Global stocks slide as protests in Chinese cities against the country’s strict zero-COVID curbs raise worries about growth expectations in the world’s second-largest economy

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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 44 in our series for 2022 and today’s date is Friday December 2.

First, I’ll be talking to the APAC general manager of WeWork Balder Tol. And I’ll be talking to economist Nicholas Gruen about citizens’ juries.

But now, let’s talk to Balder Tol.

Global stocks fell sharply after protests in China against the government’s strict Covid-19 policies prompted investor worry over the outlook for the world’s second-largest economy. Wall Street’s benchmark S&P 500 index closed 1.5% lower, while the tech-heavy Nasdaq Composite lost 1.6%. The losses were the largest since November 9, the first session after the US midterm elections, and cut into strong gains for equities this month. In Hong Kong, the Hang Seng China Enterprises index dropped as much as 4.5% before pulling back to shed 1.6%. The decline on China’s CSI 300 index of Shanghai- and Shenzhen-listed shares was as big as 2.8% before it was trimmed to just over 1%. Demonstrations broke out in Beijing, Shanghai and other cities over the weekend against government-induced pandemic restrictions. Discontent has intensified since a fire in the city of Urumqi killed 10 people last week, leading to vigils across China as authorities denied allegations that coronavirus restrictions had hampered rescue efforts and prevented residents from escaping the blaze.

Elon Musk’s tumultuous reign at Twitter has led to a damaging rift with top brands and marketers, with the social media company’s $5bn-a-year advertising business hit by tensions over content moderation and resources. Top advertising agencies and media buyers say nearly all of the big brands they represent have paused spending on the social media platform, citing alarm at Musk’s ad hoc approach to policing content and decision to axe many of its ad sales team. Musk, meanwhile, has sought to personally call chief executives of some brands that have curbed advertising in order to berate them, according to one senior industry figure, leading others to instead reduce their spend to the bare minimum required so as to avoid further confrontation with the billionaire entrepreneur. After several waves of job cuts and departures, Twitter’s ads business team has shrunk so much that many agencies no longer have any point of contact at the company and have received little to no communication in recent weeks. Some brands have been unable to get feedback on how previous campaigns have performed because of the staffing shortages. Musk is under pressure to draw revenues from Twitter, as he faces $1bn in annual interest payments after loading the company with $13bn of debt to help fund his acquisition of the business. His relationship with advertising agencies soured after Musk laid off more than half of the company’s 7,500 workforce, upending Twitter’s ads sales team and trust and safety team, and heightening concerns that misinformation and hate speech could proliferate on the platform. Groups such as General Motors, Volkswagen, Carlsberg and General Mills, have announced they would be pausing spending on the platform given the moderation concerns.

Higher interest rates and cost-of-living pressures forced consumers to cut back on spending in October. Retail sales fell 0.2% in October, according to data released on Monday by the Australian Bureau of Statistics, defying market expectations of a 0.5% gain. The figure was the first fall in retail spending this year, and the first decline since the onset of the pandemic that did not coincide with a lockdown or harsh COVID-19 restrictions.

The monthly Consumer Price Index (CPI) indicator rose 6.9% in the year to October 2022, according to the latest data from the Australian Bureau of Statistics (ABS).

The Albanese government has agreed to annually review the adequacy of benefits for the unemployed and other welfare recipients, under a deal struck with independent senayor David Pocock  to pass workplace relations legislation. The deal will place regular pressure on the Labor government to increase the $668.40 JobSeeker fortnightly payment for singles, which community groups and business have argued is too low. Two weeks before each federal budget, a new “Economic Inclusion Advisory Committee” will publish any recommendations in response to a review of the adequacy of support payments. The committee will be appointed by Treasurer Jim Chalmers and Social Services Minister Amanda Rishworth and include participants from the community sector. Senator Pocock has been campaigning for an increase in the JobSeeker benefit. He negotiated a deal directly with Prime Minister Anthony Albanese in Canberra on Saturday, to set up an annual and transparent review before federal budgets, in return for supporting the government’s industrial relations legislation. Mr Albanese said Labor will establish a new statutory advisory committee to review approaches to boost economic inclusion and tackle disadvantage.

Queensland suffered more economic damage from extreme weather disasters than any other state or territory, and more extreme weather is on the way. A Climate Council report has examined the financial, social and economic costs of climate change-driven weather events. It found that disasters have cost Queensland about $30 billion since the 1970s – about three times that of Victoria and public infrastructure damage in south-east Queensland has cost $492 million since the 1970s  The economic cost to Queensland from the floods in February and March alone was $7.7 billion, with an estimated $5.56 billion in insured losses across south-east Queensland and coastal NSW. Brisbane suffered about $1.38 billion in insured losses from this year’s floods, more than any other local government area in Australia.

The federal Labor government will spend $20.5 million to discount loans used to purchase electric vehicles as part of a deal struck between the Clean Energy Finance Corporation and Taurus Motor Finance. Labor has made boosting electric vehicle sales a centrepiece of its plans, and scored a legislative victory earlier this month to exempt low-and-zero-emission cars from fringe benefits tax, potentially saving buyers more than $30,000.

Crown Resorts, the country’s largest casino operator, has posted a near $1bn loss as it sets aside more than $600m to pay for fines levied by gaming regulators. In its last year of public ownership, the company has posted revenues of $1.94bn, up from the $1.54bn in the previous financial year. But expenses have blown out from $1.98bn in the year to June 30, 2021 to $3.09bn. That figure includes $617m set aside for regulatory and other related matters, accounts lodged with the corporate regulator show. The company posted a net loss of $945.4m, compared to a $261.3m loss in 2021.

At least one state is squaring up for a fight with the federal government as it considers gas price caps and other interventions to curb Australia’s spiralling energy bills. As the Commonwealth prepares to intervene with a nationwide curb on power prices, Queensland Premier Annastacia Palaszczuk warned late on Tuesday that her state would not sacrifice energy rebates enjoyed by Queenslanders. Prime Minister Anthony Albanese’s cabinet is expected to go ahead with a new strategy to limit power price rises across the country after the federal budget forecast two years of rising household energy bills. The government is working out the details of how gas prices can be capped, and crafting a policy that may include subsidies. The ABC reported on Tuesday that the plan would likely include a cap on wholesale gas prices at about $12 a gigajoule, demands for a guaranteed domestic gas supply from producers, and a mandatory code of conduct as part of a market intervention first flagged five weeks ago. The details are expected to be made public as early as next week, when Mr Albanese will lead a national cabinet meeting and Energy Minister Chris Bowen will meet his state counterparts. However, a $12 cap would be too high for the Australian Council of Social Service and the Australian Workers’ Union, which said on Tuesday a wholesale price lid should be closer to the five-year average spot price of $8 to $10 a gigajoule. Prices have been three times that this year in most markets, according to the Australian Energy Regulator.

The financial crime watchdog is suing the Star Entertainment Group over allegations that high-risk VIP patrons churned dirty cash through its Sydney, Brisbane and Gold Coast casinos for a “number of years”. Australian Transaction Reports and Analysis Centre (AUSTRAC) filed its case against Star Sydney and Star Queensland in the Federal Court on Wednesday, alleging the casino group facilitated money laundering which amounted to “serious and systemic” breaches of federal law. This made the casinos vulnerable to criminal exploitation, where Star’s failure to manage risky patrons in “turn exposed the Australian and global financial system to systemic money laundering and terrorism financing risk over many years,” AUSTRAC said in a statement The alleged offences could result in hundreds of millions of dollars in fines being slapped on the casino conglomerate, but AUSTRAC did not include a dollar figure in its statement. Rival Crown Resorts is facing a similar court action and has stashed more than $600 million to pay for fines levied by the states and the regulator.

Liquidators can see how an ASX-listed fund named after a dead pirate got its name. The fund named after the pirate had collapsed following a string of red flags, including the possibility of investments being “significantly overstated”. The liquidators’ probe into the Henry Morgan fund named after a 17th century Caribbean buccaneer, have raised questions about $12 million in performance and management fees paid by the fund based on such valuations. The questions being raised centre on a string of pirate-themed investment vehicles associated with former Bond University academic Stuart McAuliffe, who boasted of modelling his investment strategies on the military campaigns of Julius Caesar and George Patton. The Brisbane-based Henry Morgan fund was one of several entities of which Mr McAuliffe was either a director or headed and that listed on the ASX or NSX. The Henry Morgan fund alone, first listed in 2016, raised almost $30 million on the ASX. But some of the pirate-themed entities became embroiled in battles with regulators and exchanges. The Henry Morgan fund’s shares were suspended in 2017. It delisted in 2020 and was forced into court-ordered liquidation in August this year. Liquidators Ian Niccol and Vincent Pirina of Aston Chace, in a filing with the Australian Securities and Investments Commission (ASIC), have outlined a series of reasons they believe that the fund failed. They included that the funds raised were not used for “the purpose set out in the prospectus but for the purpose of investing in and paying fees to companies and businesses connected with Mr McAuliffe”. It said the “value of investments in Mr McAuliffe’s related companies and businesses may have been significantly overstated” in the fund’s accounts, increasing its net tangible assets. That had an effect on management and performance fees payable to an investment management company called John Bridgeman, named after another 17th century pirate and also where Mr McAuliffe was managing director.

Reserve Bank Governor Philip Lowe has given an unprecedented apology to Australians for giving them unclear guidance that led to hundreds of thousands taking out big mortgages in the expectation that interest rates would stay low until 2024. Well, his answer was couched as an apology. “I’m sorry if people listened to what we’d said and acted on what we’d said and now regret what they’ve done. I’m sorry that happened,” he said. “I’m sorry that people listened to what we’d said and acted on that, and now find themselves in a position they don’t want to be in. At the time, we thought it was the right thing to do.” In other words, the RBA governor – whose decisions, along with the rest of the bank board, are costing mortgage holders about $1000 a month in higher repayments – told people he was sorry they had listened to him. He said the bank failed to communicate with the public properly He told a Senate hearing that they did the right thing at the time, but with the benefit of hindsight the central bank may have injected too much stimulus into the economy during the pandemic Towards the end of 2020 and for nearly all of last year, Dr Lowe said interest rates would not likely rise until 2024. The cash rate has now hit 2.85%, leaving many people on variable interest rates paying as high as 6 to 7% on their mortgages, and struggling to make repayments amid the higher cost of living.  Dr Lowe was answering questions at the Senate Economics Committee hearing in Canberra on Monday, and said interest rates would continue to rise until inflation falls.

The financial services watchdog is urging Medibank Private to dock executive pay over serious security lapses after the massive breach of personal health data that exposed the health insurer’s entire customer database. The Australian Prudential Regulation Authority (APRA) also said on Monday it would increase its scrutiny of Medibank and might take further action against the company, pending an external review of the health insurer. Last month, criminal hackers stole 9.7 million current and former customer records, including the sensitive information of 480,000 policyholders’ medical conditions and treatment. Deloitte has been commissioned to conduct an external review of the breach, Medibank’s risk management systems, and the company’s response. “While APRA notes Medibank’s constructive response to date, APRA will consider whether further regulatory action is needed when findings of the report become clear,” APRA member Suzanne Smith said.

A Victorian restaurateur is facing up to 10 years in jail and more than $1 million in corporate fines after being criminally charged for allegedly failing to pay staff properly in the first case of wage theft being treated as a crime in Australia. The Wage Inspectorate Victoria last Friday filed 94 criminal charges in the Magistrates’ Court against regional restaurant the Macedon Lounge and owner Gaurav Setia for allegedly failing to pay more than $7000 owed to four staff members over five months. The Victorian government introduced new laws in 2020, which came into effect in June 2021, that make wage theft a criminal offence, punishable by 10 years in prison for the business owner and $1.1 million for the company if underpayments are found to be deliberate. The watchdog alleges Macedon Lounge and its “officer” (an employee exercising control over the business) breached these laws by dishonestly underpaying staff entitlements, which include wages, superannuation and penalty rates, between July and November last year. Setia is the company’s sole officer, according to corporate filings. These are the first criminal charges laid under the new Victorian laws and the first time wage theft has been criminally prosecuted in the country. Wage theft is also a crime in Queensland, but no restaurant or business owner has ever been prosecuted.

Digital lender Plenti believes the peer-to-peer lending model could still have a viable future in a world of higher interest rates and volatile sharemarket returns, as fintechs grapple with sharply rising funding costs. Peer-to-peer lending – where investors lend their money to borrowers via an online platform, bypassing banks – was once touted as an approach that could challenge traditional banking. The logic was that P2P lenders could be more efficient because the platforms would take a smaller cut than banks, and their model avoided the costs of branches and intensive regulation. In Australia, the P2P model struggled to gain traction and was largely overtaken by more traditional wholesale funding models, while some big P2P players overseas moved away taking retail money entirely. However, ASX-listed Plenti, which was formerly known as RateSetter and was an early P2P player in Australia, is looking to “reinvigorate” its platform that allows retail investors to fund loans. Chief executive Daniel Foggo said the company, which provides personal loans, car loans, and renewable energy loans, had seen wholesale borrowing costs rise from about 3% to 6 to 7% as interest rates had risen. He said it “makes a lot of sense” to get more funding from its P2P platform, and he believed investors would be attracted to the more stable returns at a time of stockmarket volatility.

And that’s it for this week. And next week, I’ll be talking to marketing whizz Maureen Barten about how companies can really make a difference with their marketing. And I’ll be talking to economist Alex Joiner from IFM Investors about the outlook for the economy next year.

In the meantime you can catch me on Facebook, Twitter, Instagram, LinkedIn and YouTube. And if you want leave a comment. For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business on the Apple podcast store or on my website   

Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.