RBA: Financial Stability Review September 2012

Reserve Bank of Australia published their September Financial Stability report. A few nuggets to highlight:

The Euro Area Crisis and Sovereign Debt Markets (pg 5) 

Here you will be able to read about RBA’s interpretation of events that has unfolded in the Euro-Zone.

While investors initially responded favourably to the announcement of the Spanish bank bailout package, market sentiment quickly reversed as attention focused on the increase in government debt this funding would entail. Together with the poor state of regional government finances in Spain, this contributed to fears that a more comprehensive sovereign bailout package would be required, along the lines of those already provided to Greece, Ireland and Portugal. In this environment, attention naturally also turned to Italy because of the state of its public finances, and Italian sovereign (and bank) bond yields rose around the middle of the year. Meanwhile, in June, Cyprus became the fifth euro area country to request international financial assistance when it asked for funds to help recapitalise its banking system (which has significant exposures to Greece) and finance its budget deficit. In contrast to these developments in southern Europe, government bond yields for northern euro area countries continued to decline over the past six months, with German and Dutch short-term yields recently falling below zero. This largely reflects safe-haven flows given these countries’ better fiscal positions.

Household and Business Balance Sheets (pg 42)

RBA has kindly created a few graphs that demonstrated the condition of their economy, a few important ones:

 

 

Mining industry grew close to 20% more than its own average since 1989, however that percentage has tapered off quite a fair bit in 2012.

If the rally of AUD/USD is attributable to Aussie mining sector’s growth, perhaps it may be hard for AUD/USD to reach previous year’s high of 1.10 based on fundamentals alone.

 

 

 

 

Return on Equity of listed companies are slightly lower than the average between year 2000-2005. ROE has pushed slightly higher from the low but does growth rate does not inspire confidence that we’re out of the woods from 2008-2009 crisis.

Nonetheless, a positive side of things is that most Australian companies are making positive ROE, something that is not observable in Europe and US.

 

 

 

 

% of bankruptcies though high, is certainly lower than 1997 Asia Crisis and around 2001 Dot-Com bubble burst.

Overall, Australia economy seems to be stable.

 

 

 

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