Australian universities on Fair Work Ombudsman’s wage theft priority list.
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 21 in our series for 2022 and today’s date is Friday June 24.
Today, 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.
But now, let’s talk to John Foong.
Elon Musk, Nouriel Roubini and Goldman Sachs Group Inc. have warned of a growing likelihood that the US economy will fall into recession. Their outlooks will stoke fears of a hard landing for the world’s biggest economy as the Federal Reserve jacks up interest rates to counter the fastest pace of inflation in decades. Musk said y that a recession in the US looks likely in the near future. Seeking to quell a surge in living costs, the Fed accelerated its monetary-tightening campaign last week with its biggest interest-rate hike since 1994. That drove fresh losses on Wall Street and has increased the odds of a recession, piling pressure on President Joe Biden. New York University professor and notorious doom-and-gloom economist Nouriel Roubini predicted a recession by the end of this year. Roubini said his prediction is for a “hard landing,” meaning that the economy could see a major downturn soon. He said a combination of global issues like COVID-19, Russia’s invasion of Ukraine, and China’s zero-tolerance COVID policy are to blame for reduced economic growth. “If you’re looking at consumer confidence, if you look at retail sales, if you look at measures of manufacturer activity, if you look at housing, they’re all slowing down very sharply at a time when inflation is still very high. That’s stagflation. It’s not just a recession,” he said. Goldman Sachs said the chance of a recession hitting in the next 12 months had risen from 15% before the rate hike, to 30% as of this week. And they said the chance of a recession in the next two years had risen to just shy of 50%, from 35% previously.
Cryptocurrencies and stablecoins are structurally flawed, prone to abuse by criminals and are unlikely to ever replace normal money, ground-breaking research into the sector by the Bank for International Settlements has revealed. The bank, which acts as the central bank to the world’s central banks, said the drive by mainly young, risk-taking men into cryptos was being driven more by innovation for innovation’s sake rather than any fundamental benefits they offered to global finance. The fall in value, plus growing use of cryptos by organised criminals, has prompted concerns that the technology is more akin to a Ponzi scheme than a possible alternative to government-backed currencies. The BIS revealed the users of crypto exchange apps skew heavily to young men who are prepared to take financial risks. Almost 40% of users are men under the age of 35 compared to 19% of women in the same age bracket.
Housing affordability in Australia is likely to worsen as the impact of higher interest rates outweighs the benefit of falling prices, Moody’s says. The ratings agency said Australian households with two incomes needed 26.8% of monthly income to meet monthly repayments on new mortgages in May, up from 25.7% in January. This measure of housing affordability deteriorated in all capital cities over the period and was worse for houses than apartments. In Sydney, new borrowers needed 37% of household income to meet mortgage repayments in May, while in Melbourne they needed 29.8%, in Brisbane 23.1%, in Adelaide also 23.1% and in Perth 16.3 per cent. Comparing houses and apartments, house buyers needed 30.2% of household income to meet mortgage repayments in May, compared with 21.4% for apartment buyers.
Coolabah Capital Investments has warned that Aussie house prices could fall by more than 30% if the Reserve Bank of Australia’s fulfils uber-aggressive market expectations for an increase in its cash rate from the post-pandemic nadir of 0.10% all the way to 4.25%. This would translate into an increase in the cheapest discounted variable mortgage rate from around 2.25% to 6.50%, or possibly higher given bank credit spreads (or funding costs) have widened sharply… Coolabah Capital Investments has analysed the impact of temporary changes in interest rates on the housing market, focusing on current market pricing of a broad peak in the cash rate of 4.25% over 2023 followed by rate cuts in 2024 and 2025. This analysis suggests that this cycle in interest rates still has a significant effect in the short term, pointing to a large correction of about 30% in national home prices over the next four years (or circa 40% from late 2022 onwards)
Industry Minister Ed Husic has put exporters such as Shell and Santos on notice to divert more supplies to the domestic market before the government forces them to do so under existing rules or drafts tougher laws with more severe controls on exports. Husic accused the country’s major gas producers of failing to deliver enough fuel to manufacturing companies that are desperate for affordable energy, saying the big exporters will face drastic federal action if they do not ease the winter energy crisis. With energy bills soaring for industrial customers, Husic said the gas exporters needed to know the government was “deadly serious” about direct intervention to force them to supply the domestic market on the grounds they were breaching their social licence to act in the national interest.
Energy companies face a consumer watchdog probe into any price gouging and anti-competitive conduct during the rolling national power crisis, with a report into the electricity market to be handed to energy ministers next month after a five-fold increase in wholesale electricity prices. The Australian Competition & Consumer Commission investigation will examine energy companies’ profits and margins as part of a forensic audit into soaring energy bills linked to coal outages and Russia’s invasion of Ukraine. The crackdown will lead a series of regulatory reviews into the energy crisis as the industry navigates high prices, supply shortages and reforms, including a capacity mechanism to secure longer-term baseload power. While the Energy Security Board suggested coal and gas be included in its draft mechanism, Victorian Energy Minister Lily D’Ambrosio on Monday ruled out any supply payments to fossil fuel generators. ACCC chair Gina Cass-Gottlieb, whom Jim Chalmers ordered to look into whether energy market rules had been breached, said the watchdog would “provide greater transparency around the factors influencing electricity and gas prices, including profits and margins from a wide range of energy companies”.
Losses at EnergyAustralia due to the east coast’s energy crisis have forced owner Hong Kong-based CLP Group into the red in the June half, citing “challenging and extreme” energy market conditions in Australia. In a statement released in Hong Kong Monday evening, CLP pointed to a loss of $HK7.2 billion ($1.3 billion) on electricity forward contracts held by EnergyAustralia over the first five months of the year. Excluding that accounting impact, EnergyAustralia also suffered a $HK1.1 billion cut in operating earnings for the January-May period compared to a year earlier. CLP blamed the reduction on forced outages at the Yallourn power station in Victoria and coal supply constraints at its Mount Piper generator in NSW.
Many superannuation savers will see their first losses in 13 years after the market downturn buffeted funds, but experts are urging members to avoid making panicked decisions that can lock the losses in. Soaring inflation, slowing growth and shifting central bank strategies bludgeoned sharemarkets this month and superannuation research house Chant West estimates the median growth fund (those with 61% to 80% exposure to growth assets such as shares) will end the financial year at minus 5%. A negative result would be only the fifth in 30 years since the introduction of compulsory super in 1992. Chant West’s figures measure fund performance to May and do not include the turmoil of the past few weeks. Researchers noted the high volatility could trigger either a worsening of investment conditions or an improvement when the new financial year begins. Funds delivered a -0.6% return on average in the 2020 financial year, when the last significant correction occurred, many still managed to deliver positive returns, meaning some fund members are now seeing their first slump in 13 years.
Treasurer Jim Chalmers has overridden Reserve Bank of Australia governor Philip Lowe’s wishes and will appoint a panel of independent experts to review the central bank, including a monetary policy expert from overseas. Dr Lowe, who the treasurer has said he has a “mountain of respect for”, has pushed for a joint RBA-Treasury review of the central bank, similar to a model employed by Canada, to ensure the RBA’s independence from politics and to protect its reputation. The RBA has come under scrutiny for its pre-pandemic policies and incorrect forward guidance during COVID-19 that interest rates were not expected to rise until at least 2024. Official interest rates rose in May and June this year, including a super-sized 0.5 of a percentage point rise this month. Dr Chalmers has almost finalised a model for a review into the RBA, including the terms of reference and the small panel of review members. He will soon consult cabinet colleagues and speak to Dr Lowe before announcing details of the review, the person said. Dr Chalmers has been collaborating with Dr Lowe about the review and has made it clear that it is not a witch hunt into the RBA. The review is likely to consider the composition of the RBA board members, the appointment processes, the 2 per cent to 3% inflation target and the joint statement on the conduct of monetary policy between the treasurer and governor. Some observers believe the board should have more professional economists to challenge the governor and deputy governor on technical monetary policy issues. The current nine-member board includes five business people. The four economists are Dr Lowe, deputy governor Michele Bullock, Ian Harper and Treasury secretary Steven Kennedy. Dr Chalmers has vowed to include monetary policy’s interaction with the government’s fiscal policy in the review. It is unclear if the Reserve Bank Act will be prised open under the review. Some officials are concerned that any move to amend the legislation would risk the Greens in the Senate trying to add climate change and inequality to the bank’s mandate. The review will be asked to report by June next year, after the government’s second federal budget in May and before Dr Lowe’s seven-year term expires in September 2023.
The Reserve Bank has given anxious borrowers hope it won’t accelerate monetary policy tightening again next month, even though it indicated rates would continue to rise and the RBA would “do what is necessary” to ensure that inflation returns to the 2 to 3% target range over time. Answering questions after his speech to the American Chamber of Commerce in Australia, RBA governor Philip Lowe pushed back against market pricing of aggressive rate hikes, saying that while the market has been more accurate in recent times, the trajectory of hikes implied by the pricing is “not particularly likely”.
An initial group of 65 refugees with technology experience will be placed in paid cadetships in the technology teams of Woolworths and Accenture as part of a new program to help tackle Australia’s IT skills shortages. As talent shortages and visa delays bite, firms are tapping into alternative pathways to bolster the number of staff who have specific skill sets whose qualifications or experience are not recognised by mainstream recruiting processes. Woolworths will take 30 refugee cadets over the next 18 months, while others will join Accenture, which has 952 open job ads on Linkedin, later in the year in its South Australian office. Woolworths general manager of inclusion Catherine Hunter, who joined from KPMG nine months ago, said the specialised recruitment drive expands on a program that has placed more the 200 refugees in jobs across its stores and distribution centres since 2018. Two of the first group of Iraqi and Syrian refugees to undertake the 12-week training program have been working in Woolworths stores.
Shoppers will face average rises of 1.9% every year until 2025, Deloitte says. The consultancy’s quarterly sector report shows price growth is forecast to peak at 5.5% over the year to December, with food retail prices up 7.6& over the same period. It says retail sales have come out of the pandemic in a strong position, but spending is forecast to slow in the second half of the year and retailers face a shift to “value” purchases, shrinking margins and rising costs. The Deloitte Access Economics figures show double digit sales growth is expected for apparel, catered food and department stores over 2022 – compared with locked-down 2021 – delivering an overall real retail sales increase of 5.5% over the year.
Eleven universities are being investigated for potentially underpaying staff and the federal workplace watchdog has flagged “high-level” action against several as it put the tertiary education sector on this year’s priority list. Fair Work Ombudsman Sandra Parker said underpayments in the tertiary sector had become a systemic issue, which has been linked to the use of casual academics. Parker said she was “pretty shocked” to discover the casualisation rates at universities during a Senate inquiry into job security earlier this year. The inquiry heard that 47% of the University of Melbourne’s 11,000 staff last year were casuals. The second interim report of that inquiry said casuals and staff on fixed-term contracts made up two-thirds of the sector. Parker said while there was nothing wrong with casual work, its use by universities year after year raised questions.
Woodside and Fortescue are both throwing their hats in the ring to develop a green hydrogen plant in New Zealand that will use renewable energy freed up by the possible closure of a Rio Tinto aluminium smelter. Southern Green Hydrogen, a joint venture of two NZ power providers, has announced that WA’s two largest companies would enter final negotiations to develop what could be the world’s largest green hydrogen plant with a reported cost of about $4.5 billion. Both Woodside and Fortescue are keen to diversify into hydrogen as a clean fuel to decarbonise industries that are difficult to electrify, including shipping and steel-making, but have clashed over the best approach. Fortescue chair Andrew Forrest wants the miner to make 15 million tonnes of green hydrogen a year by 2030 by separating it from water using renewal power. Meanwhile, Woodside is pursuing green hydrogen as well as blue hydrogen, made by extracting it from gas and either burying or offsetting some or all of the substantial greenhouse gas emissions.
And that’s it for this week. And next week, I’ll be talking to Justin Webb, co-founder and Chairman of AgriWebb, a data-driven software platform committed to delivering the digital future of agriculture; transforming global cattle, sheep & dairy production helping farmers with profitability, provenance and sustainability across the supply chain. And I’ll be talking to RMIT economist Jonathan Boymal about the outlook for house prices across Australia.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.