@ Bunn-Wackett
Here is an opinion piece published in the oz this morning.
Cheers.....D
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The building market positives that pessimists can’t seeWhat do you see? Recession warnings? Energy and Inflation fears? Geopolitical turmoil? You can’t miss the onslaught of terrible headlines – one blinding investors from Darwin to Dubbo.
But look past today’s worries to see the myriad underappreciated positives brewing quietly. This wide, growing gap between dreary sentiment and brightening realities makes positive surprise increasingly attainable – rocket fuel for the ASX and world stocks.
Sound overly optimistic? That reaction is understandable, given 2022’s challenges.
But it is also standard around global bear market lows, when the snarky “
pessimism of disbelief” makes investors hyperfocus on bad news, dismissing positives.
It is everywhere, even after the ASX and global stocks have rallied to cut the year’s declines. Sentix’s eurozone economic expectations index is broadly negative. US and UK surveys are near historic lows.
Here in Australia, Westpac Melbourne’s Consumer Sentiment Index hovered near record lows in December, while the National Australia Bank’s business confidence index flipped negative for the first time since December 2021. Bank of America’s latest global fund manager survey found 68 per cent of respondents expect recession within the year.
Don’t let these frustrations sway you – the reality is brighter.
Start with those global recession fears. Consider that Australia’s third-quarter GDP was slightly below expectations – fanning slower-growth worries – yet at 2.6 per cent annualised, was actually above 2019’s quarterly average.
Meanwhile, US third-quarter GDP growth flipped positive at 2.9 per cent annualised. Chinese growth hit 3.9 per cent year-over-year, up sharply from the second quarter’s 0.4 per cent – and now it is reopening. The eurozone topped expectations at 1.3 per cent annualised. Japan’s GDP contracted – caused mostly by a weak yen quirk skewing import prices. Easing travel restrictions tee up a fourth quarter Japanese turnaround.
Recession likely isn’t nearby. Why? Lending overall remains really robust globally – fuel for investment and incongruent with deep recession. Businesses and households generally don’t borrow money to sit on it. They spend it soon. Global loan growth has accelerated every month since March, reaching 9.3 per cent year-over-year in September.
In America, it hit 11.8 per cent in the week ending November 30, the most recent figure. Australian lending to domestic non-financial businesses rose 15.3 per cent year-over-year in October, also the latest. Why? Despite the Reserve Bank and global central banks hiking interbank borrowing rates, abundant near zero-cost cash deposits keep deposit rates tiny — rendering interbank borrowing unnecessary.
That keeps loan funding costs low while long rates’ global rise boosts loan revenue. Bigger profits encourage increased lending.
Global supply chains? The New York Federal Reserve’s Global Supply Chain Pressure Index ended 2019 at 0.01 – signalling no identifiable issues. Last December, it hit 4.3 – more than four standard deviations above its norm – tied to Covid-19 shutdown fallout. Now? It is 1.2 – elevated, but far improved from peak disruption.
Purchasing managers’ indexes reveal supply chain snarls unwinding further. S&P Global’s Australian manufacturing PMI showed November input and output costs rising at the slowest rates in 21 and 19 months, respectively. The survey echoes US findings.
Separately, America’s Logistics Managers’ Index revealed transportation prices contracting further, while transportation capacity remains high. These developments partly underpin US and Australian consumer prices rises slowing – and beating expectations – in their latest respective readings. More improvement approaches.
Supply chain adaptations create another positive surprise: Europe’s better-than-feared energy reality. After Putin’s Ukraine invasion spurred Western boycotts, supply chains reshuffled – fast. India and China bought more discounted Russian oil, freeing other supply for Europe. That saps sanctions’– and price caps’ – effectiveness but helps supply/demand dynamics.
Through the third quarter, global oil supply amazingly exceeded demand.
Price signals have producers pumping more. Hence, oil prices fell 41.3 per cent since March’s high in US dollars – with Australian petrol prices dropping for the first time in nearly two years.
On European gas worries, storage filled faster that feared, while demand is down.
The Baltic Pipe – the continent’s first new gas pipeline in decades – is now fully operational, and several new German liquefied natural gas terminals come online early next year. This benefits Australian exports, even if it fuels domestic gas price cap bickering.
Yet pundits dismiss these developments, shrieking yeah, but next year will be worse – classic pessimism of disbelief.
Travel is another bright spot. New data show October global air travel soared 44.6 per cent year-over-year – reaching 74.2 per cent of pre-pandemic levels. Australian international arrivals have soared, too. Sydney’s hotel occupancy rates hit a pandemic-era high in November.
These perking, dismissed positives intersect with America’s post-election political clarity – a huge global market driver I covered in July. Republicans’ capturing the House of Representatives in November’s midterm elections cemented gridlock, which stocks love. They hate big, controversial legislation increasing uncertainty. Gridlock squashes that through 2024.
Don’t let pouting pessimists sink your spirits. Look past the gloom and appreciate the growing reasons for optimism. They won’t stay hidden forever.
Ken Fisher is the executive chairman of Fisher Investments.
