This is episode number seventeen in our series for 2020 and today’s date is Friday, May 29.
First I talk to Caroline Bowler, CEO of BTC Markets, the largest, most liquid Australian bitcoin exchange with 260,000 Australian customers trading more than $8 billion.
And then I’ll be talking to economist Saul Eslake will offer his views on where the Australian economy is heading.
But first, let’s talk to Caroline Bowler.
Investors have been buoyed by more glimmers of hope on COVID-19 vaccines and the further reopening of the US economy. On Wall Street, the S&P 500 now sits just 2.45% below the level seen as the start of November 2019, the month when we now know the virus first emerged in China. The gap in Australia is a little wider, with the ASX 200 down 13.3% since the start of November. Nonetheless, optimism appears to be building here. This was neatly demonstrated on Tuesday when the ASX 200 climbed 2.9% and officially emerged from a bear market
Carmen Reinhart – the World Bank’s incoming chief economist – just declared that globalisation is probably dead, and flaring trade tensions between the world’s two biggest economies are supporting that theory. “Without being melodramatic, Covid-19 is like the last nail in the coffin of globalization,” Reinhart, a professor of international finance at the Harvard Kennedy School, told Bloomberg TV’s Alix Steel and Michael McKee. “The 2008-2009 crisis gave globalization a big hit, as did Brexit, as did the U.S.-China trade war, but COVID-19 is taking it to a new level.”
At the National People’s Congress, the pinnacle of its political calendar, China on Friday reiterated its commitment to implementing the phase-one trade deal signed with the U.S. The agreement, signed in January, compels it to buy goods in goals that seemed lofty even before the Covid-19 pandemic hit demand and battered supply chains. Yet within hours, White House economic aide Kevin Hassett told CNN the U.S. is closely studying economic penalties for China related to the nation’s plan to enact sweeping national security legislation in Hong Kong.
That’s not all: President Donald Trump escalated his rhetoric against China over the pandemic, the Senate approved legislation that could lead to Chinese companies being barred from trading on U.S. stock exchanges, and a retirement-savings plan for federal workers deferred a plan to include Chinese stocks in its investments. Beijing’s fight isn’t just with Washington: Last week, it slapped anti-dumping duties on Australian barley for five years and suspended meat imports from four processing plants in the nation after the government in Canberra called for an independent investigation into the origins of the coronavirus. With China’s NPC continuing this week, and Trump never far away from a microphone, investors will be on the lookout for more comments to help decipher the situation. As Tom Orlik, Bloomberg’s chief economist says:
“With the global economy in a historic slump and growing fears of a slide back into U.S.-China trade war, the echoes of the Great Depression are getting harder to ignore. A rapid bounce back from the lockdown recession already looks tough to achieve, add in fresh barriers to trade and capital flows, and it will get even harder.”
China has sought to reassure international investors that a proposed national security law that critics say gravely threatens Hong Kong’s autonomy would instead improve the business environment in the Asian financial hub. Speaking a day after pro-democracy protesters returned to the streets of Hong Kong following a hiatus during the coronavirus outbreak, Xie Feng, China’s foreign ministry commissioner in Hong Kong, said the proposed legal changes would restore calm following a year of unrest. “The legislation will alleviate the great concern among the local and foreign business communities about the violent and terrorist forces attempting to mess up Hong Kong,” said Xie Feng.
“[It] will create a more law-based, reliable, and stable business environment for foreign investors.” The speed of Beijing’s announcement last week that it planned to impose the new legislation caught many investors by surprise and has raised concerns over the city’s future as a global financial hub. The proposal to draft the law is expected to be passed by China’s rubber-stamp legislature on Thursday. It would prohibit secession, subversion, foreign interference, terrorism and permit China’s state security services to maintain a formal presence in the semi-autonomous territory. Under the ‘One Country, Two Systems’ framework Beijing has granted civic freedoms and a high degree of autonomy to Hong Kong until 2047. According to the Basic Law, the city’s mini-constitution, Hong Kong is required to implement an anti-subversion law to replace colonial legislation which was revoked when the United Kingdom handed over the territory to China in 1997.
And in Australia, consumer confidence rose 0.4% to 92.7 points over the last week, according to the ANZ-Roy Morgan measure. “Confidence strengthened further last week, albeit modestly,” said ANZ’s head of economics David Plank. But in a worrying sign for spending levels, confidence in future economic outlook fell by 2.4% despite confidence in the outlook for finances rising by 3.2% and nearing its average.
Prime Minister Scott Morrison pivoted from the beleaguered JobKeeper scheme to a “JobMaker” plan, including a federal overhaul of the Technical and Further Education system. Morrison used his National Press Club address to outline the new slogan, putting conditions on $1.5 billion in funding to states for the skills sector, such as a uniform price for training costs and basing the number of available course places on industry needs. This will see Australia’s $7.7 billion training sector set for a rewriting of deals with the states and an attempt to unify public subsidies as part of an economic plan to recover from the coronavirus crisis.
He also placed tax reform, deregulation, and industrial relations on the agenda. He warned companies need to “get off the medication” of JobKeeper to get the economy “out of ICU”. The news comes as The Australian Financial Review reports the federal government’s $60 billion overestimations of the cost of the program may cost taxpayers roughly $180 million in higher interest rates.” And in a show of good faith, cooperation and negotiation needed to get JobMaker off the ground, Scott Morrison says the government will not pursue another vote of its union-busting Ensuring Integrity Bill in the Senate.
Prime Minister Scott Morrison says the Government will shelve contentious “union-busting” laws as a sign of good faith while pointing towards an overhaul of Australia’s industrial relations system. The Government will not pursue a second vote on its Ensuring Integrity Bill, which was strongly opposed by unions. Mr. Morrison says the current industrial relations system is not fit for purpose and the Government will hold a number of consultations on the issue ahead of the October Budget. Mr. Morrison used a speech to the National Press Club to announce Industrial Relations Minister Christian Porter would lead a new process bringing together unions, employer groups, and businesses to try to change the current system, which he said was “not fit for purpose”. This has seen unions and businesses signing up to a new accord-style compact with the Morrison government to negotiate an overhaul of the industrial relations system, including a revival of Keating-era enterprise bargaining that encouraged workers and employers to maximise workplace productivity and wages.
Company directors and executives providing profit guidance to sharemarket investors will be relieved from continuous disclosure rules for the next six months and further insulated from class action lawsuits, as the government seeks to protect business from the economic uncertainty fuelled by the coronavirus. Treasurer Josh Frydenberg announced the government will temporarily amend the Corporations Act so that companies and their officers will only be liable for continuous disclosure breaches if there is “knowledge, recklessness or negligence” with respect to updates on price-sensitive information. However litigation funders, plaintiff lawyers, and the industry super sector have condemned the changes and questioned whether consumers would be adequately protected in the rush to raise capital during the COVID-19 crisis. Labor also criticised the move and said that it was worried shareholders were being put at risk.
Australia’s working from home boom saw the importation of laptops and office equipment from China jump by up to 40% during the COVID-19 shut down in April. Preliminary data from the Australian Bureau of Statistics showed that while imports dropped $1.33 billion or 5% to $23 billion in April, they were held up by a massive spend in office equipment including computers, printers, scanners, accounting machines, and cash registers. “Of note, imports of laptop computers from China remained strong in April 2020, in line with increased demand during the COVID-19 lockdown period,” the ABS said. In April imports of office machines and automatic data processing machines topped $1.43 billion – the highest amount spent since records were kept in 1988, clearly reflecting the surge in people working from home.
A survey of consumers conducted by UBS at the height of the pandemic panic in early April found household fragility was pointing to post-COVID pain. A third of consumers were bracing for a loss of working hours due to COVID-19, while 22% were expecting a reduction in wages. But more concerning, a staggering 39% said they had less than one month in buffers if they were to lose their jobs, while 63% of respondents said they less than six months of buffers. The proportion of respondents who expected household income to increase plunged from 46% in the first quarter of the calendar 2020 to just 35%. In addition, middle and low-income households are expecting to have to take on more debt in the next 12 months.
Deakin University has announced that 400 jobs will be axed in response to the financial pressures created by the coronavirus pandemic. Deakin’s announcement is likely to be a harbinger of much wider-ranging job cuts across Australia’s tertiary sector, Deakin is confronting a loss of between $250 and 300 million in revenue, mostly due to an international student shortfall. Universities Australia says the nation’s universities could lose $4.6 billion in 2020 revenue due to the pandemic, with 21,000 full-time jobs likely to go. This coincides with the university staff union’s plan for a national framework for campus-by-campus wage negotiations being derailed just days before it was due to go to a ballot of all members. At least 17 universities including the University of NSW, the University of Sydney, RMIT, University of Melbourne and University, Deakin, Curtin, the Australian Catholic University, and Central Queensland University rejected the plan which included a proposal for wage cuts of up to 15%.
Global market turmoil caused by the coronavirus has wiped out a year’s growth for Australia’s pensions industry, the world’s fourth-biggest pot of retirement savings. Assets under management fell 7.7% to $2.73 trillion in the three months to March 31, back to almost the same level it was a year ago, Australian Prudential Regulation Authority data published Tuesday showed. That’s a marked turnaround for an industry that’s used to exponential growth, with 9.5% of a worker’s gross salary paid into a retirement fund each month. The drop came as funds sold stocks and boosted cash holdings in preparation to pay out billions of dollars to members allowed to access their retirement savings early under the government’s emergency response to the virus.
APRA regulated pension funds suffered A$210.7 billion of investment losses during the period, which saw equity markets from Sydney to Hong Kong and London tumble. Despite a recovery in markets in April, the savings system is set for more falls as rising unemployment crimps the level of mandatory payments into pension funds. Funds have also paid out more than A$10 billion in early access requests, with more expected.
Men have withdrawn 40% more savings than women under the government’s early release superannuation scheme, according to data from the Australian Taxation Office. The figures showed that people up to the age of 35 withdrew a little more than half of all assets redeemed as part of the scheme – despite representing only a third of all fund members and just 8% of all super assets. As of May 11, men had made 772,000 requests – 57% – to access up to $10,000 before the end of the financial year. That compared with 582,000 women. Men withdrew $6.5 billion – 40% more than the $4.6 billion accessed by women, according to the figures that were provided on notice to a parliamentary inquiry into the government’s response to the coronavirus pandemic.
Labor had raised concerns about the potential impact of the early access scheme on women, as they generally retire with far less super than men. According to the Association of Superannuation Funds of Australia, the average balance for a man between the ages of 55 and 64 is $333,000 compared with $245,000 for a woman.
The Australian tourism industry is reeling as Australian leaders are bickering over closed borders. With Australia closed to international visitors, domestic tourism is the only lifeline for an industry that’s been crippled by the virus. But Queensland and other states such as Western Australia, which have largely contained the virus, maintain it’s too early to allow in visitors from New South Wales and Victoria, the two most populous states that have been responsible for about 90% of Australia’s new infections in the past two weeks.
Queensland Premier Annastacia Palaszczuk wants NSW and Victoria to record no local cases of coronavirus for one month before she will reopen the state’s borders to the rest of the country. But the state government has confirmed this benchmark could change before its monthly review of border restrictions. The engine room of the economy, the two states Victoria and New South Wales have kept their borders open, but are still trying to contain isolated outbreaks, such as recent clusters detected in a Sydney aged-care home and a Melbourne meatworks. The border closures have seen a war of words broke out between state and territory leaders, who until recently had put aside political differences as they tackled the crisis in a National Cabinet led by Prime Minister Scott Morrison. Federal health officials have consistently said that the border closures aren’t necessary and the prime minister himself has called for unrestricted domestic travel under a three-stage plan to reopen the economy by the end of July. Ultimately, it’s an issue for state governments to decide.
Australian drinkers have assuaged fears that the coronavirus pandemic would lead to a “booze-fuelled lockdown,” Alcohol sales have continued to decline after an initial surge in panic buying back in March. Sales by volume plummeted by 61% in April, compared with the same period last year, according to the Beverage Council. Sales were up slightly in the first two weeks of this month but remained 32% below the same period last year. Overall, beer sales declined more than wine and spirits when pubs, clubs, and bars remained closed.
Coca-Cola Amatil CEO Alison Watkins says the company is likely to cut staff if Australia “falls into recession,” The beverage conglomerate has taken a massive hit from a stay at home orders and venue closures across the Asia Pacific region, with sales slipping 33% in April from the previous year. Petrol station convenience stores were hit especially hard, as sales plunged 70%. May has delivered a “modest improvement” for the company, with sales down 26% in the first three weeks of the month. Ms. Watkins said there was too much uncertainty in the economy to provide a clear outlook, but she may be in a position to provide a clearer view when the company reports its half-year results in mid-August.
Air New Zealand has confirmed it expects to report an underlying loss for the 2020 financial year while estimating hedging losses and aircraft impairments of up to $560m. The slim-lined Kiwi carrier is now 30% smaller, having cut 4,000 staff and placing 15 Boeing 777s into mothballs. The airline, which is domestic-only until travel restrictions are lifted, says that the road back will be an enormous challenge, with revenues from flying likely to amount to “a small fraction of what we’re accustomed to”.
And that’s it for this week. And next week, I’ll be talking to LiveTiles co-founder Karl Redenbach about remote working. And I’ll be talking to RMIT economist Jonathan Boymal about the downturn in Australian property prices because of COVID-19.
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 safe and healthy week and looking forward to bringing you Talking Business next week.