There are now fears the world is teetering on the brink of a global recession, after horror new inflation data from the US.
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 20 in our series for 2022 and today’s date is Friday June 17.
First, 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.
But now, let’s talk to Dr Wallace.
There are now fears the world is teetering on the brink of a global recession, after horror new inflation data from the US that has sent a chill through stock markets around the globe. The pain is set to get even worse for the Australian economy after the US recorded its highest rate of inflation at 8.6% since 1981, topping what economists thought was the peak in March and stoking fears the global economy is slowly falling into a recession. More concerning was the momentum. Month on month, consumer prices rose by 1%, well above the 0.3% increase in April. Inflation figures have surprised to the high side, pushing investors to increase bets on a 75 basis-point increase at this week’s meeting, pricing in interest-rate futures shows. Those bets hardened on Monday afternoon following a report in the Wall Street Journal suggesting the larger move was now in play. Things were already looking sketchy on the Australian Stock Exchange after a week that saw a higher than expected cash rate rise. As there’s little relief in sight as many economists expect the RBA to bump up interest rates by 50 basis points at their next meeting in July following a surprise 50 basis points hike this month. While inflation and interest rises are on the rise here in Australia, things are looking much worse in the US. Its red-hot inflation rise is showing few signs of cooling, putting its Federal Reserve, the world’s most influential central bank, on track to continue its aggressive interest rate increases to help cool high prices that are challenging Joe Biden’s presidency. With Russia’s war on Ukraine continuing to pressure global fuel and food prices, and amid ongoing supply chain uncertainties due to Covid-19 lockdowns in Asia, analysts now say the expected easing of inflationary pressures will take much longer to materialise. The US central bank already had signalled plans for more big increases in the benchmark borrowing rate this week and next month, but chances are rising that the Fed might have to be even more aggressive — which increases the risk the economy might tip into a recession. The latest inflation report — the last major data point before the Fed’s policy meeting Tuesday and Wednesday — also douses hopes central bankers will be able to call a ceasefire in September ahead of key congressional elections, where Biden’s Democrats are widely expected to suffer damaging losses.
Fears the world is barrelling towards 1970s-style stagflation has seen vicious selling has pushed global shares into a bear market, wiping trillions of dollars in value from blue chips as worries mount that aggressive central bank policy tightening would tip the world into recession. Wall Street has plunged as investors took flight after consumer inflation in the US reached a 40-year high on Friday, with worries that aggressive interest rate rises could lead to a recession. No region has evaded the pressure. European shares fell 2.4 % to drag the Euro Stoxx 600 benchmark 16% below its January peak. An FTSE index of Asian markets excluding Japan fell 1% to bring its decline from the top in February last year to 26.4%. The S&P/ASX 200 has dived to worst day on in more than two years, as frantic selling wiped nearly $100bn from the sharemarket. weighed down by heavy losses across all 11 sharemarket sectors on fears of a global recession. It marks the bourse’s worst session since the COVID-19 crash in March 2020 and pushes the index to its lowest level since February last year, according to CommSec.
The total value of cryptocurrencies dropped below $1 trillion as bitcoin and other crypto assets plunged in price. The fall marked a new low that has seen more than $2 trillion wiped off the value of cryptocurrencies since the peak in November 2021. According to crypto data website Coinmarketcap, the market capitalization (total value) of cryptocurrencies reached a peak of $2,977 billion on November 10, just $23 billion short of $3 trillion. Since then, the value of cryptocurrencies has fallen in steps, with small recoveries, to less than $977 billion, a fall of over $2 trillion since the peak. The last trillion in value has been lost in just 60 days. Overall cryptocurrency market cap was over $2 trillion on April 13. The recent decline has been dramatic. Bitcoin —the largest crypto currency is now trading at below $24,000. It was as high as $67,000 in November. Investors in cryptocurrencies are facing several drivers of negative sentiment. Increasingly, cryptocurrencies have become correlated with traditional stock markets—the NASDAQ in particular—rather than being an alternative asset or hedge. The interest rate rises from the U.S. Federal Reserve to try to curb inflation have pushed prices down in markets generally. Combine that with the Russian invasion of Ukraine which has made investors more risk-averse, and 2022 has been a tough year for crypto.
Home buyers should expect higher interest rates, Reserve Bank Governor Philip Lowe has warned, as the bank will do whatever it takes to get inflation back within its target range. Lowe admitted in a rare interview that the RBA expects inflation to hit 7% by December, well above the 6% forecast by the bank just weeks ago. The last time inflation rose more than 7% was in the mid-1990s, as the country was entering a recession and the RBA was cutting the cash rate from 17% in response. This year, inflation has risen amid global supply chain pressures due in part to the war in Ukraine and COVID-19 lockdowns in China, while the unemployment rate has fallen to near 50-year lows and wages have begun to lift. The RBA governor said he expected a more normal cash rate to sit about 2.5%, but said he could not predict how swiftly the bank would move to get it there. He said it would be determined by the data the board had at its disposal every month.
The minimum wage will be lifted $1.05 an hour from its $20.33 base from July 1, an increase of 5.2%, to $21.38 an hour, slightly above inflation Workers on award rates will go up 4.6%— a cut in real wages — with a minimum $40 weekly increase for workers on award rates below $869.60 per week. The Fair Work Commission said its decision would affect more than 2.7 million workers, as well other other employees on enterprise agreements and other pay settings.
Australian consumer sentiment fell to its lowest level since the pandemic lows in June due to surging inflation and a large increase in the cash rate. The Westpac-Melbourne Institute index of consumer sentiment dropped 4.5% to 86.4 in June, from May. The survey detail showed a loss of confidence in the economic outlook, both in Australia and abroad. The report highlighted a steady increase in the proportion of consumers who expect significant increases in interest rates over the next 12 months. In June,
Thousands of Australian farmers are feeling the pressure from costs rising all along the supply chain due to the energy crisis triggered by Russia’s war on Ukraine. Farmers are not only paying more for electricity to power their operations but are facing increases in the price of fuel, fertiliser, packaging and more. Fertiliser prices – which typically cost him $50,000 a year – have doubled. Transport costs are 35-40% more than what they were a year ago. The issue has seen the National Farmers Federation and 29 other peak bodies call for short- and long-term solutions to moderate energy prices and a faster transition to clean energy. High commodity prices and favourable seasonal conditions are providing a buffer. But farmgate prices will drop back, production will change with the seasons and, at current electricity and input prices, a lot of farms will be running at a loss, Energy prices are far from the only issue food producers are contending with: COVID’s closed borders have created a labour shortage amid the absence of backpackers and migrant workers the horticulture sector relies on. Dairy, horticulture and meat are among the most energy-intensive agriculture sectors, with supply chain cost increases contributing to food inflation at the supermarket checkout.
The prudential regulator has put banks on notice that they must be ready to rein in risky home loans made to highly indebted customers, after new data showed the number of mortgages to borrowers with high debt-to-income ratios eased from record levels following its targeted action last month. In a letter to banks, the Australian Prudential Regulation Authority outlined new requirements, saying lenders would ″need to have systems in place to limit growth in higher risk residential mortgage lending, such as loans at high debt-to-income multiples or high loan-to-valuation ratios″. The warning came after APRA’s latest data for the March quarter revealed that 23.1% of new mortgages had a debt-to-income ratio of six times or more – the level considered “risky” by the prudential regulator. The volume of high debt-to-income mortgages came down from a record of 24.3% in the December quarter, but remains significantly higher than a year ago, when they stood at 18.9% of the total.
Regulators have accused energy companies of driving energy power shortages to receive larger taxpayer handouts. Power companies pulled more than 6.5 gigawatts of electricity supply out of the national markets, triggering warnings of blackouts as the grid experienced acute stress. It follows the Australian Energy Market Operator imposing a price cap across multiple states, prompting companies to withhold power in a bid to be ordered to generate energy, which in turn makes them eligible for compensation. Power producers including AGL and Origin have been protesting they are struggling to compete due to high coal and gas prices, though their stock prices are up by 42% and nearly 18% respectively. Households and businesses will ultimately be hit with higher power bills to help to compensate the energy companies. WA meanwhile unveiled plans to shut its last coal-fired power unit, the 854 megawatt Muja power station, before the end of the decade
One of the country’s major coal plants has lost half its capacity, adding to the mounting woes in a national electricity market teetering on the edge of widespread blackouts. EnergyAustralia’s confirmation that its Yallourn power station – which provides 20% of Victoria’s electricity needs – had lost two of its four units came as market operators released repeated warnings of potential blackouts in Victoria, Tasmania and South Australia. Officials believe there is almost 4000 megawatts of electricity supply sitting on the sidelines of the market, and the Australian Energy Regulator on Tuesday took the unprecedented step of writing to generators suggesting some may be withholding power to manipulate pricing. Set prices for wholesale power have now been imposed in all four main regions in the National Electricity Market as the energy crunch worsens and shortages loom. Power could be tight for the next few days with a shortfall of energy in NSW, Victoria, and Queensland. Shortfalls are set to hit Queensland and NSW with residents urged to turn down heaters and switch off appliances.
While most Australians are preparing to be hit with skyrocketing gas prices, a shocking report has revealed most of the profits will be going to foreign owners. Researchers at the Australia Institute have conducted a deep-dive analysis of companies on the Australian Stock Exchange and found 95.7% are foreign owned. This means Australian equity is just 4.3%. With 80% of Australia’s gas being exported out of the country, households and businesses are experiencing price shock with “apocalyptic” rises in energy prices nationwide. The Australian Energy Market Operator (AEMO) has been forced to step in and cap gas prices in Sydney, Melbourne and Brisbane to $40 per gigajoule, but it is still five times higher than last year’s prices. However, the frustrations won’t stop there with the bombshell revelation in the Australia Institute’s report that most of the jacked up prices will be flowing overseas. The Australia Institute says households are “paying a fortune” to compete with the gas export industry being run by foreign-owned companies who “pay little or no tax”.
Research by Choice indicates Bunnings, Kmart and The Good Guys are using facial recognition technology in a bid to crack down on shoplifters. The consumer group asked 25 major retailers whether they were using facial recognition technology and examined their privacy policies. Bunnings, Kmart and The Good Guys appeared to be the only three in the group capturing the biometric data of their customers. Kmart and Bunnings stores had small inconspicuous signs at stores informing customers about the use of the technology. The collection of biometric data in such a manner may be in breach of the Privacy Act. Kmart and Bunnings said the technology was used to identify people with a history of theft and anti-social behaviour, while The Good Guys denied using it. 76% of respondents to a Choice survey said they didn’t know retailers were using facial recognition;
Sky News Australia has become a key global hub for climate misinformation, according to a new report. Analysis by UK think tank the Institute for Strategic Dialogue found the channel was a key “content hub” for “influencers, sceptics and outlets” that make up a global network of climate science deniers. The Rupert Murdoch-owned Sky News Australia channel ranked highly for traction, spreading climate misinformation to a global audience through social media networks. Sky News Australia and News Corp’s stable of newspaper columnists had formed a “system of content production and distribution” that promoted “scepticism of climate science and fear or confusion around mitigation efforts. The analysis showed that before 2017, Sky News posted an average 25 tweets a month on climate-related issues, but now publish an average of more than 100 posts a month. Canadian climate science denier Patrick Moore collected 16,000 retweets for sharing a Sky News segment where former host Alan Jones described climate activists as “selfish, badly educated virtue-signalling little turds”. The report identified the five most popular sources for content shared among climate “delayers” were the Daily Mail, The Guardian, The Daily Telegraph and the blog Wattsupwiththat. New Corp last year flagged it would reverse its opposition against climate action, but has largely failed to follow through
The Australian Financial Complaints Authority has had to pause 2447 complaints, involving claims worth around A$376 million, because the firms involved are insolvent. AFCA reported that there are 44 financial firms involved in the complaints – all of them “impacted by insolvency”. On top of that, there were 306 unpaid determinations worth $14.7 million associated with 28 insolvent firms. The firms involved in the paused complaints include 14 financial planners, six managed investment scheme operators, four funeral insurance providers, four securities dealers, two derivatives dealers, two foreign exchange dealers and one corporate adviser. The two foreign exchange dealers account for the biggest claims, worth a total of $266.8 million.
And that’s it for this week. And next week, l will be talking to Domain’s Chief Revenue Officer, John Foong, to discuss how new technology is shifting into the emerging property market. And I’ll be talking to Indeed economist Callam Pickering to discuss the latest jobs figures.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.