The Reserve Bank of Australia (RBA) has hiked the cash rate for the fourth consecutive month and the market forecasts the cash rate will be 3.3% by March next year.
Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast site, my own website, 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 27 in our series for 2022 and today’s date is Friday August 5.
First, I’ll be talking to James Brown, CEO of Smart Communications, a leading technology company that helps businesses engage in more meaningful customer conversations. Smart works with top Australian government agencies and highly regulated companies, and James can discuss the current customer experience landscape he’s seeing in the country. And I’ll be talking to economist Nicholas Gruen.
But now, let’s talk to Nicholas James Brown.
The Reserve Bank of Australia hiked rates 50 basis points to 1.85%, marking the fourth consecutive rate hike and returning the cash rate to its highest level since April 2016. . The market is pricing in a cash rate of 3% by year end, rising to 3.3% by March next year. The Reserve Bank of Australia also forecast higher inflation and weaker economic growth this financial year and the next, and warned the current 48-year low 3.5% unemployment rate would rise as a result.
The Catholic Archdiocese of Sydney has taken at least $3 million in legal work away from Corrs Chambers Westgarth in a swift response to the firm saying it would no longer handle the church’s child abuse cases. Global firm Dentons will now be the archdiocese’s principal legal provider, meaning it will do all its lucrative commercial work as well advising the archdiocese on abuse claims. Partners at Corrs Chambers Westgarth are dismayed that they were not consulted before the law firm told the Catholic Church it would no longer handle claims of child abuse after being its main legal adviser on the issue for 25 years. For almost 60 years, the Catholic Church delivered millions of dollars in fees to Corrs Chambers Westgarth. The top-tier law firm provided legal advice to embattled archdioceses across Australia as they became engulfed in clerical abuse scandals and accusations of cover-ups. It was Corrs that helped establish the defence that meant the Catholic Church did not exist as a legal entity because its assets were held inside a trust structure, which insulated it against further claims. Last week, Corrs abruptly severed ties with the church, at a time when the legal industry is jostling to retain younger staff and attract clients expecting greater corporate responsibility. The firm did not explain the rationale behind its decision, other than to say it would be “transitioning away from undertaking personal injury work”. It is understood the decision to end the long association with the church was prompted by the need to protect the firm’s reputation. Partners cannot reconcile the decision with the fact that the firm retains British American Tobacco as a long-standing client.
Australian drinkers woke up to more than a hangover on Monday as accelerating inflation and a quirk in the tax system sent the price of beer surging. In its semi-annual CPI indexation review, the Australian Tax Office lifted the excise on a frothy by 4%, sending it to $15 a pint. It was the largest increase in over 30 years, according to the Brewers Association of Australia. Australia adjusts the excise on beer under a formula linked to inflation, which in the most recent reading climbed at the fastest annual pace in 21 years. The higher price is likely to add to growing cost-of-living pressures already hurting consumers in the historically beer-loving nation, where inflation is expected to peak at almost 8% by December. The result may encourage consumers to drink more wine, which operates under a different system of taxation.
A “structural shift” to working from home due to the COVID-19 pandemic will slash the number of people working in offices in Australian city centres by 15%, hitting revenues of companies that depend on commuters including Transurban, investment bank UBS has forecast. While many people have returned to working in offices as the pandemic has eased, the trend for many white-collar workers to continue working from home a couple of days a week has led the global investment bank to reassess the financial outlook for Transurban as well as real estate investment trusts. This is based on analysis that white-collar workers (including both full-time and part-time) will only spend an average of 3.6 days a week in the office in future compared with 4.2 days a week previously.
Australian Securities & Investments Commission deputy chair Karen Chester said the regulator had released an information sheet to ensure that people were aware of their legal obligations “because we’re watching”. She released this for an AICD conference which coincided with draft rules from the London-based International Sustainability Standards Board, which was established at the United Nations Cop 26 conference in Glasgow to develop a comprehensive global baseline for sustainability disclosures. A group of the nation’s top professional, industry and investor bodies with $US33 trillion in assets under management backed the exposure drafts. The group, which includes the Australian Banking Association, the Australian Council of Superannuation Investors, Chartered Accountants and CPA Australia, said that clear, transparent, comprehensive and comparable disclosure of sustainability-related information was part of a functioning global financial system. “To avoid large-scale financial risks from a disorderly transition to net zero emissions and the physical impacts of climate change, there must be clear and comparable disclosure of sustainability-related and in particular climate-related information,” the group said.
House prices in Australia are dropping at their fastest pace since the global financial crisis — and market conditions are “likely to worsen” as interest rates continue to rise, according to property analytics firm CoreLogic. The latest data shows that the nation’s median property value has dropped by 2% since the beginning of May, to $747,182 (a figure which includes houses and apartments). The median price in Sydney fell by 2.2% in July (taking its quarterly loss to 4.7%). Despite that, an average house in Sydney still costs around $1.35 million, while an average unit may fetch about $806,000. Melbourne and Hobart also recorded steep falls, with prices in both cities down 1.5% last month, while Canberra prices dropped 1.1%. Prices in Brisbane and regional Australia fell 0.8% (their first monthly decline since August 2020). Over the three months to June, dwelling prices in Sydney dropped by 4.7%, Melbourne by 3.2% Hobart by 1.3% and Canberra by 0.9%. At the other end of the spectrum, Darwin, Adelaide and Perth were the only capitals where prices actually went up in July (by between 0.2 and 0.4%). However, it has been a sharp slowdown since May, when the Reserve Bank began to aggressively lift the cash rate from its record low levels.
Housing prices in Australia are predicted to drop significantly over the next 18 months with some areas expected to fall by as much as 15%. Details of the plunging property forecast were explained in the PropTrack Property Market Outlook July 2022 report. Brisbane, Canberra, Hobart and Darwin are expected to experience a drop in house prices but Sydney and Melbourne are predicted to face the largest falls. PropTrack Director of Economic Research Cameron Kusher believes rising interest rates are discouraging buyers from entering the property market.
The Australian Competition and Consumer Commission has accused big gas companies of exploiting joint marketing arrangements to delay the development of gas and push up prices. The ACCC said some gas companies were gaming the current system to withhold supply and raise prices. The gas industry said joint marketing, especially in some big consortiums, helped share the costs of exploration and production. But the ACCC said the arrangements could lead to anticompetitive behaviour, raising concerns under a number of provisions in Part IV of the Competition and Consumer Act. The consortiums and joint ventures include APLNG, an incorporated JV between ConocoPhillips (47.5%), Origin Energy (27.5%) and Sinopec (25%); QCLNG, a JV between Shell (73.75%), CNOOC (25%) and Tokyo Gas (1.25%); GLNG, a JV between Santos (30%), Petronas (27.5%), Total (27.5%) and KOGAS (15%); and Arrow, an incorporated JV between Shell (50%) and PetroChina (50%).
The Albanese government will seize upon an Australian Competition and Consumer Commission report, warning of a looming, economy-damaging shortfall of gas, to force the nation’s biggest exporters to divert supplies into the domestic market. In a scathing report that effectively accuses big gas producers of paying lip service to a “gentleman’s agreement” with the government to ensure sufficient domestic supply, the Australian Competition and Consumer Commission warns against allowing exporters to sell all of their uncontracted gas overseas in 2023. The ACCC predicts the east coast gas market will suffer a shortfall of 56 petajoules, equivalent to about 10% of next year’s forecast demand for 571 petajoules, which is expected to absorb 29% of next year’s total production. The ACCC cautioned that fast-rising gas prices could increase even further and force some manufacturers out of business. As demand for gas surges across the national energy market because of faltering coal power and insufficient dispatchable renewable energy, Treasurer Jim Chalmers put gas producers on notice that the government is taking the ACCC’s concerns seriously, including its criticism about a lack of market competition. The ACCC’s warning of a sizeable shortfall in domestic gas supply next year has provided the perfect camouflage for the government to trigger of the Australian Domestic Gas Security Mechanism. This allows the government to force gas producers to redirect supply to the domestic market. That ammunition has been around for several years, the ACCC just gave the government the excuse to load it. Within hours of the ACCC releasing its report, Resources Minister Madeleine King said she was “preparing to issue a notice of intent to make a determination to invoke the Australian Domestic Gas Security Mechanism”. It is a move that, only a few months ago, the government seemed reluctant to make. This was in large part because the LNG industry argued that forcing it to allocate gas to domestic customers would involve breaking contracts with international customers, and that this threatened Australia’s business reputation and increased our sovereign risk among trading partners. The ACCC report has allowed the government to increase its leverage against the LNG producers – sufficient to ensure they could be herded through the gate to increase domestic supply. The ACCC report warns of a significant domestic gas shortfall next year unless the LNG producers redirect some of the uncontracted gas to the local market.
Australia’s most well-known buy now, pay later (BNPL) firm Afterpay has warned of an increase in scams across the financial service industries, with customers being targeted by unsolicited phishing texts and emails. Afterpay sent an email to customers on Monday morning saying it was aware of a recent increase in fraudulent phishing text and email activity “across the financial services industry”. It advised customers never to share their password or verification code with anyone and be cautious when opening links in texts or emails, even if they appear to come from Afterpay. It also told consumers to look out for grammatical errors and typos in text messages and emails. Phishing is a type of scam where fraudsters send messages pretending to be from trusted sources in order to collect personal information.
Severe labour shortages are plaguing Australia’s technology industry, with the Technology Council of Australia calling for a new awareness campaign, a “virtual work experience program” for high school students and a shake-up of skilled migration rules to achieve a target of filling 1.2 million tech jobs by 2030. A new report, to be launched by Afterpay co-founder Anthony Eisen and Industry and Science Minister Ed Husic at Parliament House on Tuesday, reveals significant shortages are being felt across the local sector, particularly for technical and experienced tech roles, with vacancy rates in tech 60% higher than the national average and forecast to grow at triple the rate. The most acute shortages are in technical occupations like software programmers and computer network professionals, but there are also significant gaps in commercial and creative roles like product managers, the report found, with forecasts showing Australia will need to employ an additional 653,000 tech workers to meet its goal of 1.2 million tech jobs by the end of the decade. The Labor Party pledged before winning the last federal election that it would target 1.2 million tech jobs by 2030.
Lawyers, engineers and IT experts would be parachuted into classrooms to address crippling staff shortages under radical reforms that include pay rises of up to 40% for the very best teachers. The federal government’s Australian Institute for Teaching and School Leadership has laid out a blueprint for fixing the teacher shortage by recruiting university-educated workers to earn while they learn on the job to teach school students. The plan includes a six to 12-month “paid internship’’ for career-changers to earn cash while upgrading their credentials with a two-year masters degree in education. The reform recommendations from AITSL – the nation’s official agency for education quality – will be the focus of an emergency workforce summit with federal Education Minister Jason Clare and his state and territory counterparts next week. AITSL also wants to improve the quality of university training for teachers.
More than half a million streaming subscription were cancelled in Australia in the second quarter of this year, with 37% citing the need to save money as the cost of living started to bite. A similar proportion specifically scrapped Netflix. . Subscription streamers are starting consciously to move their money around between services, picking and choosing based on content at a given time, suggests figures from data analytics firm Kantar. In Australia, 6.3 million households subscribed to at least one video streaming service between April and June 2022. While total market penetration remained stable compared to the first quarter at 63.6% of households, those with under-25-year-olds in the household saw a steep decline in penetration of 4%, or 62,000 households, as the cost of living rose and streaming services raised their prices. While Netflx remains the king of the subscription streaming pile, Kantar data suggests its share has fallen among households with at least one subscription service from 80% in the first quarter to 78.8% in the second. The data shows 666,000 subscriptions were cancelled, with a further 16% planning to cancel a service. In the second quarter, just under 4% of households signed up to a new video streaming service, with Amazon Prime Video and Disney+ leading the charge.
And it’s the profit reporting season. Aussie Broadband said total broadband services increased by 35,882, or 7%, to 584,793 over the fourth quarter of FY22. This represents a year-on-year increase of 46%. United Malt Group expects underlying EBITDA (before software as a service costs) for FY22 to be in the range of around $100 million to $108 million. HSBC Holdings PLC reported a 15% drop in first-half profit, as expected credit losses more than offset the effect of rising net interest income at Europe’s biggest bank. Debt collector Credit Corp has lifted its net profit 9% to $96.2 million for FY 2022. Artificial intelligence data services company Appen reported an underlying net loss after tax of $3.8 million, compared to a $12.5 million net profit after tax in 1H FY21. Rex Airline’s pre-audited passenger revenue reached $13.6 million in July, nearly twice the monthly average in the prior three months of $6.9 million. Retail landlord BWP Trust reported a 0.6% increase in net profit for the full year of $114.7 million. Pinnacle Investments reported a 14% increase in full-year net profit to $76.4 million.
And that’s it for this week. And next week I’ll be talking to Chris Adams, the CEO and founder of the Ellis Adams Group and his international luxury hospitality consulting firm EAG which is currently opening 100 hotels during Q3 and Q4 of this year, partnering with Marriott International to transform locations for The Ritz-Carlton, St. Regis, Westin and Renaissance among others all over the world. And I’ll be talking to KPMG economist Sarah Hunter about Australia’s inflation rate.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.