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-eight in our series for 2019 and today’s date is Friday August 9.

First I talk to Rod North, founder and Managing Director of Bourse Communications. North has survived four market booms and busts, working in the financial services industry for 30 years and he will give his assessments of which way the market will go in 2019-20.

And then I’ll be talking to Alex Joiner, chief economist of IFM investors and we’ll be talking about the economic outlook in the context of the reporting season starting this week.

But first, let’s talk to Rod North.

Listen to the full podcast here:

This week saw global markets suffering sharp falls as the fallout from US President Donald Trump’s dramatic escalation of trade tensions with China continued to rock the world economy. Asian and Australian stocks were a blood-bath, with European and US stocks both joining the worst pile-up since the trade war began. The global trade tensions escalated when the United States renewed its tariff war with China, sending major stock indexes tumbling as fears of an economic slowdown rattled investors around the world.

President Donald Trump’s threat on August 1 to put 10% tariffs on the remaining $300 billion of Chinese imports that aren’t subject to his existing levies sent the market tumbling from Asia to Europe and in the U.S. The new tax would hit American consumers, and businesses are going to face even more supply disruptions. Bloomberg Economics’ initial estimate of the additional costs of U.S. tariffs and Chinese retaliation sees both economies taking a 0.2% hit to GDP by 2021. Meanwhile, a simmering trade fight between Japan and South Korea is boiling over, putting the health of two Asian export powers at stake. In Europe, concerns are mounting for a hard UK exit from the European Union.

Then the trade war got worse and entered a more dangerous phase with China responding to Donald Trump’s tariff threat letting the yuan tumble to the weakest level in more than a decade and asking state-owned companies to suspend imports of U.S. agricultural products. This sent stock markets down on fears that it will escalate the Sino-American trade war and has almost guaranteed a superpower showdown. It is a clear sign that Beijing is prepared to use the currency as a weapon and let the trade war drag on.

And as the uncertainty from the trade war drags on, it takes an increasing toll on the global economy.  The US responded by officially naming China as a “currency manipulator”, a statement which will intensify tensions between the world’s two largest economies. Stocks and emerging-market currencies sank on concern a prolonged conflict between the superpowers will weigh on global economic growth, while haven assets including the Japanese yen, U.S. Treasuries and gold climbed. Investors increased bets on Federal Reserve interest-rate cuts.

The harder line underlines a growing feeling in Beijing that Trump can’t be trusted to cut a deal, and that China would be better off waiting to see if a Democratic presidential candidate — many of whom have criticized the use of tariffs — takes office. That prospect, which would see Beijing using the value of its currency as a weapon to strike back at the Trump administration, shook world markets, as nervous investors in Asia and Europe looked for safe places to park their money.

The question now is whether Beijing will fully weaponize its currency, allowing it to significantly weaken in value versus the American dollar. It could also ripple across the globe, forcing countries that compete with China to consider devaluing their own currencies. That could lead to a zero-sum spiral of devaluations that would damage global growth and lead to even more trade protectionism, threatening the world’s economic integration.

As economist Paul Krugman noted, Trump’s latest tariffs are the world trade equivalent of the assassination of Franz Ferdinand, the event that tripped an uneasy situation into an all-out war. Watch this space.

Trade tensions have seen the Volatility index futures index rising to the highest level since 31 January, jumping 1.6 points to 27.27 today. The VIX futures on the Chicago Board Options Exchange were 20.9 points last Monday but jumped up to 25.68 by the end of the week after US President Donald Trump announced a further 10% tariff on $US300 billion worth of Chinese imports to the US.  Director at Triple3 Partners, Simon Ho, which focuses on volatility in the US market, says the yuan’s sudden depreciation is the first big surprise the market has seen for some time and this is pushing the VIX futures higher when normally the futures do not react as much. This is unusual and he hasn’t seen it for the past three years.

The Reserve Bank has taken a breather from cutting interest rates, leaving its official cash rate at the historic low of 1%.  Having cut rates at its June and July meetings, the market had largely anticipated the decision. Even so, the bank warned that Australia needed more economic stimulus amid a slowing economy, hit by a weak housing market and the Sino-American trade war. It may just be a pause with expectations of a cut next month hovering around 50%. Markets are fully pricing in a rate cut by November and another cut by May next year. With trade tensions running high, and accusations of currency manipulation in the air, the Reserve Bank is likely to cut rates again even if the household sector does pick-up a little. 

This is particularly with warnings about the economy as Deloitte’s biannual CFO Sentiment survey and the report found that net optimism amongst CFOs is down to 60%, from 73% 12 months ago and net pessimism about the Australian economy has grown since the end of 2018 – from 8% to 22%

ANZ Australian Job Ads rose for the second month in a row in July, posting growth of 0.8% after the jump of 4.9% in June. These two consecutive gains followed the election-impacted plunge of 8.3% in May and previous weakness. Despite the gain for the month, July job ads are 9.1% lower than the prior-year – a toucher weaker than the 9% annual decline recorded in June.

On the plus side, Australia’s monthly trade surplus has smashed its previous record to hit $8.04 billion, putting a current account surplus within reach for the first time since 1975. China’s insatiable appetite for mining commodities underpinned the trade surplus in June, with strong iron ore prices and export volumes helping beat the earlier $6.2 billion surplus record set in May. On the downside, imports of cars and machinery for business fell which means no-one is buying.

And new Australian Bureau of Statistics figures shows a slowdown in the decline of lending to households and businesses with the value of new lending commitments to households rising 1.3% in June 2019.  The rise in new lending to households in June follows a 1.6% fall in May 2019

The Australian Privacy Commissioner is cautioning Facebook to learn from its mistakes and explain exactly how it will protect people’s financial information when it launches its own cryptocurrency. Facebook says its new cryptocurrency company, Libra, will allow money to be sent the same way as a text message. Australia is now one of seven countries asking Facebook to explain how people’s financial data would not be shared without consent. The Privacy Commissioner says the company needs to ‘learn from its mistakes’ before launching Libra in 2020. The social media giant and a consortium of partners are set to launch the new global digital currency next year, but Australia is one of many countries demanding the fine print now.

The Morrison government has formally reopened the highly contentious debate on nuclear power by referring the issue to a parliamentary committee, with it to report by the end of the year. Energy Minister Angus Taylor has asked the House of Representatives standing committee on the environment and energy to inquire into the nuclear fuel cycle – the first inquiry into the use of nuclear power in more than a decade. It will consider the economic, environmental and safety questions involved in nuclear power. The government’s present policy is a moratorium on nuclear power, and Taylor reiterated that. Labor immediately attacked the move for an inquiry, which follows some backbench stirring in Coalition ranks, including from Nationals Barnaby Joyce and Keith Pitt and Liberal senator James McGrath. Pitt told parliament last month

Rupert and Lachlan Murdoch’s Fox has made its first move into the fintech sector with $585 million acquisition of ASX-listed Credible Labs, allowing Fox to diversify its business under pressure from Netflix and give it an online service that matches personal borrowers and lenders seeking to service the $1.6 trillion a year U.S mortgage market.  Credible Labs – which provides an online market in the US for consumer lending – will merge with a subsidiary of Fox. As part of the merger agreement, Fox Corp. will pay $265 million for 67% of the company in addition to a $75 million growth capital commitment to Credible Labs over approximately two years.

Credible provides consumers with a personalized experience to compare rates from multiple financial institutions regarding student loans, personal loans, and mortgages The deal will put Credible founder and chief executive Stephen Dash 35, on the Young Rich List. He will remain in his role at the company. He holds 43.5% of the company, but as a result of the deal with Fox, will exchange 33% of Credible Labs’ equity into units in a newly created Fox subsidiary. Fox Corporation Executive Chairman and Chief Executive Officer Lachlan Murdoch said Credible, has tremendous synergy with core Fox brands such as FOX Business and FOX Television Stations and would benefit from Fox’s audience reach and scale, driving strategic growth, further developing brand verticals and deepening consumer relationships.

Resources magnate Clive Palmer has caved into liquidators and settled the majority of the $200 million lawsuits over the collapse of Queensland Nickel. What’s important here is that he has struck a deal with government-funded liquidators chasing $66 million in unpaid entitlements for refinery workers. The workers will finally get their entitlements. In a statement, Mr. Palmer says all payments to creditors will be made in full, as well as reimbursing all money paid under the Government’s Fair Entitlements Guarantee scheme.

The Asia-Pacific medicinal cannabis market has been tipped to heat-up by the two companies involved in the launch of a new Australia-based marijuana cultivation business. Australian start-up Greenfield MC — which was launched in 2018 as an importer and distributor of medicinal cannabis — will now become a grower, under the terms of a new deal with US-Canadian company Emerald Plants Health Source (EPHS). The two companies will create a joint venture business, Greenfield MC Cultivation, which will develop a cannabis growing operation in Australia for export across the Asia-Pacific market, Business Insider Australia can reveal.

There are 20 organisations listed on the Australian Office of Drug Control’s website as having secured a license to cultivate medicinal cannabis, though it is unclear how many have actually started producing. EPHS — which is licensed to grow and distribute cannabis in Canada and listed on the New York-based OTC stock exchange — is anticipating the Asia-Pacific medicinal cannabis market will become the world’s largest as demand for cannabis-based treatment grows. A study conducted by London-based cannabis industry lobbyist Prohibition Partners and funded by cannabis growers and distributors, estimates the Asian market to be worth as much as $US5.8 billion ($8.5 billion) by 2024. Locations are now being scouted for the Greenfield-EPHS growing operation and the Queensland Sunshine Coast is a current frontrunner, the two companies said, thanks to its “favourable climate and natural light-cycle”.

The business is due to be operational by late 2020 and will employ about 200 people across farming, lab work and security. The Greenfield-EPHS deal comes as Australian actor Olivia Newton-John has thrown a spotlight on the therapeutic benefits of cannabis. The Grease star told Nine’s 60 Minutes program that the plant has greatly relieved her pain symptoms related to breast and bone cancer, increasing her energy levels and mobility.

Woolworths has signed an exclusive partnership with US-based grocery start-up Takeoff Technologies to build automated micro fulfillment centres in supermarkets or liquor stores to speed up online deliveries. Under the partnership, Takeoff Technologies will build an initial three micro fulfillment centres – warehouses where incoming orders are received, processed and filled – for Woolworths within the next 12 months. Woolworths will evaluate the suitability of the technology before deciding whether to roll it out to more sites.

The move is aimed at speeding up online deliveries by placing compact fulfilment centres closer to customers, rather than in industrial areas, and using automation to bring products closer to pickers rather than having staff walking up and down the aisles of supermarkets or dark stores to locate products. Boston-based Takeoff Technologies builds compact, automated fulfillment centres within the existing footprint of supermarkets and liquor stores, using automation, robotics, and vertical shelves to minimise the space required. Takeoff’s technology reduces the cost-to-serve, leading to savings for both retailers and shoppers. Woolworths is catching up with Coles which in March signed a long term agreement with British based online grocery company Ocado to build two highly automated fulfillment centres in Melbourne and Sydney at a cost of as much as $150 million.

And the profit reporting season is underway so here are results so far. Commonwealth Bank of Australia has unveiled an $8.49 billion cash profit for the full year, down 4.7% and below market expectations, as the nation’s largest bank was restrained by customer compensation costs, higher operating expenses and reduced fee income. Suncorp’s annual profit fell 83.5%  from a year ago to $175 million, stemming largely from the $910 million non-cash loss following the sale of the life insurance and wealth arms. Transurban reported a 63% drop in statutory net profit due to $295 million of stamp duty and integration costs associated with the WestConnex acquisition, higher finance costs and a lower income tax benefit. Excluding acquisition-related costs, the company delivered a 12.3% rise proportional earnings before interest taxation depreciation and amortisation (EBITDA) to $2 billion, while proportional toll revenues rose 10% to $2.58 billion. Shopping Centres Australiasia (SCA) recorded a statutory net profit after tax (NPAT) of $109.6 million, which was down by 37.4% on the same period last year.

And that’s it for this week. And next week, I’ll be talking to Yanir Yakutiel, founder and CEO of Aussie fintech SME lender Lumi. And I’ll be talking to economist Nicholas Gruen, focusing on his proposal 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.