With the Reserve Bank of Australia raising interest rates to 0.85%, the futures market has a 3.5% rate priced in by mid-2023.

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 19 in our series for 2022 and today’s date is Friday June 10.

First, I’ll be talking to the founder of non-alcoholic beer brewer Heaps Normal Peter Brennan. Heaps Normal  took out the ‘Embracing Innovation’ and ‘Outstanding Growth’ categories at the Telstra Business Awards in February.

And I’ll be talking to economist Nicholas Gruen about the election of the Albanese government.

But now, let’s talk to Peter Brennan.

Elon Musk has threatened to walk away from his $44bn acquisition of Twitter, accusing the social media company of failing to provide enough information about fake accounts. Musk, who told executives that he planned to cut 10% of Tesla’s workforce because he had a “super bad feeling” about the economy, has repeatedly criticised Twitter’s claim that less than 5% of its daily active users are bots, warning last month that his takeover “cannot move forward” unless the platform provides proof. In a letter to Twitter’s chief legal officer that was disclosed in a regulatory filing on Monday, Musk’s lawyers wrote that the Tesla chief believed the company had “refused to provide the information that [he] has repeatedly requested since May 9”.  Twitter insisted it would hold Musk to the original merger agreement, saying it would “continue to cooperatively share information” with the billionaire “to consummate the transaction in accordance with the terms of the merger agreement”. A spokesperson added that the company intended to “close the transaction and enforce the merger agreement at the agreed price and terms”. Since Musk and Twitter announced the deal in April, shares in Tesla have fallen sharply, along with those in other high-growth tech companies. Analysts have noted that Musk, because of the market turmoil, may seek an excuse to cut the transaction price or walk away from the deal. Economist Paul Krugman says Musk is trying to back out of his deal to buy Twitter, but he probably can’t without paying billions of damages. Perhaps that’s why he’s thinking about zooming off to Mars.

The World Bank warned Tuesday that the global economy faces the risk of dreaded “stagflation,” with this combination of high inflation and low growth tipping some countries into recession. “The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” said World Bank President David Malpass. In its updated Global Economic Prospects report, the World Bank slashed its forecast for global growth this year to 2.9%, down from the 4.1% forecast it published in January. The World Bank said most of the downgrade is attributed to the Russian invasion of Ukraine, which it had not accounted for in its previous forecast. The international body said it expects “essentially no rebound” next year, projecting only 3% growth for the world in 2023. The report pointed to the persistence of high energy and food prices — combined with higher interest rates from central banks around the world — for the gloomier outlook.

The Reserve Bank damaged its credibility by miscalculating the inflationary effects of the pandemic, acting too slowly to tame rising prices and poorly communicating its intentions to the market, according to a former RBA senior economist. Jeremy Lawson, chief economist for UK-based fund manager abrdn, which last year rebranded from Standard Life Aberdeen, where he also heads its research institute, worked at the RBA for seven years until 2008. The RBA, which had said there would be no rate rises until 2024, has echoed errors from other central banks around the world, notably the Federal Reserve, in waiting too long to act to temper swiftly rising prices, he said. Mr Lawson said the RBA should move aggressively to tame the swift increase in consumer prices in the same vein as central banks in the US, Canada and New Zealand which have each increased rates by 50 basis points this year. He thinks the Australian cash rate will peak at 2.75% in the current hiking cycle, a forecast roughly in line with three of the four major banks.

The Reserve Bank of Australia continued its hawkish pivot on Tuesday by lifting the cash rate from 0.35% to a surprise 0.85% in a move that blindsided most economists. And with the RBA saying inflation is growing faster than expected, it is tipped to lift the cash rate to 1.35% in July, using back-to-back 0.5 percentage point rate rises in an effort to curb it.  The 0.50% rise is the biggest one-month increase since February 2000. RBA governor Philip Lowe said the double “business as usual” 50 basis point increase was needed due to the “resilience” of the local economy and growing inflation from spiking energy prices. In early May, the RBA lifted Australia’s official cash rate by 25 basis points to 0.35% from 0.1%. It marked the first rate rise in 11 years — since November 2010. Some economists forecast that the cash rate could hit 2.5% by the end of next year. In announcing the decision, Reserve Bank governor Philip Lowe said the rise was in response to the fact that “inflation in Australia has increased significantly”. Annual inflation increased to 5.1% in the March quarter, driven by higher housing construction costs and fuel prices. Last month, Lowe said cost-of-living pressures would continue to grow in the coming months, and inflation was expected to reach 6%. Inflation is tipped to rise above the 6% forecast only a month ago, probably to about 7%  due to a further jump in the oil price. But on Tuesday, he said inflation was now expected to increase further, before declining back towards the bank’s target 2 to 3% range next year He said higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago The futures market has a 3.5% rate priced in by mid-2023. That’s 315 basis points from where we are now. A key uncertainty for both the economy and monetary policy is how long this inflationary shock persists. Given it’s tied directly to both a global pandemic and a war, it’s safe to say that nobody knows the answer to that. Another uncertainty is how sensitive inflation will be to the RBA rate hikes. Given its unique cause, we can expect inflation to be less sensitive than in previous inflationary spikes.” The entire economic outlook is connected to these uncertainties. What we do know though is that the ability of households and businesses to weather the inflationary storm declines the longer it lasts. Budgets will gradually tighten and savings will deplete and if it lasts too long then we tip over into recession

The Finance Sector Union yesterday signalled it will pursue the highest pay claims at major banks in more than a decade after lodging an official call for annual pay rises of 6% at Westpac. A new round of enterprise talks between the union and Westpac kicked off in Sydney last week that will affect the incomes and working conditions of around 30,000 staff. The Westpac talks are the opening instalment in a hectic season of industrial engagement in the banking sector that also includes a new bargaining round covering workers at the National Australia Bank. FSU national secretary Julia Angrisano confirmed in an interview that the union would also be seeking minimum pay rises of 6% for NAB staff. Angrisano said the bargaining rounds with Westpac and NAB were the most important in decades given they were set in an environment marked by price inflation and uncertain working conditions caused by the pandemic.

Big electricity generators have warned manufacturers will struggle to stay afloat as the energy crisis escalates and gas producers move to boost supply. Wholesale electricity prices at least doubled in most states in the first quarter of 2022 and quadrupled in Queensland amid high demand and fuel prices, while gas markets also hit a record because of the Ukraine conflict. Snowy Hydro is expanding its namesake hydro scheme and building a new gas plant to provide more back-up power for the grid. “The reality is this is the new norm, and without transmission and more firming capacity in the system we’re in trouble,” Snowy chief executive Paul Broad said.

Origin Energy has predicted smaller electricity retailers face collapse due to soaring wholesale energy prices and has called on governments to prioritise coal supply for power stations to ease a growing energy crisis. Australia’s largest electricity operator said smaller retailers face having to shut down. The wholesale price of electricity is regularly topping $400 a megawatt hour across the main states in the national electricity market, more than five times last year’s prices, while spot gas on the east coast has jumped up to $50 a gigajoule from less than $10 GJ at the start of this year. The huge price jumps have triggered broader concerns that smaller Australian electricity operators could follow the fate of UK retailers where nearly 30 energy companies have collapsed after failing to hedge against rising wholesale costs. The hit to households is also now becoming clearer after with power bills rising by up to hundreds of dollars for some customers after the national regulator announced increases of up to 18% on standing offers from July 1, sparked by surging fuel costs and coal plant breakdowns hiking wholesale prices. Origin also repeated a call for both government and industry action to help resuscitate the ailing coal sector with a string of major generators broken down or under maintenance resulting in coal output operating at five-year lows.

Losses through investment scams have risen sharply so far this year and cryptocurrencies are involved in the majority of those losses. The Australian Competition and Consumer Commission has released the latest Scamwatch data, showing Australians lost A$205 million to scammers over the four months to the end of April. The majority of losses were to investment scams, with $158 million lost. That is a three-fold increase over the same period last year. Of the $158 million, $113 million involved crypto investments, and cryptocurrency was the most common payment method for all investment scams. ACCC deputy chair Delia Rickard said in a statement that the numbers underestimate the true extent of losses. The data is largely based on people reporting their experience to Scamwatch and the ACCC’s research shows that only a small proportion of people report their losses.

Transgender activists have welcomed ANZ Bank’s introduction of paid gender affirmation leave, and called for it to be legislated as an option for all workers. ANZ will offer six weeks of paid leave and up to 12 months of unpaid leave for staff to undergo gender-affirming processes, such as surgery and legally changing their name and gender.  It follows Coles last month announcing up to 10 days of paid gender affirmation leave for employees

NotCo, a plant-based food and milk company backed by shareholders including Amazon founder Jeff Bezos, tennis star Roger Federer and Formula One champion Lewis Hamilton, aims to replicate in Australia the fast growth it has achieved in the United States. NotMilk is made by NotCo. Chief executive Matias Muchnick said sales globally had tripled in the past 12 months after an expansion from its home base in South America, with the group’s plant-based milk, burgers and chicken products in more than 10,000 stores in North America. Mr Muchnick said the early momentum from the group’s NotMilk product in Woolworths’ 970 supermarkets in Australia is promising, and the company has also been working hard to woo Australia’s baristas in coffee shops and cafes. He said while milk substitutes were a competitive category, he believed NotCo had perfected a recipe for a plant-based milk which tasted like milk from dairy cows. The company, established in Santiago in Chile six years ago, uses local manufacturing partners in the countries in which it operates, but is importing the NotMilk and NotBurger range for now in Australia. That will change once early sales targets are hit. NotCo is competing against a range of other plant-based food companies when it comes to burgers and chicken nuggets. One of the largest is v2food, the plant-based “meat” company backed by Rich Lister Jack Cowin, who built his fortune from the Hungry Jack’s fast-food burger chain.

Nearly $8 billion has been wiped from the market value of Australia’s largest media companies since the beginning of the year as rising interest rates and fears of a recession spook investors. The index for Australia’s ASX-listed media and marketing companies is down 32.6% for the year to date. These media and marketing stocks have performed far worse than the wider ASX All Ordinaries. That’s only down 7.7% for the year to date. Companies such as Nine Entertainment Co, Seven West Media and Southern Cross Austereo have benefitted from a buoyant advertising market for the last 18 months, even during the COVID-19 pandemic. But media analysts are warning the honeymoon period could be over as runaway inflation fuels concerns of sharply higher interest rates. Investment bank Macquarie downgraded its view on the sector to “underweight” last week over concerns Australia’s media companies would not be able to weather the volatile market conditions or a potential recession. That is despite several companies such as Nine investing in subscription products which are considered are less vulnerable to swings in the economy than advertising. Shares in major television, publishing and radio and billboard advertising companies have fallen between 19% and 44% since January, compared to a fall of 4.6% for the benchmark ASX 200. Nine Entertainment Co – which owns television, radio, publishing and streaming assets – has shed $1.4 billion in value this year. Broadcaster Seven West Media has lost more than $500 million in value so far this year, while radio company Here, There & Everywhere has lost $188 million. These figures contribute to $7.7 billion in value torched from the television, radio, publishing sector this year. About $1 billion of the decline for Nine can be attributed to a fall in the value of real estate listings portal Domain, which has shed $1.6 billion in value. Nine owns 65% of the business.  Shares in Rupert Murdoch’s News Corp, which owns global and local media assets, are down 23% since the start of the year, shedding $5.1 billion in value. The company owns 61.1% of real estate listings portal REA Group, Domain’s main rival, which has lost $8.1 billion of its market value.

The Australian Securities and Investments Commission is investigating how a property investment firm that collapsed owing $124 million had no income-generating assets, no auditor and was effectively insolvent since its inception. Administrators for Melbourne- and Brisbane-based Remi Capital Group told a creditors meeting on Monday the company raised millions of dollars from hundreds of investors over five years for property developments, promising them guaranteed quarterly returns on a 12-month term. But the group collapsed last month owing $62 million to 433 investors, as well as $30 million in related entity loans, $22 million in secured debts, an estimated $6 million to the Australian Taxation Office and millions more to staff and landlords. Administrator Chris Baskerville, of Jirsch Sutherland, told investors at the creditors meeting that preliminary investigations estimated only 20 to 30% of investors’ money was actually deployed to buy property. About 69¢ of each dollar invested appeared to go into operations expenses and another 11¢ to commissions and risk fees, he said. The company then needed to borrow from lenders at high rates to make up the rest of the money to purchase the properties

And that’s it for this week. And next week, I’ll be talking to leading artificial intelligence (AI) expert Dr Catriona Wallace about the growth of AI in business and in the workplace. And I’ll be talking to KPMG economist Sarah Hunter about the RBA, interest rates and inflation.

In the meantime you can catch me on Facebook, Twitter Instagram and LinkedIn. And if you want leave a comment.

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