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 twenty-nine in our series for 2019 and today’s date is Friday August 16.
First I’ll be talking to Yanir Yakutiel, founder and CEO of Aussie fintech SME lender Lumi.
And then I’ll be talking to Michael Every, Rabobank’s Head of Financial Markets Research Asia-Pacific. He’ll be talking to us about the US-China trade war and what it means.
But first, let’s talk toYanir Yakutiel.
Slightly more than one-third of global fund managers surveyed by Bank of America Merrill Lynch expects a global recession in the next 12 months, the highest since 2011. The percentage of investors who have turned negative on the outlook mirrors Bank of America Merrill Lynch’s US economists, who think there is close to a one in three chance of a recession in the next 12 months.
Bank of America issued its revised forecast in a worrying note to clients overnight, saying the uncertainty around the ongoing trade war with China is weighing heavily on world stock markets. “Our official model has the probability of a recession over the next 12 months only pegged at about 20 percent, but our subjective call based on the slew of data and events leads us to believe it is closer to a one-in-three chance,” Michelle Meyer, Bank of America’s head of US economics, said. Some of the lights on the economic dashboard were also “flashing yellow”, strongly hinting at a looming recession, Ms. Meyer said. Three of the five indicators that track business performance — industrial production, automotive sales and the aggregated number of hours worked — are worrying. Goldman Sachs echoed those concerns a day earlier, warning that the bitter US-China trade war could lead to a recession.
Hong Kong’s deepening political crisis now risks becoming an economic one. After protesters brought the city’s airport to a standstill on Monday, investors and business leaders are growing increasingly alarmed by the fallout from 10 weeks of anti-government demonstrations that show no sign of letting up.
The short-term worry is that Hong Kong’s economy is headed for a recession as local unrest combines with the U.S.-China trade war to pummel retail sales, weigh on real estate prices and sink the city’s $4.9 trillion stock market. But an even bigger fear is that Hong Kong’s standing as a safe and reliable commercial hub will face irreparable damage — a potential death blow for an economy that has leveraged its business-friendly reputation to become the primary gateway between China and the rest of the world.
Further unrest risks worsening an already dismal economic outlook. Hong Kong’s GDP fell by 0.3% in the second quarter from the previous three months, while a key purchasing-managers index dropped to the lowest since March 2009 in July. Property transactions sank by 35% in the same period and retail sales have slumped for five straight months. Worries about how China will respond to the protests are adding to investor unease.
ANZ Roy Morgan consumer confidence fell marginally by 0.3% last week. The economic conditions sub-indices were down – with current economic conditions falling 4.3%, closing below its long-term average, while future economic conditions lost 0.3%.
Australian wages growth remains low and flat with the seasonally adjusted Wage Price Index (WPI) rising 0.6% in the June quarter 2019 and 2.3% through the year, according to figures released by the Australian Bureau of Statistics.
The NAB Business Conditions and Confidence survey found business conditions declined slightly in the month falling 2 points to +2 index points in July, driven by the decline in the employment sub-index. Conditions in retail, construction, and wholesale saw sharp declines in the month, partially offset by increases in mining, transport and utilities and finance, business and property services.
While conditions were softer, overall business confidence edged higher in the month to +4 index points, but that measure still remains below average. The employment index, which is watched closely by the Reserve Bank of Australia as a guide for interest rate decisions, fell five points and points to a reduction in the number of new jobs likely to come through the system.
Australians face declining living standards and mounting costs from traffic congestion and energy bills unless the nation ramps up its infrastructure-spending pipeline, according to a government-commissioned report released Tuesday. Infrastructure Australia highlights growing concerns that rapid population growth in cities such as Sydney and Melbourne have strained aging transport links. The body also underlines growing stresses from rising energy costs and inadequate water security.
The report finds:
- Energy affordability has deteriorated, with a steep rise in network costs driving energy bills 35% higher over the past decade, and up by 56% per unit of electricity consumed in real terms.
- The much-maligned National Broadband Network continues to face challenges. In the 4.8 million households now switched on, services haven’t met the expectations of many users.
- In the water sector, while many metropolitan utilities are increasing the sustainability and quality of their services through innovation, some regional areas are suffering from growing water security fears as large parts of the country are in a drought.
- Without increased spending, road and public transport congestion costs could double to nearly A$40 billion by 2031
- Community opposition has contributed to the delay, cancellation or mothballing of more than A$20 billion of infrastructure projects in the last decade.
Scott Morrison is facing growing pressure from his backbench to make meaningful changes to industrial relations laws amid warnings that another term of policy inaction would be unacceptable.
With business starting to ramp up its calls for change, the backbench is also beginning to organise, as evidenced by 17 Coalition MPs recently attending a private briefing by the Australian Chamber of Commerce and Industry. The briefing, for MPs who entered Parliament in 2016 and 2019, was held when Parliament sat the week before last and was organised by Liberal MPs Tim Wilson, Jason Falinski and Andrew Bragg.
It was designed to inform MPs from the perspective of small and medium business as to what ACCI considered were the flaws in the system. One of the biggest pushes emerging from the backbench is to exempt small and medium business from unfair dismissal laws. These protections were wound back when John Howard instituted WorkChoices but restored when Labor won power in 2007. Other targets are the enterprise bargaining system and modern awards. All these changes would risk putting the government on a collision course with the labour movement.
Subway has shuttered roughly one in ten of its Australian sandwich shops as franchisees grapple with changing consumer habits and a tough retail environment. The reversal of fortunes for the once-dominant chain has led to a cluster of disgruntled owners putting their stores on the market as they struggle to break even. Owners claim cascading bills generated by “expensive store refits” that Head Office insisted on to help salvage the brand locally have had a dire impact on finance.
In a landmark case for responsible lending, the Federal Court has dismissed allegations against Westpac, brought by the corporate regulator, that it breached responsible lending laws more than a quarter of a million times. Westpac had been accused of breaking responsible lending laws 261,987 times. ASIC claimed Westpac used a “frugal” benchmark – the household expenditure measure (HEM) – to estimate potential borrowers’ living expenses.
ASIC argued Westpac approved some loans using the HEM, when the customers’ actual declared expenses were higher than the benchmark. Westpac said it acted in good faith when assessing the loans and satisfied its legal obligation to lend responsibly by not providing customers with loans that were “unsuitable”.
But the judge found a bank could never fully assess a borrower’s expenses because a borrower had the power to change some of their expenses after taking on a loan so that they could make payments. The judge ruled that borrowers could ditch luxury food items like wagyu steak and shiraz for more humble fare. Justice Nye Perram told a Sydney courtroom that the Australian Securities and Investment Commission must pay Westpac’s legal costs after he dismissed the case. The judgment lasted five minutes, after some debate from ASIC’s legal team about the specifics of which legal costs would be paid.
Qantas and Australia Post have inked a new $1 billion expansion of the national delivery system, in a move that promises to overhaul online shopping for Australians and improve prospects for Amazon. The seven-year deal will see Australia Post use Qantas domestic flights to move freight around the country, commandeering in the process three enormous Airbuses exclusive for freight delivery.
Each will allow the postage service to deliver an additional nine tonnes of post on each flight. That combined with access to as many as 1500 domestic passenger flights a day promises to be a coup for Australian e-commerce. Amazon needs this deal. That’s because Amazon is predicted to take up the largest slice of the pie as the Australian online retail market grows. Accordingly, the shopping giant needs the kind of distribution network to allow it to expand here.
And the profit reporting season continues: JB Hi Fi’s net profit rose a better than expected 7.1% to $249.8 million in 2019 as strong sales of mobile phones, computers and audio equipment offset weak demand for software such as music and movies. Aurizon’s annual net profits after tax fell 15% to $473 million while group underlying earnings before interest and taxation (EBIT) fell 12% to $829 million.
Property owner and funds manager GPT Group (GPT.AU) said lower property valuation gains resulted in its half-year profit falling by 52%, falling to $352.6 million for the six months through June, down from $728.5 million a year earlier.
Bendigo and Adelaide Bank says redundancies and remediation costs are behind a 6.6% decline in full-year cash earnings to $415 million.
Industrial glove maker Ansell reported a 19.6% drop in annual profit on Monday, hurt by uncertainties around U.S. import tariffs and a weakened European economy. Profit from continuing operations for the year ended June 30 declined to $113.1 million, compared with $140.6 million a year earlier.
Challenger, the listed retirement products provider, has reported a full-year normalised net profit before tax of $548 million.
Magellan’s net profit rose 35% to $364.2 million. In its third-quarter update, NAB revealed an increase in bank revenue with cash earnings up 1% to $1.65 billion. CSL recorded an 11% jump in net profit after tax to $US1.92 billion (up 17 percent on a constant currency basis) for the full year to June 30.
Tabcorp’s underlying earnings jumped 42.5% to $397.6 million. For the first six months of 2019, HT&E reported profit from continuing operations of $13.3 million, down 10% from 14.9 million in the corresponding period last year.
Pact Group has scrapped its final dividend to shareholders after it swung to a net loss of $290 million. Diversified property group Dexus reported a 4.3 % lift in funds from operations, the key metric to measure real estate investment trusts, to $681.5 million.
And that’s it for this week. And next week, I’ll be talking to James Cooper–Jones, the CEO of CropLogic, which is expanding into the potential billion-dollar hemp market. And I’ll be talking to economist Nicholas Gruen about his proposals for an Evaluator General.
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. Have a great week, take care, be good and looking forward to bringing you Talking Business next week.