Up and Over Down Under 

05/21/2009 12:00 am EST

Focus: GLOBAL

Gregory Weldon

President and CEO, Weldon Financial

The market and consumer rebound in Australia augurs well for the global reflation trade, writes Gregory Weldon of Weldon's Money Monitor.

The median estimate of 19 economists polled by Bloomberg called for an April decline of 25,000 in the number of people employed in Australia. Buzzzz…wrong…but thank you for playing.

Rather, the number of people employed by Australian businesses unexpectedly rose by 27,300, with a monstrous single-month increase in full-time employment, which spiked by 49,100, the 15th largest one-month rise in over thirty years.

Subsequently, Australia has posted a six-month cumulative rise in employment that exceeds 50,000 and one of the largest six-month expansions in full-time jobs in over 30 years. Hence, Australia's unemployment rate actually fell [to] 5.4% from 5.7% in March.

So, in line with March's unexpected rise in Australian retail sales, we can say that things Down Under are down under no more…Aussie retail sales rose by a sizable 2.2% during…March, more than offsetting February's decline and marking the fifth month out of the last six to post an increase, with the cumulative…expansion at a rather robust 11.8% annualized rate.

In fact, for Australian department stores, it was a Down Under spending spree, a retail feeding frenzy as defined by the huge 13.2% single-month explosion in department-store sales.

As if a rise in employment and retail sales were not enough upbeat news, we also note a second consecutive month of increase in Aussie building approvals (up 3.5% during March), the first back-to-back monthly increases since the global credit crisis began.

The renewed expansion in Aussie housing and building is a direct result of the government's fiscal stimulus package (A$90 billion), as is clearly reflected by the oversized gain of 36% in public spending during March, an enormous single-month gain and twice the already-large increase of 15.7% posted in February.

The fiscal push has been fully supported by the mega-easy monetary policy pursued by the Reserve Bank of Australia (RBA). The central bank's cash rate [has] been sliced and diced to a new all-time low of just 3%, far [below] the previous low of 4.25% set at the trough of the 2000-01 episode.

We spotlight the upside breakout in Aussie bond yields within the context of our bearishness on US bonds, notes, deposit rate swaps, [and] the US dollar. We note the upside breakout taking place in the Australian dollar versus the greenback. The supportive implication is a return of Australia's once-fat positive interest rate premium versus US dollar securities. (This is part of what makes us so bearish on US bonds, given the rolling tsunami of supply).

Mimicking the move in the currency, the Australian stock market has, finally, broken out to the upside. We can add the Aussie stock market to our lengthening list of bullish portfolio picks, along with a variety of regional emerging market indexes, Brazil, Taiwan, and Italy.

Further upside stock market outperformance in commodity-exporting Australia over the US is highly correlated and usually leads the commodities sector as a whole. Thus, the upside breakout in the Aussie market is fully supportive to our bullish stance on the commodity indexes and several individual commodity markets (gasoline, sugar, coffee, soybean complex, copper, cotton).

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