Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast app, the Apple Podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at www.businessacumen.biz.
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 eleven in our series for 2019 and today’s date is Friday, April 12.
First I have a great chat with Yaniv Bernstein, Airtasker’s VP of engineering.
And then I have a great chat with RMIT economist Sinclair Davidson analysing the Morrison Government’s election budget.
But now, let’s listen to Yaniv Bernstein.
President Donald Trump’s top economic adviser says the U.S. and China are “closer and closer” to a trade deal, and those top-tier officials would be talking again this week via “a lot of teleconferencing.” Larry Kudlow’s “guarded optimism came after China’s state-run Xinhua news agency reported that progress was made during talks in Washington that ended Friday. High-level U.S. and Chinese officials met on the heels of discussions in Beijing the previous week. Chinese negotiators, led by Vice Premier Liu He, and their U.S. counterparts discussed the text of an agreement regarding technology transfers, intellectual property protections, non-tariff measures, services, agriculture, trade balance and enforcement.
The International Monetary Fund cut its global growth outlook for the third time in six months to the weakest pace since the global financial crisis, pointing to Brexit-related uncertainties and trade tensions between the US and China as fuelling its downgrade. The IMF projects global economic growth of 3.3% this year, down from the 3.5% it saw back in January.
Britain is likely to be offered a final long extension ending on 31 December after the EU’s chief negotiator, Michel Barnier, failed to convince the bloc’s capitals that Theresa May has a plan to break the Brexit impasse. A number of member states, most prominently France, along with Slovenia, Greece, Austria and Spain, remain sceptical about a lengthy extension, citing the risks to the EU of Britain behaving badly.
If the Australian government was looking for the federal budget to boost confidence among Australians, it’ll be disappointed with confidence levels falling, according to the latest ANZ-Roy Morgan Consumer Confidence Index. The headline confidence reading slipped 1.3% to 113.2, leaving it marginally above average levels. Hinting that tax relief contained in the budget missed the mark, views towards current family finances dipped 1.3%.
On the other hand, the Westpac-Melbourne Institute Index of Consumer Sentiment rose 1.9% to 100.7 in April from 98.8 in March. While the month to month rise in sentiment is fairly muted, the survey detail suggests the Budget was well-received.
Australian home loan lending bounced in February, coinciding with the conclusion of the Banking and Financial Services Royal Commission. According to the Australian Bureau of Statistics (ABS), the value of new loans to purchase owner-occupier dwellings rose 3.4% to $12.9 billion after seasonal adjustments, faster than the increase in new finance to purchase an investment property which rose by a smaller 0.9% to $4.74 billion. Markets had been expecting the value of owner-occupier lending to increase by 1% with lending to investors seen dipping by a further 0.5%. Despite the modest rebound in lending to both groups during February, total lending still remains well below the levels of a year earlier, reflecting the impact of tighter lending standards, fewer property transactions taking place, less activity from local and offshore investors along with some prospective buyers delaying their purchase in anticipation of further price falls ahead. Excluding refinancing, the ABS said the value of owner-occupier and investor lending tumbled 13.9% and 29.1% respectively from February 2018.
The March CoreLogic Hedonic Home Value Index results show declines across capital cities, led by Sydney and Melbourne. The national index for home values has fallen for a year and a half. The decline has been sharper in house values compared with apartment values; house values have fallen over 9% from their peak in late 2017, while apartment values are down around 6% from their peak. After a 12.8% rise in 2017, house values across Sydney declined 5.5% in 2018 and are forecast to fall a further 9.3% in 2019 before a slow recovery in 2020. Apartment values are set to decline at a slower pace, down 5.9% in 2019, followed by a slow recovery in 2020. House values in Melbourne are forecast to decline sharply in 2019, following a modest correction in 2018. The majority of the decline and slowdown will be concentrated in the Inner Melbourne regions. Melbourne’s apartment market is also expected to correct in 2019 and 2020, following a sharp slowdown last year. House values across Brisbane are forecast to see a correction in 2019, with strength in East Brisbane offset by declines elsewhere. The worst is likely over for Brisbane’s apartment market. Apartment values in Brisbane are tipped to recover by 0.9% in 2019, followed by stronger growth of 5.8% in 2020.
Tumbling house prices, a slowing economy and cash-strapped households crying out for a pay increase will confront whoever wins next month’s election with warnings more financial pain is facing the country. Reports from the International Monetary Fund, Moody’s Analytics and S&P Global point to a growing problem for Prime Minister Scott Morrison or Labor leader Bill Shorten that also puts at risk the Coalition’s week-old budget. The IMF believes the Australian economy will grow by just 2.1% this calender year, short of what was predicted in the budget and well down on the 2.8% the IMF forecast in October last year. Such sluggish growth would push up the nation’s jobless rate and in turn remove upward pressure on wages that have failed to grow in line with budget expectations for the past six years. Ratings agency S&P, in a report into risks facing Australian businesses, said the lack of wages growth was behind the rise of “thrifty consumers” who were looking for ways to reduce their spending. Describing consumer sentiment as “listless”, the agency said household consumption was likely to edge down because people simply did not have extra money to spend while the fall in house prices was encouraging people to lift their saving levels. And worse is to come with the property market downturn. In January, Moody’s forecast Sydney house prices would drop by 3.3% through 2019. It now says the drop-off will be 9.3%. Melbourne’s drop-off is even more acute, with the agency now predicting an 11.4% fall in the city’s house prices. In January, it was tipping a 6% decline.
ANZ Australian Job Advertisements fell by a further 1.7% in March, to be down 6% for the year. In trend terms, job ads were flat for the month and on a year to year basis fell by 3.4%.
Treasurer Josh Frydenberg has delivered a personal guarantee that workers will secure a $1080 tax cut from July, regardless of the election date. The plan is likely to include instructing the Australian Tax Office to plan for the tax cuts now and deliver them “administratively”, on the proviso that both sides of politics support the measure. It means 10 million Australians should expect to secure a benefit when they lodge their tax return. While it’s still possible the laws could pass Parliament before July 1, the ATO generally needs at least a month to get the systems up and running for a tax change so close to July 1. Mr Frydenberg offered the pledge on Sunday after Labor’s treasury spokesman Chris Bowen raised concerns that the longer the government waited to call the election, the bigger the risk the laws could not pass by July 1.
Labor has released costings showing that stage three of the government’s tax cuts – a 30% flat rate for the vast majority of workers – would soon cost $30 billion a year, as it doubled down on its refusal to adopt the cuts if it wins the election. While Labor will go to the election matching or improving on the tax cut for people earning up to $120,000, it has also ruled out adopting stage two which would benefit middle-income earners such as senior nurses, teachers and police officers, as well as higher income earners.
The Australian Labor Party has said it would review the economics of the NBN, including the implications of the multi-technology mix, on the cash-flow of the NBN Co, the company which is rolling out the network, if it were voted into office in the forthcoming Federal Election. No mention was made of a possible write-down of the value of the network, which has been canvassed quite a few times. Opposition Leader Bill Shorten and Shadow Communications Minister Michelle Rowland said on Tuesday the party would look at the capital structure, pricing evolution, and whether the NBN Co was able to invest in future infrastructure upgrades under a number of market scenarios. They jointly announced the party’s plan to improve the NBN at a conference in Sydney, saying they were putting forth “a credible policy” to make the best of the existing situation.
Chinese investment in Australia dropped by more than 36% in 2018, to its second-lowest level since the global financial crisis of 2008. The latest report from KPMG and the University of Sydney Business School found that Chinese firms invested a total of $8.2 billion in Australia last year, down from $13 billion the year before. That was despite Chinese foreign investment globally increasing by 4.2% last year. Mining led the decline, with a 90% slump in investment to $464 million — a similar level to 2016. Bear in mind the 2017 result was only boosted by Yancoal’s $3.4 billion acquisition of Rio Tinto’s thermal coal assets. Commercial real estate also posted a decline, with data compiled with the assistance of real estate firm Knight Frank showing Chinese investment fell from $4.4 billion in 2017 to $3 billion last year. This segment includes office buildings and other commercial property. The fall in Chinese commercial real estate investment was not specific to Australia, which retains an 11% share of China’s foreign investment in this sector. Instead, it reflected a general decline in Chinese offshore investment in this area, as China’s Government limited both developers and individuals from getting money out of the country for this purpose. While these two traditionally strong areas of Chinese investment in Australia waned last year, there was a strong flow of money into healthcare. The study showed three “mega deals” of more than $500 million saw Chinese investment in this sector more than double to $3.4 billion, accounting for nearly 42% of China’s total investment into Australia last year.
Wynn Resorts is pulling the plug on a potential takeover of Australian gambling giant Crown Resorts that had been seen as fetching about $US7.1 billion ($A10 billion). Both companies had previously confirmed the talks. “Following the premature disclosure of preliminary discussions, Wynn Resorts has terminated all discussions with Crown Resorts concerning any transaction,” Las Vegas-based Wynn said on Tuesday. The on-off talks leave Crown’s immediate future in doubt with owner James Packer retreating out of the market. While discussions with Wynn have broken down — for now, at least — Crown’s engagement with the U.S. suitor signalled that the Australian company was willing to talk sale terms with an interested party. Even before Wynn pulled out of the discussions, analysts at Deutsche Bank AG said other potential buyers of Crown might emerge. They could include Hard Rock International Inc., Malaysian casino operator Genting BHdand private equity firms.
Woolworths has increased its lead as Australia’s top grocery retailer increasing its share of Australia’s total grocery market to 34% in 2018, up 1.4 ppts from a year ago according to Roy Morgan’s latest survey data. While Woolworths increased its market share the newly independent Coles share of 27.6% of the total grocery market fell1.6 ppts. German supermarket Aldi has had a good year in 2018 growing its market share to 11.4%, up 0.5ppts from a year ago. The other winners over the past year were other supermarkets outside the ‘big four’ such as Foodland and Foodworks which increased their share of the total grocery market to 9.1% (up 1.2ppts) while IGA’s grocery share was down 0.4ppts to 7.1%.
Adani has been given Commonwealth approval to start building its Queensland coal mine in a victory for the controversial project. The Environment Minister Melissa Price has given the green light to the project’s groundwater management plans. The future of the proposal for central Queensland now rests with the State Government, having received the final federal approvals needed before construction can begin. The Environment Minister was under pressure from Queensland colleagues to sign off on the plans before the Government calls the election and enters caretaker mode. Ms Price said in a statement that she had accepted the advice of the CSIRO and Geoscience Australia, which both gave the plan the green light
Domino’s Pizza Enterprises is taking a bigger slice of the European pizza market by buying the master franchise rights for the Domino’s Pizza brand in Denmark. Domino’s said on Wednesday it had agreed to pay €2.5 million ($4.0 million) to acquire the company-owned stores and other assets of Domino’s Pizza Scandinavia, which went into administration early last month and has ceased trading. Domino’s has signed a master franchise agreement in Denmark with Domino’s Pizza Inc for up to 25 years, comprising an initial term of 15 years with an option to renew for a further 10 years. Australia’s largest pizza franchisor expects to restart operations in Denmark with about 20 stores within the next year, using its expertise to reinvigorate the Domino’s business.
And that’s it for this week. And next week, I have a terrific interview with Jayne Robbins, a buyer’s agent for theinformedbuyer.com.au giving insights into what investors need to do when buying into the Australian property market. And I’ll have a terrific interview with AMP Capital economist Shane Oliver.
And of course, I’ll be bringing you all the week’s news. In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Wishing you all a great week, take care, be good and looking forward to bringing you Talking Business next week.