things are going, whether you are an individual with savings, a mortgage or superannuation, a small business person, someone involved in business or indeed government.

So here are my calls for 2018.


1. Global stocks
Having registered terrific growth in recent years, a cyclical pull-back in stocks seems to the on the cards during 2018. “Don’t fight the Fed” might prove to be apt again with a near certain continuation of monetary policy tightening from the US Federal Reserve and a wind back in QE. Overlay other policy/political risks from the Trump administration, I would be looking for the S&P500 to fall by 10 per cent or so to around 2,150 (or lower), the Dow down to 21,800 and would kick off the year with a trade to capture that sort of decline. Risk: Further downside

2. The ASX

Australian stocks are inexorably linked to commodity prices and the housing cycle, both of which are erring on the down side. With a probable change in global sentiment towards stocks, the ASX200 is forecast to pull back to 5,750 through the year. So not a bad result, but more likely down than up. Risk: Upside

Tue, 02 Jan 2018  |  

During a holiday clean up, I came across an email that my former colleague at TD Securities, Jacqui Douglas (who is now Chief European Macro Strategist in London), circulated a little before I left.

It was apparently a list of rules that David Rosenberg, Chief Economist at Merrill Lynch at the time, circulated about being a good and relevant market economist.

The list, reproduced below, should be seen as an Economists Constitution. For those in the business of economic forecasting and market strategy, read it and see how many of the rules you stick to and how many you break. It is a lot of fun and certainly something that should also be read by those covering economics and markets, especially those who seem to have a strong bias to give oxygen to those who break most of these rules.

Here they are:

Mon, 01 Jan 2018  |  

 A year ago, I outlined 10 top calls and forecasts for 2017 for the economy, markets and policy.

The full text of those calls are included below, and my self-rating of the success out of 10 for each of them is in the square brackets in bold. I have tried to reflect the underlying success of the forecast and whether there was money made by taking a position in markets on the basis of those forecasts.

Let me know if you disagree.

In 2016, I got a borderline 50% for my forecasts – it was a mediocre year.

This year has been a whole lot better at 62 per cent which, when it comes to forecasting, economics, policy and markets, is a great result.

I am happy, most of my clients are happy and my 2018 calls will be out in the next day or two.

Cheers, Stephen


 1. Global stocks

When the dust settles from the irrational market reaction to the US Presidential election win of Donald Trump, US (and most global) stocks seem set to fall. Trump policies in trade, foreign affairs, accountability on government spending and tax could all conspire to undermine confidence when the reality of the misguided policy strategy of Trump moves to reality. How much weakness is hard to say, but the Dow, for example, back to 17,500 would seem likely. It could fall further than this. [0/10 By far the worse call, and hopelessly wrong. The geopolitical issues did not amount to zac, the markets appear to be unaware of the issues associated the crunching of the US budget position, and the tax cuts were a positive for markets. US stocks boomed and I was wrong.]

2. The ASX
With the bearish lead from the US, a likely dip in commodity prices and a firm Australian dollar, expect some pull back during 2017. The ASX may hit 6,000 in the early part of the year, as local interest rate cuts are delivered but the negative influences from offshore will likely counter that. A dull forecast, in many ways, but 5,250 for the ASX200. [4/10 It was a solid year for the ASX with a gain of about 7 per cent, 31 December on 31 December. It hit 6,000 points late in the year, not early, which was a favourable position to take at the start of the year. My within year forecast was askew.]

Wed, 20 Dec 2017  |  

This article first appeared on the Yahoo 7 website at this link: 


Ignore the spin, government debt is going up and up

Despite all the spin and torture of the data, government debt is still rising, the return to budget surplus is based on fickle economic forecasts and the Turnbull government is on track to be one of the top 10 taxing governments in Australia’s history.

Gross government debt is already at a record at $520 billion and it will keep rising through till at least 2027-28 when it will reach a new record high just under $700 billion. Net government debt (which allows for some of the assets the government owns to offset gross debt), will reach a peace-time record in 2018-19 when it hits 19.2 per cent of GDP, having roughly doubled from the time of the 2013 election.

This is a long way from promises of the Liberal Party prior to it taking office to run budget surpluses and pay off debt.

With Treasurer Scott Morrison delivering the Mid Year Economic and Fiscal Outlook, the new record levels for government debt were confirmed, notwithstanding a small narrowing in the budget deficit which was driven by an unexpected rise in the iron ore price which fed into company profits and taxes paid to the government, as well as higher superannuation taxes based on the solid performance of the stock market last year.

The budget is forecast to return to surplus in 2020-21, but this will require everything to ‘go right’ with the economy between now and then. GDP growth is forecast to pick up to 3 per cent in 2018-19 which, according to Treasury, will underpin a solid rise in employment and a further acceleration in wages. A stronger economy will deliver higher taxes which is the driver of the return to surplus, so the theory goes.

Mon, 11 Dec 2017  |  

The illion Business Expectations Survey presented a positive outlook for the economy.

Business profits expectations for 2018 are the highest they’ve been since 2011, with companies set to boost employee numbers in the first quarter on the back of the positive outlook, according to illion’s latest Business Expectations Survey.

Data from the survey indicated businesses operating in the Finance, Insurance and Real estate sector had the highest profit expectations approaching the new year, followed by the Transport, Communications and Utilities sector.  The survey shows that overall, the Business Expectations Index is up 25.7 percent on the same period last year and the actual performance of businesses across all sectors is at a 13 year high.

Stephen Koukoulas, illion Economic Adviser, said there were a number of factors driving the positive outlook for 2018. “Corporate profits are getting a boost from lower costs, which are being driven by record low interest rates and on-going low wages growth – which is all occurring at a time of solid gains in the ASX”.


As house prices fall across Australia, should we be worried for our economy?

Tue, 13 Mar 2018

This article first appeared on the Yahoo7 Finance website at this link: 


As house prices fall across Australia, should we be worried for our economy?

Are you a home owner?

If you are in Sydney, Perth and Darwin, you are losing money at a rapid rate.

In Melbourne and Canberra, prices are topping out and there is a growing risk that prices will fall through the course of this year. If your dwelling is in Brisbane or Adelaide, you are experiencing only gentle price increases, whilst the only city of strength is Hobart, where house prices are up over 13 per cent in the past year.

The house price data, which are compiled by Corelogic, are flashing something of a warning light on the health of the housing market and therefore the overall economy. For the moment, the drop in house prices has not been sufficient to unsettle the economy, even though consumer spending has been moderate over the past year.

The importance of house prices on the health of the economy is shown in the broad trend where the cities that have the weakest housing markets tend to have the slowest growth in consumer spending and are the worst performance for employment and the unemployment rate. The cities with the strongest house prices have strong labour markets and more robust consumer spending.

Trump could cause the next global recession: here's how

Wed, 07 Mar 2018

This article first appeared on the Yahoo7 Finance website at this link: 


Trump could cause the next global recession: here's how

The Trump trade wars threaten the global economy. This is not an exaggeration or headline grabbing claim, but an economic slump based on a US inspired global trade war is a distinct and growing possibility as it would dislocate global trade flows, production chains and bottom line economic growth.

Up until a few weeks ago, there was a strong enthusiasm for the economic policies of US President Donald Trump. Tax cuts and planned infrastructure spending were seen to be good for the US and world economies. US stocks and many around the rest of the world rose strongly, to a series of record highs. At the same time, bond yields (market interest rates) surged as the market priced in interest rate hikes and inflation risks from the ‘pro-growth’ policies. It was seen to be good news.

Very few, it seems, were worried about the consequences for US government debt and the budget deficit from this cash splash, especially when the US Federal Reserve was already on a well publicised path to hiking interest rates.

About a month or two ago, a few of the more enlightened and inquisitive analysts started to focus on the fact that the annual budget deficit under Trump was poised to explode above US$1 trillion with US government set to exceed 100 per cent of annual GDP.

A debt binge fuelled by tax cuts was a threat to the economy after the temporary sugar hit.