Global billionaire investor George Soros believes the sub-prime crisis is set to cause a “very serious” correction in the US economy, adding weight to predictions of a looming economic crunch.
Soros reportedly told a New York audience that US sub-prime woes were far from past. “I think we are definitely in for a slowdown that I think will be a bigger slowdown than Bernanke is seeing,” he said.
And if the sub-prime crisis provides one side of a coming economic squeeze, oil prices increasingly look set to provide the other. Oil prices closed at a record $US96.70 a barrel in the US overnight, leading some to predict that prices will pass the $US100 per barrel mark by the end of this week.
In Australia, of course, higher oil prices will only add yet more fuel to the inflationary fire.
Fortunately for the RBA, most of today’s economic data points the other way. The Department of Employment and Workplace Relation’s leading indicator of employment points to an easing in labour market conditions in the year ahead, the third such result in recent months.
Today’s SEEK employment index for October supports that view, showing a 2.8% decline in the ratio of the number of new job ads for each job application.
Mortgage lending also dropped 2.7% in September, with the interest rate-sensitive investment housing sector decreasing by 3.3%.
However, the total value of housing finance commitments in 2007 remains 15.2% higher than in 2006.
This underlying strength is reflected in today’s 2.2 point rise in the Australian Industry Group-Housing Industry Association measure of construction industry activity, pushing it 7.4 points above the 50 point level separating expansion from contraction.
On the markets, this morning’s 0.25% interest rate rise triggered an immediate spike in the dollar past US93c. It has since levelled out but, at midday, remains at US93.2c.
At midday the S&P/ASX 200 is also up 0.8% on yesterday’s close to 6684, thanks primarily to surging oil and metals prices.