What does the market anticipate in a potential Kamala Harris presidency?
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I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.
This is episode number 26 in our series for 2024 and today’s date is Friday July 26.
First, I’ll be talking to Sonia Schwabsky, the CEO of the printing franchise Kwik Kopy. I first spoke to Sonia last year for Talking Business. This time we will talk about the company’s strategic vision and transformation in this digitally disrupted market. She will talk about how KwikKopy delivering growth opportunities for franchisees and clients.
And I will talk to Indeed economist Callam Pickering about Australia latest unemployment figures
But first, let’s talk to Sonia Schwabsky.
So what’s happening in the news.
What does the market anticipate in a potential Kamala Harris presidency? Investors should expect a potential Harris administration to defend the economic policies that Biden instituted during his term, including the Inflation Reduction Act’s subsidies for electric cars and green-energy projects, increased IRS funding to pursue wealthy tax evaders, excise taxes on stock buybacks, and a 15% corporate minimum tax for large corporations. “A Harris presidency would be, for all intents and purposes, a continuation of the Biden administration,” Isaac Boltansky, director of policy research at BTIG, told MarketWatch. Even in the event of a Harris victory over Donald Trump in November, analysts say that it’s likely Republicans will take back the Senate, limiting Harris’ ability to sign partisan legislation. She would immediately be faced with the need to negotiate over the extension of the 2017 tax cuts, which temporarily lowered individual income-tax rates and increased the child tax credit. Biden has promised to extend those cuts for families making less than $400,000 per year, and analysts say Harris will likely adopt the same position. A scenario where there’s a Democrat in the White House while Republicans control at least one chamber would be one in which investors should expect a bit more fiscal restraint than if Trump wins or there’s a Democratic sweep, according to Henrietta Treyz, director of economic policy at Veda Partners. Harris doesn’t have a long track record on economic policy, as most of her public life has been spent as a prosecutor, but her brief time as a senator and 2020 presidential candidate could provide some insight into her views. During her stint as California attorney general, she helped secure a $25 billion settlement for homeowners who had been wrongfully foreclosed upon in the aftermath of the financial crisis after bowing out of national talks that netted residents of other states less money. She also championed “homeowners bill of rights” legislation in California, two moves that cemented her status as a consumer advocate in the lead up to her 2020 run. Harris focused on the struggles of low-income and middle-class home renters as well, proposing during her presidential run a tax credit for families that spend more than 30% of their income on rent and utilities that would come in the form of a monthly check. Another important factor in Harris’ biography is her long ties to big tech firms. As a San Francisco-based politician, she has cultivated close connections to large technology firms like Meta and Google parent Alphabet, a fact that was seen as a liability in the 2020 Democratic primary, but which could be good news for tech investors if she wins the presidency. However, if Trump continues to pull ahead in the polls and investors view his win as inevitable, then the ‘Trump Trade’ will take over.” The dollar is generally expected to get a boost if another Trump presidency looks more likely. Trump’s preferred mix of low taxes and high tariffs are seen as spurring inflation and interest rates, adding to the dollar’s appeal. The currency also experiences higher demand in periods of uncertainty thanks to its haven status. The conclusion that Trump spells inflation has also seeped into the world’s biggest bond market, with traders embracing a wager that involves buying shorter-maturity notes and selling longer-term ones. “As Harris’s odds have risen, so have the Democratic odds of winning the House,” said Steven Englander, a strategist at Standard Chartered Bank in New York. “If this is how it plays out, then fears of further fiscal stimulus may wane and take some pressure off rates and the US dollar. But it is still very early days on what may be a very different campaign than expected even two weeks ago.”
Rapidly rising building costs are keeping inflation in Australia higher than overseas, Reserve Bank of Australia governor Michele Bullock has warned, as the economy enters a “difficult” stage where demand remains too hot. We’re not seeing the same progress on inflation as overseas,” she told an annual superannuation lending roundtable. “But having said that, we know from overseas that progress is bumpy. It’s up and down, so the challenge is understanding where the risks might lie.” Persistent inflation has left the RBA as the only major advanced economy other than Japan where markets price the possibility of another rate rise. Investors ascribe a one-in-four chance of a rate rise when the RBA meets on August 6. Ms Bullock said the RBA board was balancing the fact that demand was still too strong with the fact that monetary policy acts with a lag. Parts of the economy like the jobs market and household spending were slowing in response to action already taken by the RBA board. Economists say the outcome of the June quarter consumer price index, to be released on July 31, will be vital for determining whether the RBA is forced to raise the cash rate from 4.35% to 4.6% when it next meets. While the RBA expects underlying inflation to fall from 4.2% in March to 3.8% in June, a string of stronger-than-expected monthly figures has raised the possibility that underlying inflation could come in closer to 4%.
The CrowdStrike outage hit about 8.5 million Windows-based computers and laptops – costing the global economy billions of dollars. Australian businesses this week scrambled to restore services amid questions over costly compensation. The financial impact on Australian businesses from CrowdStrike’s IT outage could surpass $1 billion and last for weeks, according to business leaders. The outage, caused by a faulty software update, grounded planes, closed supermarkets and caused widespread chaos for thousands of organisations and millions of people late last week. Home Affairs Minister Clare O’Neill said “teething issues” stemming from the outage could last “one to two weeks”. But Australian Industry Group CEO Innes Willox said he expected the damage bill from the glitch to run into the billions of dollars. “It’s impacted different businesses and different sectors of the economy in wildly different ways, and the reality is we’re going to be seeing the tailpipe of this for weeks to come,” he said. Mr Willox said it was still unclear whether affected businesses would be able to seek compensation from CrowdStrike for any losses incurred from the outages. “Whether there might be some federal government scheme in place to help businesses seek redress, or if businesses are going to have to deal directly with CrowdStrike to try to work through compensation through their insurance [is still unclear],” he said. Wedbush Securities technology analyst Dan Ives said CrowdStrike had already suffered a huge hit to its brand, which was built on providing cybersecurity. “There’s brand damage here,” he said. “This is something that’s going to be going for months, potentially years. CrowdStrike now becomes a household name, but not in a good way.” Mr Ives expects the company will be dealing with a large volume of legal action in the coming months.
Australian winemakers are now finding it harder to sell wine to China with its economy under strain. Cost of living pressures are plaguing households and made worse by a political shift to modesty and frugality being led by communist party officials and taken up by large swathes of the population. This has shown up in recent import data for wine with China importing only $1.6bn of wine last year, down more than 60% from a peak of $4.28bn in 2018 of which a large proportion came from Australian winemakers. Taylors Wines, a major company, is adopting a cautious approach to re-entering its once thriving Chinese export market, balancing the riches from once again striking it big in the country with the more sobering fact the Chinese market is not as big as it once was. The winemaker for example is now looking beyond China to newer nearby markets such as Taiwan and South Korea, and where its top-end luxury brand ‘The Legacy’ – which sells for $1000 a bottle – had allocated two thirds of its available supply to China that was now just one third with the rest spread across other Asian markets and duty-free stores. It’s this sense of excitement mixed with the cold hard slap of reality that is facing many Australian winemakers as the lifting of 200% -plus tariffs in March brings back what was once a billion dollar export market but is just in the last few years much different, harder to sell and vastly smaller.
Australia’s housing supply and affordability crisis is likely to deepen and will remain a “chronic” issue, according to Oxford Economics, which is predicting the nation will fall well short of the federal government’s ambitious plan to build 1.2 million homes over the next five years. A new report, Building in Australia, released on Monday, forecasts just 960,000 new homes will be built between now and 2029, well short of the 1.2 million target in the government’s National Housing Accord. The figures underline industry fears that it will struggle to keep up with a predicted population surge fuelled by a wave of new arrivals, as labour shortages, dysfunctional planning systems and high costs crimp activity across the sector. Report author Timothy Herbert, Oxford Economics head of property and building, said while new housing construction would reach record levels by the end of the decade, it wouldn’t be enough to keep up with a surge in demand. The report estimates new home starts in the 12 months to June 2024 fell 10% to 155,700. A small 2% rise to 158,300 is predicted in 2024-25, before activity ramps up to 241,900 new homes in 2028-29, marginally above the record set in 2016. It forecasts the current 146,000 “dwelling stock deficiency” will increase to 164,000 by June 2027 as builders struggle to keep up with rising demand. The government’s big build officially commenced this month, but industry fears are mounting that it is already slipping behind its five-year target agreed with state governments in August. The Housing Industry Association this month warned the government would fall short of its housing targets by 64,000 properties in the first year alone. To reach the 1.2 million target by the end of June 2029, an average of 240,000 homes need to be built each year. However, only 963,064 total new homes were completed over the past five years despite the pandemic HomeBuilder stimulus, which sent building levels to record highs.
Sky News Australia could be forced to change its name once its licence for the brand expires, amid a widening gap between its content and that of its namesake in the United Kingdom. The News Corp-owned conservative network, which counts Peta Credlin, Andrew Bolt and Chris Kenny among its line-up, has told staff it is beginning a major piece of work as it plans to move into a new studio. Sky News Australia chief executive Paul Whittaker told staff last week that the broadcaster would move from Macquarie Park in north-west Sydney and into News Corp’s headquarters in Surry Hills next year. Sky News Australia began as a joint venture between British broadcaster BSkyB, Seven West Media and Nine Entertainment.In late 2016, News Corp acquired Australian News Channel. At the time, it owned 39% of Sky Plc, the rebadged BSkyB. In 2018, however, Rupert Murdoch sold his Sky stake to cable giant Comcast for $22.5 billion. The sale meant Sky News Australia no longer had direct ties to its UK counterpart except a name, which sources close to News Corp said was a 10-year licensing deal. That arrangement was due to expire some time in late 2025 or 2026. Names being flagged as possible alternatives by those close to News Corp include Fox News Australia, Talk Australia or Australian News Channel. Licensing the Fox name would likely mean a deal to pay Fox Corporation, whose executive chairman is Lachlan Murdoch. Lachlan Murdoch also chairs News Corp. Talk, formerly TalkTV, is the name News Corp UK gave to its own opinion-oriented streaming service launched in April 2022. Sky UK is less conservative and opinion-led than Sky News Australia, and there are early signs Sky will not renew its licence deal with News Corp.
Peter Dutton has conceded nuclear power policy will come with a huge initial cost but says that will be offset by the 80-year lifespan of each facility. Speaking from Queensland near Callide where he intends to build one of seven reactors, the opposition leader said he would soon be presenting a business case for his plans, rather than just costings. “It is a really important point that nuclear provides cheaper electricity,” he said. “There is a big upfront capital cost, but you can amortise that cost over 80 years, it makes it a cheaper source of energy.” Mr Dutton visited Callide as the latest poll showed solar energy and gas remained the most popular forms of energy, followed by onshore and offshore wind. Nuclear was sixth in the pecking order, just above coal. Net support, as measured by the difference between those who support and oppose each energy source, was 70% for solar, followed by 46 for gas, and 17% and 16% respectively for onshore and offshore wind. Despite the wake-up call over green hydrogen that was delivered by last week’s retreat by hydrogen advocate Andrew “Twiggy” Forrest , net support for hydrogen lifted 3 percentage points from last month to 39%. Support for nuclear energy was 37%, but opposition was 35%, giving it a net support of just 2%. Coal, with 35% for and 34% against, had a net support of 1%. Mr Dutton was not allowed access to the Callide coal-fired power station for his press conference or community consultation. For this, he blamed Queensland Premier Steven Miles. The federal opposition leader has announced plans to build seven reactors in five states with the first to be operational by either 2035 or 2037. There would be five large-scale power plants and two small modular reactors. Based on the scant detail so far available, the CSIRO has estimated a total build cost of about $60 billion in today’s dollars for these facilities. Other estimates, based on actual build costs abroad, are much higher. Mr Dutton argued the life of a nuclear power plant would be three times that of a large-scale wind farm.
Insolvencies in the building and construction sector are already level with pre-Covid-19 calendar year totals, and numbers are set to exceed historical highs. Alares director Patrick Schweizer said the building and construction industry had been particularly hard hit this year. “The full-year projection for 2024 is expected to well exceed historical highs. There’s clearly a catch-up taking place from the Covid years,” Mr Schweizer said. The latest Alares Credit Insights report found insolvencies among licensed building companies to the six months to June 30 were on par with full-year totals of about 400 in 2018 and also 2019. Mr Schweizer said that, according to ASIC sources figures, from 2020 to 2022 there was 8000 fewer insolvencies across the board over the three years when compared to pre-Covid figures. “This suggests the current increase in insolvencies will continue through the remainder of 2024 and potentially into next year,” he said. The building company figures leave out unlicensed businesses, which make up most of the building and construction sector.
And that’s it for this week. And next week, I’ll be talking to Fried Thiele, the Chief Information Security Officer at Interactive. We’ll discuss how businesses can mitigate risks associated with AI.
And I will talk to Rabobank economist Michael Every about why the Chinese Communist Party Third Plenum told us nothing about China’s economy and how it can be fixed.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com.
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Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week
