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 eighteen in our series for 2019 and today’s date is Thursday June 6.
First I talk to Michel van Aalten, the Country Manager of Australia and New Zealand for Adyen, a leading payments technology company that provides businesses with a single global platform to accept payments anywhere in the world. A senior member of the Adyen team, Michel has worked with retailers across Europe, the U.S. and APAC. He has extensive experience in the global payments industry and has helped many leading omnichannel retailers roll out payments in new markets around the world.
And then I talk to economist Nicholas Gruen, looking at what the Morrison government can learn from Bob Hawke and John Howard.
But first, let’s talk to Michel van Aalten.
Investors may still be underestimating the full risk to the global economy from a trade war, even after U.S. stocks capped the worst month of the year. A recession could begin in as soon as nine months if President Donald Trump pushes to impose 25% tariffs on additional $300 billion of Chinese imports and China retaliates with its own countermeasures, according to Chetan Ahya, chief economist and global head of economics at Morgan Stanley.
The rift between the Trump administration and China has escalated as each side blames the other for the breakdown in talks. Over the weekend, Trump celebrated his trade policies and the recent move to impose tariffs on Mexican goods in response to illegal immigration. While stocks have declined, investors are still overlooking the impact the trade war will have on the global macroeconomic outlook, Ahya wrote in a note to clients.
Growth will suffer as costs increase, customer demand slows and companies reduce capital spending, he said. As the negative effects of the tariffs become more apparent, it may be too late for political action, according to Ahya. Policies to ease the impact are likely to be too reactive and slow to take effect. This coincides with China has blamed the United States for the breakdown in trade talks and taken aim at logistics giant FedEx as it steps up retaliation for US sanctions on tech giant Huawei.
China has begun an investigation after FedEx apologised to Huawei for delivery errors that saw two packages being shipped from Japan to Huawei in China diverted to the US. China’s news agency Xinhua said FedEx had violated Chinese laws and regulations and late last week Beijing flagged it will soon release a list of other “unreliable” companies, organisations and individuals that is expected to target US firms.
The New York Times reports that the Trump administration considered imposing tariffs on imports from Australia last week, but decided against the move amid fierce opposition from military officials and the State Department. Some of President Trump’s top trade advisers had urged the tariffs as a response to a surge of Australian aluminum flowing onto the American market over the past year.
But officials at the Defense and State Departments told Mr. Trump the move would alienate a top ally and could come at significant cost to the United States. The administration ultimately agreed not to take any action, at least temporarily. The measure would open yet another front in a global trade war that has pitted the United States against allies like Canada, Mexico, Europe, and Japan, and deepened divisions with countries like China. It would also be the end of a reprieve for the only country to be fully exempted from the start from steel and aluminum tariffs that Mr. Trump imposed last year.
Google parent Alphabet and Apple tumbled as the companies appear set to undergo U.S. antitrust probes after the Justice Department and the Federal Trade Commission agreed to split up oversight of technology giants. The DOJ’s preparations to investigate Google, first reported late Friday, mark the Trump administration’s first concrete step to scrutinize the potentially anti-competitive conduct of a large technology firm. The FTC will oversee antitrust scrutiny into whether Facebook’s practices harm competition in the digital market.
Reuters reported that the DOJ has been given jurisdiction over a potential probe of Apple. Amazon could also be scrutinized as a result of a new agreement between regulators that puts it under the jurisdiction of the FTC, the Washington Post reported over the weekend.
American antitrust officials are under increasing pressure from both Democratic and Republican lawmakers to step up scrutiny of technology giants, and several presidential candidates have already weighed in. Massachusetts Senator Elizabeth Warren laid out a detailed plan for breaking up the tech giants in March.
The Reserve Bank has cut its official interest rate by 0.25 percentage points to a new record low of 1.25 percent. While it is the first change in the RBA’s policy-setting since August 2016, it was a widely expected result after RBA governor Philip Lowe flagged it last month. Philip Lowe has set up financial markets to expect a further easing bias to 1 percent suggesting the only way the bank can achieve employment growth and inflation targets is through cutting rates. The market is also pricing in a greater than 50% chance of a third cut by February next year.
According to the Australian Bureau of Statistics (ABS), the economy grew by 0.4% in the March quarter in seasonally adjusted chain volume terms, a result that was in line with market expectations. The modest result followed a 0.2% increase in the December quarter that was unchanged from the initial estimate. Despite the modest acceleration in the economy to start the year, growth over the year still slowed to 1.8%, the weakest expansion since the September quarter of 2009, the tail-end of the GFC.
Australia’s workplace productivity growth has slowed to a crawl as the economy struggles to shake off the drag from the end of its mining investment boom earlier in the decade. The labor productivity rate declined to 0.4% in the year through June 2018, compared with an average of 2.2% since the mid-1970s, the Productivity Commission said In the mining industry, labor productivity has swung from 4.6% growth in fiscal 2016 to a 0.4% decline within just two years. Other sectors slowing include drought-affected agriculture, forestry, and fishing (-12%), arts and recreation (-7.4%), and electricity, gas, water and waste (-4.5%).
Australian retail sales fell unexpectedly in April. According to the Australian Bureau of Statistics (ABS), retail turnover fell 0.1% during the month in seasonally adjusted terms, a result well below the 0.2% increase expected by financial markets with consumers struggling with low wage rises and concerns about job security keeping their wallets shut.
In seasonally adjusted terms, ANZ job ads fell 8.4% in May and 14.9% for the year. This is the weakest monthly result since Jan-2010 and the steepest annual fall since 2013.
Australian property prices posted the smallest monthly decline in a year in May, adding to signs the worst of the housing downturn has passed. Housing values nationally fell 0.4% last month, compared to a 0.5% decline in April, according to CoreLogic Inc. data released Monday. From a year ago, prices declined by 7.3%.
The odds are stacked against Australia producing anywhere near an average grain crop this winter, according to agribusiness specialist Rabobank. The bank’s Australian 2019 Winter Crop Outlook warns dry conditions across much of the country have affected seeding as time runs out for farmers to put in a crop for this year. Rabobank forecasts domestic grain prices, already blamed for pushing up the price of food, will remain high based on depleted local stocks and another below-average harvest.
Telstra is set to axe 10,000 contractors from its workforce over the next two years. The cuts, which will affect technical contractors as well as customer service and call centre staff, are in addition to the 8,000 permanent jobs the telco has already said it will eliminate under its T22 transformation plan. CEO Andy Penn admits the “human dimensions” of the numbers is challenging but says the company has “an extensive program of support in place”.
A Melbourne gardener who claims his cancer was caused by weedkiller Roundup has launched the first case in Australia against agrochemical giant Monsanto. Michael Ogliarolo says there was no warning the product was dangerous, and that exposure to ingredient glyphosate caused his Hodgkin’s lymphoma. The case follows similar trials in the US, where Monsanto, which was bought by German pharmaceutical company Bayer last year, was most recently ordered to pay a couple $2.89bn.
The corporate regulator has ramped up scrutiny of initial coin offerings and trading of crypto assets, declaring some of the activity to be in breach of corporate laws, amid signs cryptocurrency markets could be set for a new bull run.
The Australian Securities and Investments Commission has also warned brokers and issuers it is increasing scrutiny on suspicious equities trading, after an investigation found potential insider trading ahead of mergers and acquisitions, especially in the materials sector. Last week, ASIC updated its “Information sheet 225” on initial coin offerings and crypto-assets to tell potential issuers to better understand their legal obligations. ASIC commissioner Cathie Armour told a Refinitiv regulatory conference in Sydney on Tuesday the regulator has seen some “concerning examples” of offers for crypto assets “that appear to involve misleading or deceptive conduct, or that are promoted in a way that does not comply with the regulatory framework.”
Members of Suncorp Group’s superannuation funds are preparing to sue the company for up to $180 million following claims it deliberately exploited a loophole in the Future of Financial Advice reforms, The action, led by law firm William Roberts Lawyers, will allege Suncorp breached its best interest duty and “wrongfully stripped” up to 170,000 members of “hard-earned monies”.
The allegations, which emerged in August during the superannuation round of the Hayne Royal Commission, hark back to the period before July 2013, just before a ban on conflicted remuneration became law. The action will allege Suncorp deliberately exploited grandfathering provisions in this law that would allow it to continue paying trailing commissions to its financial advisers. While the practice itself was within the law, the action claimed the alleged decision to amend agreements to allow grandfathered trailing commissions was not in the interest of members.
Batttered by the banking royal commission and facing big losses in default superannuation cover, the life insurance industry is fighting back with the launch of two campaigns designed to win over politicians and the public. Former Labor minister Bernie Ripoll will front a campaign aimed at convincing policymakers to allow life insurance advisers to keep commissions.
And major insurer AIA will run advertisements warning that changes to superannuation laws next month will leave some workers without cover. Mr. Ripoll said life insurers were seeking to replicate the success of mortgage brokers, which convinced Treasurer Josh Frydenberg to dump plans to ban trailing commissions in that industry. Mr. Ripoll, who in 2009 chaired the inquiry that led to the Future of Financial Advice laws that banned upfront and trailing commissions in financial advice, said the victory by mortgage brokers proved that “not all commissions are bad”.
News Corp is set to axe 50 jobs across its Australian business, including editorial roles from major metropolitan mastheads. The journalists’ union, the Media, Entertainment and Arts Alliance, said on Twitter there would be about 50 jobs to go, about a third of which would come from the Herald Sun and Weekly Times in Victoria. Cuts were flagged by News Corp chairman Michael Miller in a series of interview in Nine and News Corp papers on Monday, however he did not specify the number of staff who would be affected. Mr Miller said cuts would come from across the business, not just editorial and are not in just one geographic location.
The iconic and historic SPC fruit and vegetable business based in Victoria’s Goulburn Valley has been sold by Coca-Cola Amatil for $40 million. The sale, to a group called Shepparton Partners Collective, is expected to be completed by the end of this month and generate a profit of $10-15 million for the bottler of Coke.
British billionaire Sanjeev Gupta says a deal to build Australia’s largest solar plant with Chinese funding and technology heralds a “new era” in economic co-operation between the two countries which goes beyond selling products to each other. Acknowledging there were “tensions” between Canberra and Beijing, Mr. Gupta said it was time China realised it could avoid trade disputes by creating jobs and building industries in the countries they were investing in instead of relying on a trade-based relationship which focused on taking resources away.
Mr. Gupta is the executive chairman of GFG Alliance, which owns the Whyalla steelworks in South Australia. The company on Monday signed an agreement with Chinese energy company Shanghai Electric to build the 280-megawatt Cultana Solar Fair project. The project will power GFG’s Whyalla steelworks, which plans to expand to 10 million tonnes of steel output a year from 1.2 million tonnes, and the first deal under a broader $US1 billion($1.4 billion) investment program by his majority-owned renewables company SIMEC Energy Australia. It would product 600 GWh of energy a year. Mr. Gupta, who has rejuvenated a string of steel-making and engineering plants in the UK over the past few years, also wants Australia to revive its industrial and manufacturing sector through investment and overcoming high power prices with renewable energy.
And that’s it for this week. And next week, I talk to Chris Croker, the managing director of Impact Investment Partners. And they’re setting up an exciting and innovative Indigenous Infrastructure Investment Fund.
And I’ll be talking Commsec economist Craig James about what trends we can expect in the market for the week ahead.
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.