(Bloomberg) — A twin-speed economy is developing in Australia and posing a challenge for the central bank, as Chinese demand for iron ore buoys the resource-rich west while eastern states struggle with Covid-19 outbreaks and border closures.
The diverging fortunes of east and west are reminiscent of conditions created by the mining boom a decade ago, and are playing out in Australia’s property market.
“Our market’s quite hot,” said Bev Haymans, a real estate agent in the upmarket coastal suburb of Cottesloe in Western Australia’s state capital of Perth. “There’s a real sense of positivity.”
Meanwhile, 3,300 kilometers (2,050 miles) to the east in Sydney’s beachside suburb of Bronte, Hannan Bouskila is struggling. April’s coronavirus lockdown was “very tough” for the housing market, the 17-year veteran of the real-estate industry said, and the renewed outbreak in neighboring Victoria state has made everyone nervous again.
The divergence poses a challenge for Reserve Bank of Australia chief Philip Lowe as he seeks to tackle spiraling unemployment and the economy sinking into its first recession in nearly 30 years.
The central bank cut its benchmark interest rate to a record low of 0.25% in March and is expected to keep it there Tuesday to support the economy. Data the following day is expected to show the country officially fell into recession in the second quarter, with economists predicting a 6% contraction from the previous quarter.
“The divergences across the states at the moment are vastly larger than normal, as multi-speed economies have opened up,” said Stephen Walters, chief economist for New South Wales Treasury and previously an official at Western Australia’s Treasury. “This is an age-old problem for the Reserve Bank. It has flared up regularly since monetary policy became independent in the 1990s.”
Driving the divergence is demand from China, the first major economy to resume growing after the pandemic. With Chinese factory activity roaring back to life, iron ore shipments from Western Australia’s Port Hedland have surged to record highs.
Now, with iron ore trading for more than $100 a ton and gold near a record, miners in Western Australia are set to ramp up investment to replace aging capital stock and retiring mines. Rio Tinto Group, the world’s No. 2 miner, last November lifted planned sending on new iron ore mines in Australia to $4 billion, while rivals BHP Group and Fortescue Metals Group Ltd. are each investing more than $3 billion in their own developments.
Western Australia “has been able to continue safely operating our resources sector throughout the pandemic, with sustained demand from China and higher commodity prices putting our exports on course for continued growth,” said Chris Rodwell, chief executive officer at the state’s Chamber of Commerce and Industry.
On the east coast, in contrast, households have been gripped by renewed fears about the virus. Consumer sentiment collapsed 15.5% in New South Wales — the country’s most populous state — amid panic that virus cases there would spike following Victoria’s outbreak.
Walters, a former chief economist at JPMorgan Chase & Co., said the RBA’s unconventional policies help it address the different speeds in the economy.
“They have a lot of discretion about which bonds they buy,” he said, referring to purchases of state government securities. “So they can actually have some impact on these different regional economies.”
What Bloomberg’s Economists Say
“Australia’s key mining state, Western Australia, is finally beginning to shrug off the hangover from the mid-2000s mining booms. Once the virus is contained, the two- or even three-speed dynamic within Australia’s economy will begin to test policy makers. This is a good problem to have, but it is yet another challenge for fiscal policy, as cross-state stabilization frameworks could be seen to penalize Covid-free states as they divert funding toward those impacted by the virus.”
James McIntyre, economist
The record-low cash rate and buoyant terms of trade already have sent Australia’s currency soaring: The local dollar is up about 27% since March 19, when the RBA cut rates and set a three-year government bond yield target, both at 0.25%. The Aussie was trading around 72.90 U.S. cents Friday afternoon, with Westpac Banking Corp. expecting it to climb to 80 U.S. cents by the end of 2021.
The currency’s upswing, “which began in March 2020 and is partly associated with China’s extraordinary recovery from its 10% contraction in the March quarter, looks set to last at least two years,” said Bill Evans, chief economist at Westpac. He expects Australia’s current-account surplus to swell to A$46 billion ($33.6 billion) this year, further supporting the currency.
Confidence in Perth and its property market is mimicking the path of the Australian dollar.
“We have a lot of people who are mining or resource-based and they all feel particularly optimistic” about Western Australia, said Haymans, the Perth realtor. “Everyone is quite buoyant.”
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Dollar shines as virus, economy woes hit risk assets – TheChronicleHerald.ca
By Stanley White
TOKYO (Reuters) – The dollar extended gains against most currencies on Thursday as signs of economic slowdown in Europe and the United States renewed concern about a second wave of coronavirus infections.
The euro, which has already taken a hit due to worries about a return to severe lockdown restrictions, faces an additional hurdle later on Thursday with the release of data on German business sentiment.
The dollar is likely to continue to rise as another spike in coronavirus cases and the Federal Reserve’s warnings that the U.S. economy needs more fiscal stimulus cause investors to repatriate funds from riskier assets.
“Risk is being sold across the board, and there is a big unwinding of dollar shorts,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities.
“Questions surrounding the coronavirus and the need for even more stimulus are turning flows back to the dollar.”
The dollar traded at $1.1658 per euro on Thursday in Asia, just shy of a two-month low high reached on Wednesday.
The pound bought $1.2714, near its weakest level since late July.
The dollar was quoted at 0.9240 Swiss franc , which is near a nine-week high.
The U.S. currency bought 105.40 yen , holding onto a 0.4% gain from the previous session.
The dollar has rallied this week as rising coronavirus infections in Europe and Britain undermined investor optimism about vaccine progress.
The Ifo survey due later on Thursday is forecast to show an improvement in business morale in Germany, Europe’s largest economy.
However, sentiment for the euro has already suffered a big blow after surveys released on Wednesday showed new restrictions to quell a resurgence in coronavirus infections slammed the euro zone’s services industry into reverse.
The mood for riskier assets has also soured after data on Wednesday showed U.S. business activity slowed in September and several Fed policymakers warned that further government aid is needed to bolster the economy.
The dollar index =USD>, which pits the dollar against a basket of six major currencies, stood at 94.336 on Thursday, close to a nine-week high.
There are no major economic data releases scheduled during the Asian session, so trading could be subdued, analysts said.
Some investors are watching the Australian and New Zealand dollars, which have come under pressure due to growing expectations for additional monetary easing.
A recent decline in commodity prices is expected to increase downside risks for the Antipodean currencies, some traders say.
The Aussie traded at $0.7069, near its weakest since July 21.
Across the Tasman Sea, the kiwi bought $0.6549 after tumbling by 1.3% in the previous session.
(Reporting by Stanley White; Editing by Sam Holmes)
UPDATE: Trudeau throne speech emphasizes economic support for Canadian workers, economy – The Guardian
A speech from the throne delivered in Ottawa on Wednesday emphasized a number of enhancements to existing programs put in place in response to the pandemic but did not offer large-scale social policy reforms, such as a basic income guarantee, that were hinted at by government weeks ago.
The speech, read before parliamentarians by Governor General Julie Payette, outlined the Justin Trudeau government’s immediate plans to respond to the continuing COVID-19 pandemic in the coming months. While the severity of cases of the virus has diminished since a high point seen last spring, a recent spike in cases in Canada’s most populous provinces has provoked fears of the social and economic effects of a second wave across Canada.
In the speech, Payette said the immediate public health response to the continuing pandemic is the first priority of government. The speech pledged to improve rapid testing capacity in Canada and pledged additional short-term assistance for businesses forced to close due to future public health orders. Payette also briefly addressed plans to deploy a vaccine for the virus, although it remains unclear when a vaccine will be approved by health officials.
“The government has already secured access to vaccine candidates and therapeutics while investing in manufacturing here at home. And to get the vaccines out to Canadians once they’re ready, the government has made further investments in our capacity for vaccine distribution,” Payette said.
The bulk of the 53-minute speech focused on immediate economic and social support for Canadians in the coming months, as well as plans for a longer-term economic recovery.
Notably, the speech did not include a pledge to create any new economic supports on the scale of the Canada Emergency Response Benefit (CERB), which will begin to transition to a program under the Employment Insurance system at the end of September.
In terms of commitments in the coming months of the pandemic, the government pledged to:
- Create one million jobs as part of a green economic recovery;
- Extend the Canada Emergency Wage Subsidy until next summer;
- Create a transitional Canada Recovery Benefit for individuals who would not qualify for EI;
- Provide more supports for self-employed individuals and gig workers through the EI system.
The speech also included a pledge to “make a significant, long-term, sustained investment” in childcare, but stopped short of committing to a universal childcare program.
In a moment that harkened back to the Trudeau government’s successful 2015 election campaign, the throne speech also pledged to better tax “extreme wealth inequality,” address tax avoidance by tech giants and limit stock option deductions for the wealthy.
The speech also pledged to improve protections for seniors in long-term care homes by penalizing those who neglect seniors. The speech also pledged to “accelerate steps to achieve” a universal pharmacare program.
The more ambitious components of the speech focused on climate change and green economic recovery. The commitments included:
- Legislated commitments for achieving net zero emissions by 2050;
- Improving upon Canada’s emissions reduction goals by 2030;
- Making zero-emissions vehicles more affordable;
- Creating a new national water agency; and
- Planting 2 billion trees.
The Trudeau government’s speech from the throne followed the prorogation of parliament in August, after sustained pressure on the government for its handling of the WE Charity scandal.
At that time, Trudeau said the move would allow the government to focus on a plan for a recovery of the Canadian economy after the COVID-19 pandemic.
Trudeau’s decision to prorogue parliament effectively brought an end to scrutiny of the government’s handling of the WE Charity controversy by several standing committees.
In the weeks that followed, sources in government had communicated to media that the throne speech would set out bold, social initiatives, including a proposal for a Basic Income Guarantee, as well as plans for a “green recovery” of the economy.
But in recent weeks, government staff had downplayed the possibility of large-scale, costly social programs.
Racism has cost US economy $16 trillion in 20 years: Citi report – Yahoo Canada Finance
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="According to a new report from Citi (C), systemic racism in the United States has had a huge cost to the economy: $16 trillion over the past two decades. ” data-reactid=”16″>According to a new report from Citi (C), systemic racism in the United States has had a huge cost to the economy: $16 trillion over the past two decades.
That’s the combined cost of disparities in wages, education, investment in black-owned businesses, and the housing market.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="“Racial inequality has always had an outsized cost, one that was thought to be paid only by underrepresented groups,” said Citigroup Vice Chairman Raymond J. McGuire. "What this report underscores is that this tariff is levied on us all, and particularly in the U.S., that cost has a real and tangible impact on our country’s economic output. Now, more than ever, we have a responsibility and an opportunity to confront this longstanding societal ill that has plagued Black and brown people in this country for centuries, tally up the economic loss and as a society, commit to bring greater equity and prosperity to all."” data-reactid=”18″>“Racial inequality has always had an outsized cost, one that was thought to be paid only by underrepresented groups,” said Citigroup Vice Chairman Raymond J. McGuire. “What this report underscores is that this tariff is levied on us all, and particularly in the U.S., that cost has a real and tangible impact on our country’s economic output. Now, more than ever, we have a responsibility and an opportunity to confront this longstanding societal ill that has plagued Black and brown people in this country for centuries, tally up the economic loss and as a society, commit to bring greater equity and prosperity to all.”
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The $16 trillion drag on the U.S. economy since 2000 is particularly felt in the area of capital investment of black-owned businesses. A 2019 study from Illumen Capital found that $35 trillion of capital would be allocated differently, were it not for racial and gender bias. ” data-reactid=”19″>The $16 trillion drag on the U.S. economy since 2000 is particularly felt in the area of capital investment of black-owned businesses. A 2019 study from Illumen Capital found that $35 trillion of capital would be allocated differently, were it not for racial and gender bias.
According to the estimates from Citi’s research, racism impacting Black entrepreneurs has cost the United States $13 trillion of business revenue and potentially 6.1 million jobs that could have been created — each year.
<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Closing the gap” data-reactid=”21″>Closing the gap
What’s more, closing the wage gap between Black and white employees could have added $2.7 trillion — or 0.2% of GDP each year to the American economy.
“Improving access to housing credit might have added an additional 770,000 Black homeowners, adding $218 billion in sales and expenditures,” the study found, while improving access to college for Black students could increase the income of Black employees by up to $113 billion over their lifetimes.
“Present racial gaps in income, housing, education, business ownership and financing, and wealth are derived from centuries of bias and institutionalized segregation, producing not only societal, but also real economic losses,” the study noted.
“However, future gains from eliminating these gaps are enormous: benefiting not only individuals, but also the broader U.S. economy with positive spillover effects into the global economy.”
If racial gaps were eliminated, Citi estimates that over the course of the next 5 years, roughly $5 trillion could be added to the country’s GDP.
That’s an average of 0.35% of GDP growth each year.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Goldman Sachs in July published a report saying that reducing racial income inequality “could also deliver a boost to the level of US GDP of around 2%, which currently equates to just over $400 billion per year.”” data-reactid=”39″>Goldman Sachs in July published a report saying that reducing racial income inequality “could also deliver a boost to the level of US GDP of around 2%, which currently equates to just over $400 billion per year.”
The benefits wouldn’t just remain domestically: the study also notes that 0.09% growth would be added to global growth.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Citi on Wednesday announced it plans to spend over $1 billion to help address racial inequality over 3 years. The plan would include programs to help increase access to banking and credit to Black and brown communities, which are traditionally underbanked. The initiative would also aim to increase investment in Black-owned businesses and help more Black households purchase homes. ” data-reactid=”41″>Citi on Wednesday announced it plans to spend over $1 billion to help address racial inequality over 3 years. The plan would include programs to help increase access to banking and credit to Black and brown communities, which are traditionally underbanked. The initiative would also aim to increase investment in Black-owned businesses and help more Black households purchase homes.
In its report, Citi wrote: “The persistence of racially-biased attitudes, coupled with the implementation and maintenance of policies enshrining these attitudes, constitute what is often termed as systemic racism. Biases may be conscious or unconscious. Nonetheless, the result of policies creating and perpetuating bias produce inequality. Even when the biases fade, the policies may linger, rendering the inequality multi-generational as it becomes interwoven with the way things are done: in broader society, government, corporations, and/or institutions.”
“We are in the midst of a national reckoning on race and words are not enough,” said Chief Financial Officer Mark Mason. “We need awareness, education, and action that drive results.”
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