Although the RBA maintained its cash rate at a 12-year high of 4.35% — as predicted by economists – its quarterly forecasts showed inflation will only hit the midpoint of its 2-3% target band in 2026. Looks like interest rate cuts could be some time away.
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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 2 in our series for 2024 and today’s date is Friday February 9.
So today, I’ll be talking to Ron Weinberger, MD and CEO of ASX-listed EMVision, a homegrown medtech company that has developed portable imaging technology, to revolutionise stroke diagnosis and care for Australian patients.
And I’m talking to AMP Capital chief economist Shane Oliver about the market and economy in 2024.
But first, let’s talk to Ron Weinberger.
So what’s happening in the news.
Australia’s central bank kept interest rates unchanged at its first meeting of a revamped policy schedule and signalled further tightening remains possible. The Reserve Bank maintained its cash rate at a 12-year high of 4.35% — as predicted by economists — on Tuesday. “The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks,” the RBA said in its post-meeting statement.. “A further increase in interest rates cannot be ruled out.” The RBA also released its quarterly forecasts which showed inflation will only hit the midpoint of its 2-3% target band in 2026. “What we need to be convinced is that inflation has moved enough and we need to be convinced that it is going to get there and be sustainably staying there,” said Reserve Bank governor Michele Bullock, “We have made good progress but there is more work to be done. The job is not done.” The RBA board warned there was a high level of uncertainty around the outlook for the Chinese economy, the consequences of the conflicts in Ukraine and the Middle East, and how those might impact Australia’s economy. It said further increases in interest rates couldn’t be ruled out, and the board would continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market. The measure, which smooths volatile items, came in at 4.2% in the final three months of 2023. The extended timeframe for inflation to return to target suggests the RBA will stick to its view that rates need to remain at elevated levels for some time, according to money markets and economists. That suggests Australia may be one of the last dollar-bloc economies to begin easing, they said. At the same time, Australia’s labor market remains solid and the economy has shown resilience to higher borrowing costs, suggesting there’s no urgency to shift quickly to easing. Moreover, policymakers won’t want to further fuel house prices that have been driven up by a supply shortage and high immigration.
Ross McEwan will depart National Australia Bank as CEO in April and be replaced by Andrew Irvine, currently head of its business bank. NAB said Mr McEwan would retire from executive roles and pass the baton to Mr Irvine, a British-Canadian dual citizen, who has been NAB group executive for business and private banking since 2020.
The Coalition will make Labor work for its tax backflip by proposing a raft of amendments to reflect the spirit of the stage three tax cuts, and supporting the Greens’ call for a Senate inquiry, while Anthony Albanese indicated he was keen for a fight. As the first published poll since the broken promise showed Labor had so far emerged unscathed but unrewarded, the shadow cabinet met to discuss tactics for the parliamentary battle which began on Tuesday when Treasurer Jim Chalmers introduced legislation for the revamped tax cuts. Under stage three, from July 1, incomes between $45,000 and $200,000 will be taxed at 30% and incomes above $200,000 will be taxed at 45%. Under Labor’s changes, incomes between $18,200 and $45,000 will be taxed at 16%, down from 19%. The 30% tax rate will apply on incomes between $45,000 and $135,000, and then a 37% rate, which was abolished by stage three, will apply between $135,000 and $190,000. Above that, the 45% rate will apply. The reintroduction of the 37% rate will result in an extra $28 billion in bracket creep being collected over the next decade. The revamp will pass parliament with or without the Coalition and, on Monday night, shadow cabinet discussed moving amendments that would reflect the spirit of stage three, without taking away any of the benefits for lower income earners. Sound in the knowledge these amendments would not be adopted, the Coalition is then likely to wave through the legislation rather that vote against it and give Labor a fresh attack line. The Coalition will not go to the next election pledging to roll back Labor’s tax package. The Newspoll published in The Australian found while there was majority support for the broken promise, the key numbers had not shifted and Labor still led the Coalition on a two-party preferred basis by 52% to 48%.
Utes, four-wheel drives and other light commercial vehicles could be phased or priced out of the market before there are genuine low-emission or electric alternatives, motoring groups have warned. They expressed concern on Sunday after the federal government unveiled details of its long-awaited vehicle efficiency standards, which mandate that all categories of new cars must reduce emissions by more than 60% by the end of the decade. From January 1 next year, car makers will be forced to sell more electric and fuel-efficient vehicles into the Australian market or face financial penalties. The standard, which Climate Change and Energy Minister Chris Bowen said would bring Australia into line with all other developed nations, would subject manufacturers to an overall emissions cap that their vehicles could collectively produce. Labor says the new rules will save motorists about $1000 a year in average fuel costs by 2028, but the opposition, while not ruling out supporting the policy, claims it could make utes unaffordable. The cap will be lowered each year, effectively acting as a carbon price in that it will force the increased manufacture of cleaner vehicles and the phasing out of more polluting petrol and diesel cars. Under the model to be pursued by the government, passenger vehicles and SUVs, as well as the heavier category of utes, vans and large pick-ups will have to reduce their emissions by more than 60% between 2025 and the end of this decade, at an annual average reduction of more than 12%. Based on vehicle emissions data for 2023 for the top 10 selling vehicles, emissions from utes and vans will have to fall 10.3% just to reach the 2025 starting point, before dropping another 62% by 2030. Emissions from lighter cars will have to fall 6% before dropping another 61%. While the government contends the vehicle emissions standard, which will only apply to new vehicles, will not affect the price or supply of diesel utes and four-wheel drives, for example, the industry fears the changes could be too fast. It predicts that manufacturers could charge more for the more polluting cars, so they can sell the cleaner cars more cheaply and that there will soon be fewer petrol and diesel cars on the market, meaning for those who need them for work or lifestyle, they will be more expensive. There are also significant doubts the January 1, 2025, start date could be met, due to the need to establish a regulator, and the fact the car makers will not have the capacity to alter export patterns so quickly.
A PwC partner the firm incorrectly publicly linked to its tax leaks scandal is planning to sue it for defamation after mediation talks between the parties fell apart. Richard Gregg, who successfully sued the firm last year for failing to follow proper process in its attempt to fire him, is likely to seek compensatory damages from PwC if he makes the new legal move. Mr Gregg was obliged to go into confidential mediation with the firm following his court victory, but this process has been unsuccessful. He is now in the final stages of weighing the new legal action that would target public statements made by the firm last year that implied he was associated with the PwC’s tax leaks scandal. Two other former partners recently sued the firm for lost income. PWC partners earn more than $930,000 on average, according to data provided to the Senate last year. The new case, if it goes ahead, would bring yet more unwelcome publicity to PwC as it seeks to rebuild its public standing following the leaks matter. It may also serve to encourage other former or current partners to take the once inconceivable step of using the courts to resolve conflicts with the firm. The PWC tax leaks matter involved a former tax partner sharing secret government information within the firm that was then used to develop structures to sidestep new laws he was helping to develop. The scandal has rocked PwC’s Australian operation and led to unprecedented scrutiny of the consulting sector. Mr Gregg’s case stems from when PwC, in response to the tax leaks matter, name him as one eight partners who had left or were in the process of being removed from the firm’s partnership relating to the tax leaks affair. The firm alleged these partners had either been involved in the scandal or had not adequately addressed it. However, the firm’s attempt to remove Mr Gregg actually stemmed from conduct in 2021, which he had already been disciplined over, which was unrelated to the tax leaks. Mr Gregg argued that PwC did not give enough information, or valid reasons, for firing him as required by the firm’s partnership agreement. In August, NSW Supreme Court Justice David Hammerschlag found in Mr Gregg’s favour, ruling that PwC had not properly detailed the allegations used to force him out or provided him with a fair opportunity to respond to the complaints. Mr Gregg’s legal representative, Rebekah Giles, has since filed a costs order against PwC for more than $290,000 related to his initial court victory. PwC declined to comment on the case.
Renewable energy developers are facing a new ratings system to weed out “cowboys” from the industry, after an independent report found their multibillion-dollar projects were creating anxiety and mistrust in rural communities. Australia has set aggressive targets to develop renewable energy generation sources to meet emissions-reduction targets, which has led to a gold rush-style wave of developers moving into communities. Energy Infrastructure Commissioner Andrew Dyer said the energy transition had the potential to be lucrative for farmers and landowners. But he warned the practices of prospective developers had sowed deep mistrust and the government would need to act to repair the industry’s standing. The Community Engagement Review, investigating the impact of renewable projects and infrastructure on landowners, was announced by Climate Change and Energy Minister Chris Bowen on July 4 last year. Mr Dyer concluded that transmission lines were a particular bone of contention among landowners. Australia must build about 10,000km of high-voltage power lines by 2050, and developers are searching for potential new developments to connect to them. Mr Dyer said the rush of development was damaging. The report found many landowners had been approached by multiple developers and each had asked for permission to enter properties to scope the potential of new zero-emissions projects. Mr Dyer said transmission lines would unlock employment opportunities for regional Australia and new investment in communities, but the industry must first improve its reputation. The report concluded Labor and state governments would need to plan better who was responsible for new developments, while recommending a new ratings system for developers to demonstrate their previous work on similar projects, along with a proper complaints system. Mr Bowen said the government had provisionally accepted all the recommendations.
The deputy chair of the corporate regulator has warned the financial sector may not have learned the lessons of the landmark Hayne royal commission, noting many companies continue to make similar mistakes in dealing with customers. Sarah Court, speaking on the five-year anniversary of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, said too often financial firms were facing the consequences of under-investment in back-end systems. Ms Court said the Australian Securities & Investments Commission was not seeing “a lot of red flags”, but noted it had seen a number of recent matters marked by “poor customer impacts and system failures that were not given enough attention”. “(They were) issues that could have been fixed or escalated,” she said. Ms Court said the financial system had been “squarely on notice” in the wake of the royal commission. The 2018 royal commission, run by former High Court judge Kenneth Hayne, saw a number of changes made to Australia’s regulatory landscape. Mr Hayne handed his report to the Morrison government with 76 recommendations to reform the financial sector. But then-treasurer Josh Frydenberg did not release the government’s response until days later. The report made a number of recommendations including a push for ASIC to take more companies to court for wrongdoing rather than striking settlement deals. Mr Hayne’s report made 13 referrals for ASIC to investigate, as well as examining a number of other case studies, of which 32 led to investigation. ASIC data shows it extracted $79m in penalties tied to the 13 referrals, with one still before the courts. The regulator also fined the 32 case study companies $97.47m. Ms Court said it was “chalk and cheese” between how ASIC approached misconduct before and after the inquiry. The veteran regulator said Mr Hayne showed his concern about ASIC’s focus on consumer redress and remediation and its hesitancy to take court-based action. Ms Court said ASIC had taken a cautious approach before the royal commission, because it “perceived that court-based action was expensive, took a long time and the outcomes were uncertain”.
Former Productivity Commission chair Michael Brennan says we can afford to be “pretty bullish” about the potential for AI to return productivity growth to the exceptional rates seen in the 1990s. Now running the economic research think tank e61 Institute, Mr Brennan is optimistic about the impact of AI on the nation’s growing services economy, which has traditionally been difficult to automate. “AI is a technology that is potentially highly effective at replacing tasks right through the (services) value chain,” he said. “Lawyers, accountants, doctors – all manner of professionals will be able to get rid of some menial tasks and focus much more on the higher value-add things.” Another compelling reason for optimism, he said, is that we are now seeing not just new technology but the complementary re-engineering of business processes that “change the way you fundamentally do something”. Mr Brennan backed the move by Labor to direct the commission’s work more tightly through a statement of expectations – the first in the independent body’s 25-year history. Treasurer Jim Chalmers delivered the statement as new chair Danielle Wood took up the job last November, saying the commission had to sharpen its focus, draw on a broader range of views and diversify its skills base.
Investors hoping for a quick resolution to the country’s most talked-about merger – the mooted combination of Woodside Energy and Santos – will be forced to wait longer to find out where it will go with due diligence extended by weeks. If it proceeds, the deal would create a global liquified natural gas powerhouse with 16 million tonnes of annual capacity and operations stretching from Australia and Papua New Guinea to the United States. The discussions about a merger had been scheduled to wind up on Friday. This is no longer on the cards. There are plenty of issues to work through before any proposal can be put together. For a start, there are several approval hurdles to be met at Woodside’s $16.5 billion Scarborough gas project in Western Australia and Santos’ Barossa development in the Northern Territory, both favoured targets for legal action by environmentalists. The Scarborough project, for instance, will make up some 28% of the combined group once it is off the ground, according to analysis by UBS but holds holds considerable commercial risk as it estimates less than 30% of reserves are currently contracted. It says merging may help diversify commercial risk away from the project level and help ensure Scarborough gas is not sold at a discount to other Asian-based LNG supply.
After almost 40 years of slinging cheap pizza, pasta and gelato to hordes of hungry families in Melbourne’s inner-north, the birthplace of one of Melbourne’s most recognisable restaurant chains will close its doors to the public this weekend for good. Taken over in 1985 by Rocco “Rocky” Pantaleo and fellow Italian immigrant Felice Nania, the Rathdowne Street La Porchetta restaurant launched dozens of franchised outlets around the country in the following decades. The enormous Rathdowne Street restaurant is unmissable with its hand-painted signage (Pizza No. 1 in Australia) across the three-store frontage, which in recent times has been covered in graffiti. Inside, the ceilings and walls are plastered with photographs of family members, customers and celebrities – while Vespa motorcycles and other Italian memorabilia hang from the ceiling. But Pantaleo family members Natalina and Azzurra took to social media on Monday morning to announce the closure of the flagship restaurant. “We would like to inform you all that the original family will be moving on and closing the doors,” they said in the post, announcing February 11 would be the final day of trading. The La Porchetta name boasted at least 80 franchised outlets in Australia, New Zealand and Indonesia in 2010. Today, there are almost 30 La Porchetta restaurants in Victoria, three in Queensland, one in NSW and four in New Zealand, according to the company’s website.
And it’s the beginning of the profit reporting season. Myer said it expects net profit of between $49m and $53m for the six months to January 27, which includes the unfavourable impacts of store closures, and the impact of inflationary cost pressures. The forecast is well down on the interim profit of $65m Myer posted in 2023. which was at the time its highest interim profit since 2014. Nick Scali posted a 39% fall in profit to $43m for the six months to December. Amcor’s net profit slid to US$286 million from US$691 million a year earlier. Luxury goods marketplace Cettire’s statutory gross profit increased in the half to $82.2 million, from $47 million a year ago. Bunning’s landlord BWP Trust’s net profit for the period was $53.2 million, compared to $111.3 million in 2022.
And that’s it for this week. And next week, I’ll be talking to Nina Webster, the managing director of Dimerix, a clinical-stage biopharmaceutical company, with a portfolio of drug candidates for inflammatory diseases, including kidney and respiratory diseases.
And I’ll be talking to CommSec chief economist Craig James about what’s in the market for the week ahead.
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