Danger Down Under: Yields drop with iron to fuel recession talk

SYDNEY/TOKYO (June 2): Whether or not the land Down Under snaps its two-decade-long streak without a recession, a glance at the charts shows this past week has been a "septima horribilis" (to purloin and tweak from Queen Elizabeth II) for the world's 13th-largest economy. Iron ore is declining again amid worrying signs that China is wobbling, businesses are reluctant to borrow as they plan on cutting investment to a decade low.  An unexpected rebound in retail sales and soaring stock prices for Qantas were rare bright spots.

Markets are flashing red. The Aussie has dropped against all major developed counterparts this quarter and yet analysts are mystified at the currency's capacity to cling to its post-float average of about 75 US cents ($1.04) even as Australia's yield advantage evaporates. Stocks are lagging behind most of the rest of the world and swaps traders see the nation as the only major economy where interest-rate cuts are possible in the coming year. 

The following charts highlight the trends that have driven traders and investors toward despairing that Australia can finally make the transition away from a dependency on resource exports. 

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