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 thirty-eight in our series for 2019 and today’s date is Friday October 18.
First I talk to Ben Revell, in the UK who has introduced winebuyers.com. He has made a difference in e-commerce wine retailing. It’s a case of tech meets old school, with a wine club that offers consumers the chance to buy wine at the same price direct from the supplier and which lists over 50,000 wines and spirits. Working on a completely transparent model, Winebuyers do not mark up prices or charge commission on any item sold, enabling customers to buy wines at exactly the same price as they would from the supplier direct. Winebuyers makes its revenue from charging suppliers a subscription fee and custom-built API’s automate the entire process.
And I’ll be talking to IFM Investor’s chief economist Alex Joiner analysing the RBA rate cuts.
But first, let’s talk to Ben Revell.
China wants to hold more talks this month to hammer out the details of the “phase one” trade deal touted by Donald Trump before Xi Jinping agrees to sign it. Beijing may send a delegation led by Vice Premier Liu He, China’s top negotiator, to finalise a written deal that could be signed by the presidents at the Asia-Pacific Economic Cooperation summit next month in Chile, China also wants Trump to scrap a planned tariff hike in December in addition to the hike scheduled for this week, something the administration hasn’t yet endorsed.
The U.S. and China have emerged from last week’s talks with different takes on what’s in the accord and how close they are to signing a document. Trump said “we’ve come to a deal, pretty much, subject to getting it written” and indicated it might take several more weeks of negotiation. Investors are warier. Though U.S. equities rose last week as trade tensions eased, they trimmed gains Friday afternoon when reality set in. The deal Trump called the biggest “in the history of our Country” had a significant shortcoming: it wasn’t a signed document yet, even though it has, in effect, been on the table for more than a year.
So economists reacted with a range of skepticism and doubt about what it means for growth projections that are coming down as the 18-month trade war drags on. China’s Ministry of Commerce merely said that “the two sides have made substantial progress” and “agreed to work together in the direction of a final agreement.” The state-run Xinhua news agency didn’t mention a deal either. Treasury Secretary Steven Mnuchin, speaking in an interview Monday on CNBC, said he expects officials to work in the coming weeks to get the first stage ready for both sides to sign. If that doesn’t happen, the new U.S. import taxes on Chinese products will be imposed starting Dec. 15, he said.
The chance of another Reserve Bank rate cut on Melbourne Cup day fell to 36% after the bank’s board indicated that low rates were having a negative effect on households and savers. Economists are now not banking on a cut until February after members of the RBA board noted that “policy stimulus might be less effective than past experience suggests” in the minutes for their meeting in October when they cut rates for the third time this year. The minutes say the usual stimulatory effect on borrowing or the construction industry “may not be operating in the same way as in the past, and that the negative effect of low-interest rates on the income and confidence of savers might be more significant”.
Prime Minister Scott Morrison declared his budget surplus plan will not be “spooked” by international events, as the International Monetary Fund slashed Australia’s economic growth forecast to just 1.7%, worse than Greece, and advised world governments to unleash a spending stimulus. The IMF’s World Economic Outlook warned of a synchronised global slowdown to the weakest pace since the 2008-09 global financial crisis, as the world economy is pummelled by the US-China trade war that is inflicting a “sharp deterioration” in global manufacturing and trade.
The IMF downgraded Australia’s forecasts, slicing 0.4 of a percentage point off growth for 2019 and cutting the 2020 expected recovery rate by 0.5 of a percentage point to a below-average 2.3%. The fund reckons world GDP will grow by 3% in 2019, 0.3 percentage points less than it forecast six months ago. This will make its slowest rate of expansion since the great recession of 2009.
Treasurer Josh Frydenberg has charged the consumer watchdog with investigating the refusal of the banks to pass on in full the recent spate of interest rate cuts, creating the potential for a further round of government intervention. After his calls for the banks to pass on rate cuts in full were ignored for the third time this year, Mr. Frydenberg tasked the Australian Competition and Consumer Commission with looking into the pricing of residential mortgage products, and to examine obstacles that stop customers switching lenders.
The ACCC will focus on the period since January this year and the response by the banks to the three rate cuts made by the Reserve Bank in June, July and October, which have resulted in the cash rate being reduced by a total of 75 basis points. At the same time, the big four banks have passed on an average of 57 basis points in owner-occupied home loan rates. Their refusal to pass the rate on in full, as well as delays in passing on the reductions the banks did grant, will see the big four-pocket $569 million in revenue between them, according to Treasury numbers released by Mr. Frydenberg. The inquiry will focus on the entire residential mortgage sector – the big banks, the smaller banks, and non-bank lenders – but the emphasis will be on the big four, which have 75% of the market. It comes after ACCC chairman Rod Sims accused banks of dudding their loyal customers, a claim rejected by RBA member Ian Harper who countered that price discrimination was neither illegal nor unusual.
Banks and financial services companies that bury consumers in a complex “sludge” of disclosure and fine print face a crackdown by the corporate regulator. The Australian Securities and Investments Commission (ASIC) has warned that consumers are exposed to greater harm with some companies using the cover of disclosure to deliberately bamboozle with a deluge of legalese that pushes some into inappropriate financial products.
A joint study by ASIC and the Netherlands Authority for the Financial Markets examining 33 international case studies found product disclosure statements, so-called “simple” key fact sheets and warnings were ineffective and harmed consumers of banking, insurance, investment advice, and superannuation. Among the case studies over a decade contained in the ASIC-Dutch report, published on Monday night, superannuation dashboards – intended to provide a simple snapshot summary of a super product on a fund’s website – were found to be “vulnerable to manipulation”.
“A key implication of this research is the ease with which consumer choice could be manipulated through the ‘dashboard’ – for example, by relabelling or reweighting asset allocation information used in the pie chart,” the report notes. Two-thirds of people were not able to locate all relevant investment fund fees and less than half could identify all super fund fees. In insurance, consumers focused too much on the price to the exclusion of other factors such as the terms of payouts in the event of an accident. Only two in five Australians are given a key fact sheet for insurance objectively selected the best product, with 60% given suboptimal insurance. Some 86% of local consumers assessed the quality of financial advice to be good, in contrast to 39% of the same advice being independently rated as poor. This year ASIC has targeted risky payday lending firms such as Cigno and add-on insurance products sold by car yards.
Gina Rinehart is moving from the mining boom to the dining room, expanding her agricultural beef production in New England, with the purchase of another property. Pastoral Properties, a subsidiary of the billionaire’s mineral exploration and extraction company Hancock Prospecting, has bought several properties in the region, as part of the tycoon’s diversification into Wagyu beef. The most recent purchase was the historic Warrabah Station, between Kingstown and Manilla, and the acquisition takes the total number of Ms. Rinehart’s New England properties to six. Other properties include three Lyndhurst properties, totaling 3280 hectares, and two Kingstown properties which includes the 17,800-hectare Sundown Valley, purchased for its breeding and growing capacity.
Bunnings has announced a big change; it’s going online in a big way. Bunnings says it will bolster its online offering next month by launching a digital platform to allow customers to shop from home and have items delivered to their doorstep. The iconic hardware chain has already announced it will have more than 60,000 products available for click-and-collect within the next year, but it will now also have its very own online marketplace. The major retailer has dubbed the initiative Marketlink, which will give customers access to a wider range of home and lifestyle goods selling as much as 8,000 products. The online division will give shoppers access to items not currently available in-store including indoor furniture, white goods, kitchen appliances, home entertainment, kitchenware, and homeware.
Bunnings says its website is the third most visited shopping and classified site in the country, which makes it an attractive platform for home and lifestyle retailers and manufacturers to pursue as a sales alternative. But can you order a Bunnings snag online?
There is growing evidence that $16 billion in stimulus in the form of tax cuts and record low-interest rates has failed to convince shoppers to open their wallets with furniture retailer Nick Scali warned profits could fall as much as 32% in the December half after cautious consumers postponed purchases of sofas, dining tables, and bedroom furniture. In a trading update two weeks before its annual meeting, Nick Scali said monthly store sales were down by 10 to 15% in the first three and a half months of FY2020, dragging same-store sales down by 8%. As a result, the company expects a net profit for the six months ending December to fall by between 24% and 32% to between $17 million and $19 million.
Melbourne’s Crown casino faces fresh demands for an official inquiry into its activities, with allegations to be aired that the venue brings overseas high rollers into Australia without customs checks. Video footage shows dozens of “bricks” of $50 and $100 notes – hundreds of thousands of dollars worth – being casually handed over from a shopping bag in a high-rollers’ room at Melbourne’s Crown Casino.
Independent MP Andrew Wilkie will use the claims of a limousine driver for the gambling giant, who alleges a culture of drugs, prostitution, violence against women and other abuses among the VIP gamblers at Crown, to call for a royal commission. The whistleblower, speaking on condition of anonymity, has told the Tasmanian MP that casino employees are expected to ignore or facilitate the law-breaking, under a system known among staff as “Crown law”.
The driver says Crown staff will procure drugs or sex workers for the overseas high rollers who are flown into Melbourne Airport on private jets, bypassing the official customs checks imposed on other travelers. Mr. Wilkie has joined forces with Victorian state MP Fiona Patten, with the pair to launch a push for a royal commission into Crown, saying the driver’s video testimony is another piece of evidence that cannot be ignored by state or federal authorities. The two MPs, who will release a video of the driver’s claims, say the man is a credible witness and his allegations call for a further official investigation. Australian casinos are already under investigation by the Australian Criminal Intelligence Agency after revelations in July by The Age and 60 Minutes that the Melbourne venue had business ties to organisations linked to Chinese organised crime. Crown is being separately investigated by the Victorian Commission for Gambling and Liquor Regulation as a result of the reports.
Beer giant Carlton & United Breweries is tapping into drinkers’ growing taste for craft beer, striking a deal with one of the founding fathers of Australia’s craft brewing industry, Phil Sexton, to establish a boutique brewery in Victoria’s Yarra Valley. The move is the latest acknowledgment from major breweries that consumers are increasingly turning to craft beers, a segment that has grown strongly at the expense of mainstream beers. The new brewery will make beers under the Matilda Bay label, including well-known names like Redback and Dogbolter. It will also develop a new range of Matilda Bay beers. Mr. Sexton was a joint founder of the Matilda Bay brewery in the early 1980s and a joint founder of Little Creatures brewery, both of which were established in Fremantle in Western Australia. CUB fully acquired Matilda Bay in 1990.
Santos boss Kevin Gallagher says gas has a big future as the company inked a $2.2 billion deal to buy a range of northern Australian assets from the international oil and gas company ConocoPhillips. The assets are both onshore and offshore, and Santos expects the acquisitions will lift the company’s earnings per share by about 16%. ConocoPhillips is the operator and majority owner of the Darwin liquid natural gas (LNG) plant and the Bayu-Undan offshore field that supplies the Darwin plant. Santos currently has an 11.5% share in each.
And that’s it for this week. And next week, I’ll be talking to Tommy Huppert, CEO of Cannatrek which has just got permission from Greater Shepparton City Council to build a $160 million medicinal cannabis production facility near Shepparton, Victoria. When completed, it will be one of the world’s largest medicinal cannabis facilities, creating more than 400 jobs a year for the Greater Shepparton area and beyond. The facility will include a 160,000m2 growing area under a giant high-technology glasshouse. When operating at full production, the Company aims to produce 160 tonnes of medicinal cannabis per year. And I’ll be talking to Rabobank economist Michael Every, analysing the latest attempt by the US and China to come up with a trade deal.
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.