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-five in our series for 2019 and today’s date is Friday September 27.
First I talk to Fred Schebesta, co-founder of Finder.com which is now a global business and worth (unofficially) $1 billion.
And then I talk to Indeed economist Callam Pickering, analysing the latest employment figures.
But first, let’s talk to Fred Schebesta.
The threat of impeachment is back, and this time investors appear to be paying at least some attention. Indeed, stocks headed back to session lows in Tuesday afternoon trade after news reports said House Speaker Nancy Pelosi, a California Democrat, announced a formal impeachment inquiry of President Donald Trump and ended in negative territory.
Other factors were also at work, including some downbeat consumer confidence data and a Trump speech at the United Nations that wasn’t exactly warm and fuzzy when it came to U.S.-China trade negotiations. Mr. Trump sharply criticised China, on Tuesday (local time), for what he called its unfair trade practices in a speech at the United Nations General Assembly, saying he would not accept a “bad deal for the American people”.
US President Donald Trump says his trade war with China may not be resolved before the presidential elections in November next year. Mr. Trump said “obviously China is a threat to the world in a sense because they’re building a military faster than anybody” but his focus with Beijing was on trade. Trump said he would not settle for a partial deal with China, such as one that deals only with agriculture, for example.
At the same time, US consumer confidence slipped to 125.1 in September, according to a leading private sector report by the Conference Board — down from the previous month’s reading of 135.1. It was the biggest fall in nine months and raised concerns among consumers about the economic impact of a prolonged US-China trade war.
President Donald Trump reiterated his call for the Federal Reserve to lower interest rates to less than zero in a tweet on Sunday. “We should always be paying less interest than others!” Trump tweeted, referring to the negative rates that have become commonplace in Europe and Asia. About $14.3 trillion of global debt yields at sub-zero rates, according to Bloomberg indexes. That’s down from a high of $17 trillion in late August. The Fed on Sept. 18 cut interest rates for the second time since July, but only by a quarter-point, which Trump said wasn’t enough given that other central banks have cut rates more dramatically.
He told Fox News in an interview that he’s “very disappointed” in Fed Chairman Jerome Powell and questioned his ability to “play the game well.” As of the market close on Friday, 10-year Treasuries were yielding 1.72%. Powell has said he doesn’t think the central bank will look at using negative rates. A handful of central banks – in Denmark, the eurozone, Japan, Sweden, and Switzerland – have pushed interest rates below zero. And earlier this month, the European Central Bank lowered its deposit rate by 10 basis points to minus 0.5% as part of a wide-ranging package to prop up the region’s faltering economy and lift depressed inflation.
A combination of the US-China trade war and Brexit has dragged global manufacturing into recession, according to market analysts. Manufacturing has contracted across the 36 developed economies of the OECD, the weakest performance since 2013. German factories are among the hardest hit with the sharpest contraction in activity since the global financial crisis Manufacturing surveys, or PMIs, published overnight showed European business growth has stalled, dragged down by deteriorating conditions in the economy’s traditional powerhouse Germany. The global manufacturing malaise has prompted QIC, one of Australia’s largest fund managers, to stock up on large amounts of bonds — considered the safest type of investment — in anticipation of a global economic recession. Pressure in the global economy may be a key factor in driving the RBA to cut rates again
Maybe the Reserve Bank will cut its key cash rate for a third time this year at next Tuesday’s meeting (market forecasts are for the cut to come ahead of the running of the Melbourne Cup on the first Tuesday in November), but Governor Phillip Lowe has made it clear that low-interest rates are here to stay for “an extended period” of time. In a speech delivered in the northern NSW regional city of Armidale, Governor Lowe made it very clear that the bank is prepared to continue cutting rates to help support “sustainable growth in the economy, cut unemployment and push inflation towards the target range of 2% to 3% over time.
ANZ-Roy Morgan Australian Consumer Confidence gained 0.7% last week after losing 3.5% in the previous reading. Strength was relatively broadly based across the subindices, although the “time to buy a household item” index dropped a sharp 3.8% and is now at its lowest level in ten years.
Australia is losing its appeal for Chinese tourists and students as the harmful trade war between the U.S. and Beijing, paired with a slowing economy at home, spooks them into staying put. The number of visitors from China increased just over 1% in the 12 months through July, matching the weakest rate in nine years, while the growth in students traveling Down Under to attend university has also slowed rapidly. Even a weakening Aussie dollar hasn’t managed to halt the downturn. If the slowdown in Chinese students and visitors is prolonged, it could cost Australia’s economy — the most China-reliant in the developed world — about $800 million over the next two years. Austrade, the government’s trade promotion and investment attraction agency, is already scaling back forecast tourist arrivals.
Scott Morrison has urged that China lose its developing economy status and be stripped of concessions as part of an urgent reform of the global trading system. The Prime Minister has also laid out the key principles which will guide Australia’s approach to the Indo-pacific region, ahead of two regional summits in November where it is inevitable the tensions between China and the US will again dominate. In a major foreign policy speech overnight to the Chicago Institute for Global Affairs, Mr. Morrison issued a collective appeal for WTO reform. He stressed that Australia welcomed China’s economic growth and he classified it as a “newly developed economy”. While designed as a compliment, it was also a statement that China should no longer be classified as a developing nation under WTO rules, a status that is self-assessed and entitles it to concessions not available to developed nations. Concessions can be related to environmental or labour obligations and can include longer time periods for implementing agreements and commitments. Mr. Morrison said China’s real status as a developed nation was a consequence of engaging with other nations, such as the US, which had established and lived by a rules-based order.
Rating agency Moody’s has warned that bank profitability will remain under pressure as banks face a number of challenges. Slow loan growth, intense competition, and declining interest rates will result in a contraction of net interest margins (NIMs). Increases in credit costs from historical lows will add to pressure on profitability.
A once-popular Queensland resort island ravaged by Cyclone Yasi has been sold to an investment group hoping to inject new life into the forgotten paradise. London-based group Mayfair 101 has bought Dunk Island for nearly $32 million and promises to bring the area back to its former glory. South of Cairns, the once picturesque holiday spot was hit hard by Cyclone Larry in 2006 and then virtually wiped out by Cyclone Yasi in 2011. It has sat dormant ever since. The new island owners, however, are hopeful they can turn things around. The group is also in talks to purchase part of Mission Beach in the Cassowary Coast Region at a combined price of $180 million, with hopes to transform the combined area into the “tourism mecca of Australia”. They also promise it will provide thousands of jobs. The resort, which once held proud position on the island, has been an eerie sight for 8 years. The resort was formerly owned by Peter Bond, who bought it for $7.5 million in 2011, shortly after Cyclone Yasi hit in February that same year. Bond had initially planned to have 40 suites and 40 staff at the resort but lost the key lease after several construction delays.
Climate change is driving up the number of natural disasters hitting Australia, says one of the world’s major ratings agencies, warning more people could fall behind on their mortgage payments as a result. Moody’s on Monday released research saying an increase in natural disasters across Australia could prove an economic risk to banks and their customers. Queensland and NSW had been the worst affected by disasters such as floods and fires since 1970, Moody’s said, with an increasing number of all types of natural disasters over the past 49 years.
The agency, citing Bureau of Meteorology and CSIRO research, said Australia’s average temperature had increased by 1 degree since 1910, there had been a lift in extreme fire weather and an extension in the length of the fire season, while there were now more frequent “marine heatwaves” because of warming oceans. Insurance and reinsurance companies have stepped up warnings that climate change is posing a risk to their business models and could make insurance too expensive in some areas most exposed to natural disasters. Moody’s said after Cyclone Debbie, which hit Queensland in 2017, the number of home loans behind in repayment by at least 30 days increased by 15%. It took eight months for the delinquency rate to fall back to where it had been.
Atlassian co-founder Mike Cannon-Brookes will invest part of his personal wealth in an audacious $25 billion project to create the world’s biggest solar farm, its biggest power storage system, and a 3000-kilometre cable to export energy to Asia. Speaking on the sidelines of the United Nations climate forum, Mr. Cannon-Brookes revealed he would “shortly” declare how much equity he’ll plow into the project company SunCable. Atlassian is one of only a handful of prominent Australian companies signing up to reach net-zero emissions as part of a broader push to spur business into action in the face of what United Nations Secretary-General Antonio Guterres this week described as government “obstruction” on climate policy. The Northern Territory project, which will run alongside the railway, will take seven or eight years to connect to Darwin and Alice Springs then offshore through a cable under Indonesian waters. It will be fully unveiled in the “next couple of months for sure”. During this week’s United Nations General Assembly, and immediately after the interview, the tech entrepreneur met with the Singapore government for talks about how to supply 25% of the city-state’s energy needs within a decade.
A new study suggests insider trading by company directors trading on the Australian Securities Exchange (ASX) is rife. Insider trading is illegal and takes place when investors use company information — not generally available to the public — to make money on a share market trade. The ANU looked at 50,000 directors’ trades on the ASX from 2005 to 2015 and concluded insider trading is “rife”. The study found a “statistically significant” number of directors were making trades against the flow of the market immediately after a market-sensitive company announcement.
Qantas has been asked to help the hundreds of thousands of travelers caught up the collapse of British booking giant Thomas Cook, the world’s oldest travel firm, which collapsed stranding hundreds of thousands of holidaymakers around the globe and sparking the largest peacetime repatriation effort in British history. Thomas Cook was founded in 1841. In its heyday, it counted Winston Churchill among its customers. The firm runs hotels, resorts, airlines, and cruises for 19 million people a year in 16 countries. Thomas Cook’s demise on Monday stranded 600,000 holiday-makers around the globe.
Its demise is not a sign of a weak market; the industry is, if anything, enjoying a resurgence. The number of Britons going abroad on “inclusive tours” actually rose from 14.3m in 2010 to 18.2m in 2018. Rather, the firm racked up too much debt with ill-judged takeovers and maintained too many branches. New online-only travel agents easily undercut Thomas Cook on price. The debt-laden company confirmed on Friday it was seeking £200 million ($369 million) in funding to avoid going bust and held unsuccessful talks with shareholders and creditors over the weekend to stave off failure.
Qantas confirmed on Monday afternoon that it had been approached to provide assistance to stranded travelers. Thomas Cook ceased its Australian operations earlier this year but locally listed travel business Webjet still has a commercial arrangement with the British company. Webjet’s shares fell 3.48% to $11.11 at the market close after it said it would write off nearly $44m it was owed by the British travel company. It would also take a $7m hit to the annual earnings of its WebBeds business for the current financial year.
The Hayne royal commission and a cooling economy are being blamed for the record high level of turnover among Top CEOs in Australian companies. New research from the recruitment company Robert Half found more than 40 of the top 200 CEOs – 22% – have been in their role less than a year
The merger of industry super funds Hostplus and Club Super will go ahead, with the funds signing a successor fund transfer deed with the merger to complete by the end of October. Hostplus, which manages about $42 billion on behalf of 1.2 million members, started out more than 30 years ago covering workers in the hospitality, tourism and recreation industries and is open to the public. It is one of the super industry’s best-performing funds.
Advertising veteran John Singleton has signed over his stake in Macquarie Media with his friend and venture capitalist Mark Carnegie expected to follow suit, delivering Nine Entertainment the shareholding it needs to seal the takeover of the radio broadcaster. Nine lifted its stake to 87.05% on Tuesday morning, up from 54.4%, after Mr. Singleton accepted Nine’s $1.46 per share offer. Sources have indicated Mr. Carnegie is likely to back the offer following an independent expert’s report by PwC which declared Nine’s offer fair and reasonable. That will take Nine’s stake in Macquarie to over 90% at which point the media company, owner of The Australian Financial Review, can compulsorily sweep up the remaining shares.
Digital payments giant PayPal will undertake an urgent audit of its global money transfers business given “ongoing concerns” it is being used by child exploitation rings in Asia. The financial intelligence watchdog has ordered PayPal Australia to appoint an external auditor to probe suspicions that the international funds transfer platform could be used to facilitate online child abuse material. The Australian Transaction Reports and Analysis Centre (AUSTRAC) said it is investigating PayPal’s compliance with international funds transfer obligations to or from Australia. In a statement, AUSTRAC singled out child sexual exploitation as a risk that prompted the regulatory intervention. PayPal Australia was working with global crime agencies given there is evidence that online payments platforms have been exploited by child sex rings, AUSTRAC said.
Treasury Wine Estates chief executive Mike Clarke says a potential demerger of the group’s lower-priced commercial wine arm from the higher-end business led by Penfolds could still happen as part of a bigger corporate deal involving M&A. “De-merger is still on the cards if we do the right M&A,” Mr. Clarke told an investor day briefing on Tuesday. He said the trigger would be a large M&A deal where the acquired company’s commercial wine business would have meshed together with Treasury’s own lower-priced wine arm, which makes about 30% of overall sales.
And that’s it for this week, And next week I’ll be talking to Domenic Caruso, the CEO of influencer platform CrowdMedia. And I’ll be talking to RMIT economist Professor Sinclair Davidson, analysing the Morrison Government’s latest budget update.
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.