Harbour commentary: NZ powers on while Australia splutters

Firstly however, Harbour outlines why the recent global economic turmoil hasn't significantly changed its view that:

• We are in for a softer period of growth in the US and Europe relative to our expectations of a month ago.
• The Australian consumer is still very restrained (the central focus of this month's note), whereas it seems growth expectations across New Zealand are improving.
• Chinese data has been relatively strong – Retail Sales +16.8% , Industrial Production +14.3% in July.
• The Fed’s announcement of locking in low rates really just holds the line on market expectations but also provides some "fertilizer" for a recovery.
• Easing in Japan and Switzerland only adds to the lower rate environment.
• The Reserve Bank of Australia and our own Reserve Bank face stronger underlying inflation pressures than elsewhere potentially keeping interest rates higher than other developed economies.
• It seems likely that both Antipodean currencies remain firm.
• Equity markets and commodities have been heavily oversold and some sectors had probably attracted a lot of short selling.

Amongst the commodities we prefer iron ore and coking coal, but can see how oil and copper prices could also recover. Gold in Australian and New Zealand dollars is a tougher call

So without belittling key global risks we start this strategy review by looking at Australia where the equity market continued to under-perform New Zealand in July.

Without mincing words, despite the "gift" of the commodity boom Australia appears to be in a period of wrenching structural and potentially political change. There have already been big winners and losers, and a large dispersion in potential returns looks set to continue. Domestic industrials, media and retail performance is poor and with a renewed inflation threat, and a higher Australian dollar, the influences look to intensify. As a result credit growth is weak; households and businesses don't need to borrow. And Coalition voters in particular are very depressed. Through all this the Reserve Bank of Australia seems still intent on raising interest rates.