Coal power hits a new low in Australia when rooftop solar supplies 51% of total demand on the National Electricity Market

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 or at Banking Day.

For the most exclusive access to leading economists and business leaders from around the world, subscribe      to Talking Business from my website leongettler.com.

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 36 in our series for 2023 and today’s date is Friday October 6.     

First, I’ll be talking to I’ll be talking to X2M CEO Mohan Jesudason. X2M has partnered with RESI Ventures to embark on a bold 1000 home project in Echuca, Victoria, that redefines smart community and energy design. X2M will also work with RACV for clean energy solutions.

And I’ll be talking to CommSec chief economist Craig James about what’s ahead in the market the next week.

But first, let’s talk to Mohan Jesudason.

So what’s happening in the news?

Luis de Guindos has dismissed talk of rate cuts by the European Central Bank as “premature”, warning that hurdles over “the last mile” of bringing inflation back to rate-setters’ 2% target will be tough to overcome. The vice-president of the ECB has, along with other members of the bank’s governing council, been grappling with the sharpest rise in prices in a generation. The surge in inflation has forced them to raise its deposit rate an unprecedented 10 times in a row to an all-time high of 4%. While price pressures are now at a two-year low, De Guindos told the Financial Times the recent surge in oil prices to a 10-month high would “make our task more difficult”. “We are on our way towards 2%,” said de Guindos. “That’s clear. But we must monitor that very closely, as the last mile will not be easy . . . the elements that might torpedo the disinflation process are powerful.”

Australia’s central bank kept its key interest rate unchanged while retaining a tightening bias on Tuesday as new Governor Michele Bullock gauges the impact of 4 percentage points of hikes. The Reserve Bank held its cash rate at 4.1% for a fourth meeting in Sydney, as anticipated by both economists and money markets. The string of pauses suggests a surprise shift in economic data will be needed to prompt any action. 

Australian home prices stayed strong in September, driven by soaring demand and outweighing the impact of the central bank’s aggressive policy tightening campaign. Sydney prices, the national bellwether, advanced 1%, down slightly from the previous month, property consultancy CoreLogic Inc. said in a report Monday. Adelaide led September’s gains — climbing 1.7%.  In the more expensive cities — Sydney and Melbourne — the broad middle of the market is recording the highest growth rate after previously being led by the upper quartile, CoreLogic said. Regional markets continue to lag capitals.  The Reserve Bank has raised borrowing costs by 4 percentage points since May last year to take the cash rate to its highest level in over 11 years. The unexpected recovery in the property market is a potential worry for policymakers as households feeling wealthier are more likely to spend, adding to inflation pressures. National home prices on the average are likely to see an 8% gain this year, with those in Sydney probably increasing at a faster clip of 12% and could take levels to near-or-record highs, according to Shane Oliver, chief economist at AMP Ltd. “Our base case is that property prices will see a further rise of around 5% next year as interest rates start to fall,” Oliver said.

Investors have shown few signs of panic during a stock market slump that’s pushed the S&P 500 Index into its first losing quarter in a year. But beneath the surface, signs of stress are emerging that go far beyond the just averted US government shutdown.  It’s not the intensity of the drop that’s weighing on sentiment, but rather the fact that big down days are getting more frequent and there’s been a scarcity of large rebounds. Three of the six days when the S&P 500 lost more than 1% last quarter occurred since mid-September. And there were only two days when the index gained more than 1% in the quarter. That down-to-up ratio of three is the highest since 1994, data compiled by Bloomberg show.  For those hoping for an imminent reprieve, options traders have a message: Don’t get too comfortable just yet. A gauge of expected price swings in the S&P 500 Index over the next week is hovering above the expected volatility two months from now, the opposite of a normal pattern when risks are seen rising with time. It’s easy to see why traders would be nervous heading into this week with the specter of the narrowly-averted US Government shutdown hovering over their heads. In addition, the yield on the 10-year Treasury note is hanging around its highest level in almost 16 years, sapping the appeal of riskier assets. Then there’s the question of how far the Federal Reserve is willing to go to combat inflation. And a worsening autoworker strike only adds to the risk of wider price swings ahead.  “We just have a lot of questions that are on people’s minds,” said Brian Donlin, an equity derivatives strategist at Stifel Nicolaus & Co. “You’ve seen a bit more hedging, a bit more risk of a real vol spike.” The past couple of days have seen their fair share of volatility, and short-term options — which are more sensitive to such moves than the longer-dated contracts — were quick to react. Data compiled by Citigroup Inc.’s Stuart Kaiser illustrates just how more sensitive the VIX Index is to short-term moves in the S&P 500 Index and the S&P 500’s realized price swings than the volatility curve further out in time.

Australian construction sector insolvencies have surged over the past three months as costs for everything from materials to insurance continue to blight the troubled $360bn industry. According to the latest ASIC statistics, external administration appointments in the construction sector jumped to 660 in the new financial year to September 10, up 38% from 478 in the same 10-week period a year ago – and a 255% spike from 186 appointments in 2021. Construction administrations represented about 33% of the 2010 insolvency appointments ASIC recorded across all industry categories from July 1 to September 10, and were 140% higher than the next biggest category of accommodation and food services which notched up 276 company collapses. NSW is where builders are struggling the most. That state accounts for 59%, or 389 of the total number of construction collapses.  While the data does not take into account the full September quarter, it shows a worrying sign that the weakness in the construction sector could push national insolvency figures across the board above last financial year’s total of 7942, which included 2213 construction firm failures. Overall, insolvency numbers in NSW jumped 37% to 944 at the start of the financial year, up from 690, while Queensland rose 30% to 325. Victoria was the only state to buck the trend where company collapses declined 1.8% to 494.

Market forces have failed to deliver accessible and affordable childcare, the consumer watchdog has found, revealing parents on the lowest incomes are paying the highest out-of-pocket costs.  In a damning report, the Australian Consumer and Competition Commission has called for the Albanese government to review the childcare subsidy, including the activity test, which leaves poor families paying more for the same hours of care than richer households. The ACCC report has found that the average Australian family with two children under three is spending up to 16% of their household income on child care, ranking Australia 26th out of 32 countries in the OECD. Crucially, the ACCC report found that market dynamics encourage more supply in wealthier suburbs and major cities, where parents and guardians generally have greater ability and willingness to pay.  It comes as skyrocketing childcare costs are eating into expected savings from Labor’s landmark subsidies and jeopardising one of Anthony ­Albanese’s key measures to ease cost-of-living pressures, with parents reporting increases of up to $20 a day for care. The government passed laws for cheaper childcare last year, which the Prime Minister promised would leave more than one million families better off. In 2022, an Australian couple on average wages with two children spent 16% of their net household income on net childcare costs, compared to the OECD average of 9%. ACCC Chair Gina Cass-Gottlieb said quality childcare was essential for Australian families, with early childhood education helping children reach developmental outcomes, while supporting parents and guardians to work and study. From July 1, the government increased the subsidy from 85% to 90% for families with a combined income of less than $80,000. This falls by 1% for each additional $5000 of annual income, hitting zero at a combined income of $530,000. But parents across the country have received letters from childcare centres informing them fees would rise, citing the rising cost of energy, wages and food. Furthermore, the ACCC report found childcare providers are more likely to establish centres in more affluent areas where they can increase profits, limiting access to poorer communities.

Unseasonably warm and sunny weather has helped push coal power generation to a new low, further undermining the economics of ageing plants that are being forced to ramp down through the day to avoid losses but are still needed to keep the lights on. New low points were also set for demand for electricity from the grid amid abundant rooftop solar output, adding to the pressures of baseload plant owners such as AGL Energy and EnergyAustralia, and to the market operators tasked to keep the grid stable. Coal power generation in the National Electricity Market sank to less than 7440 megawatts at about 2pm on Saturday, carving about 95 MW from the previous record set in late October last year, according to Dylan McConnell, renewable energy analyst at the University of NSW. Rooftop solar supplied 51% of total demand on the National Electricity Market at midday on Sunday, when the record was broken for minimum “operational” demand on the grid, the Australian Energy Market Operator said. It noted fresh minimum demand levels were also set in Queensland and South Australia, where rooftop solar met 99.7% of total electricity use from 1pm to 1.30pm. The records come after the closure of AGL’s Liddell coal power plant in April and amid the ongoing outage at a unit at the Callide generator in Queensland, which reduced the share of coal in the electricity fuel mix.

Worker shortages in regional areas risk delays and budget blowouts in the push to turbocharge green energy projects, according to analysis from Infrastructure Partnerships Australia. The value of infrastructure projects in the regions is now $216 billion, a near doubling since January 2022, according to IPA, of which around 55%, or $116 billion, is allocated to energy projects – up from $45 billion in 2022. But delivering the pipeline of work will require a 150% increase in skilled workers in outer regional areas and a 30% increase in inner regional areas by the end of 2025, IPA chief executive Adrian Dwyer said, setting up major challenges for policymakers and infrastructure providers. “The energy transition forms the next big wave of Australia’s pipeline and requires the delivery of more large-scale projects in remote and regional areas than ever before,” Mr Dwyer said. The analysis comes as Infrastructure Minister Catherine King prepares to axe or delay federal funding to dozens of projects due to $32.8 billion worth of budget blowouts. An independent audit of current commitments found no new projects could be afforded “in the next 10 years” without changes.  The blowout represents a 41% rise in the $80 billion, 10-year federal budget allocation to the Infrastructure Investment Program, which Ms King accused the Coalition of failing to properly fund. Just under half of infrastructure spending in Australia is allocated to projects in regional and remote areas. According to IPA analysis, there are currently 483 projects valued at $673 billion in the pipeline: 253 in major cities worth $344 billion; 190 in regional Australia worth $216 billion; 27 in remote and very remote Australia worth $46 billion; and 14 offshore projects valued at $66 billion. The pipeline is now more regional than urban on a per capita basis, the IPA analysis suggests, but the fact that 72% of Australia’s population lives in major cities has major implications for project delivery.

Colleges that target international students will be banned from paying commissions to agents who facilitate poaching from universities and other colleges, under reforms to limit widespread rorting of the visa system. Education Minister Jason Clare says a raft of reforms are designed to stop “shonks and dodgy operators trying to exploit students and make money out if it”. The government will also monitor student attendance, introduce a “fit and proper person” test for college owners and prevent cross ownership between colleges and education agents in an attempt to shut down exploitative and criminal practices. “International students are back but so are the shonks seeking to exploit them and undermine our international education system,” Mr Clare said. The reforms come as the number of student visa holders hit an all-time high of 660,765 at the end of June. That figure was 203,000 more than at the beginning of the year. The changes have been triggered by reports, of widespread abuse of the visa system. Thousands of newly arrived Indian students have been using loopholes in the system to abandon their courses at established universities to enrol at cheaper private colleges. Universities are reporting sharp increases in the number of Indian students who either arrive in Australia but never step foot in their institution or abandon their course shortly after. One university said about 500 of its expected 1200 new enrolments from India for semester two last year either did not front up or jumped ship in the first six months. Use of student visas as a back door to the jobs market is also rife, with some colleges merely shopfronts with little or no teaching and administration facilities. Under the changes, student attendance will be monitored. Education agents have been actively poaching students in exchange for cash, while colleges and universities offer generous discounts for students to jump ship. The changes come ahead of the release of a long-awaited report into the immigration and visa system by former Victorian police commissioner Christine Nixon.

The South African owners of Country Road Group, whose fashion brands include Country Road, Witchery and Mimco, have unveiled plans to transform the business into Australia’s most admired “lifestyle brand house”, investing up to $82m to improve operations, open new stores and potentially expand overseas. Woolworths Holdings is now more heavily focused on its Country Road Group after selling department store David Jones last year to private equity for around $100 million and is keen to expand the reach for its remaining fashion and apparel brands in Australia. This recently saw its Witchery, Politix, Trenery and Mimco brands, as well as Country Road Kids and Country Road Home, re-enter Myer while Country Road Group has also launched a wholesale model to broaden its product reach to more regional towns in Australia. Writing to Woolworths Holdings shareholders in the latest annual report, chief executive Roy Bagattini said Country Road Group would now play a bigger role within the South African company’s performance and this would be backed by fresh investment in its back-office operations.

Labor is facing calls to cut the number of international students allowed to work in Australia for extended periods after graduation, and back a change whereby only those earning more than $70,000 are allowed to access the most generous rules. Calling for better targeting of the migration system and an end to visas which push international students into low-skilled jobs like hospitality and retail, the Grattan Institute has proposed an overhaul to cut down on permanent temporary workers. In a new report, the Melbourne-based think tank warns many graduates struggle to find a job in their chosen professional field, while only about half earn more than $53,300. Less than a third of temporary graduate visa-holders transition to permanent residency in Australia – down from two-thirds in 2014. Temporary graduate visa numbers are projected to hit 350,000 by 2030, up from about 200,000 now. Grattan’s economic policy program director Brendan Coates said about one-in-three international graduates take on further study after graduation. Those moves were often to cheaper vocational courses, and sometimes were motivated only by visa holders seeking to extend their stay in Australia. He said the current rules give international students false hope about gaining permanent residency and building their careers here. Grattan proposed shorter post-study work visas for international graduates, with visa extensions for skills shortages and regional work scrapped. Only those earning more than $70,000 a year would have access to extensions. A new “exceptionally talented graduate permanent visa” should be offered to the brightest international students at graduation, and a campaign designed to change employer attitudes about foreign graduates should be created. Public sector graduate program rules should be changed to allow international students to apply, and temporary graduate visas limited to people under 35. Currently, anyone under 50 can apply.. Grattan also calls for separate permanent points-tested visas for skilled independent, state-nominated, and regional visas to be replaced with a single points-tested visa which targets younger, higher-skilled workers.

And that’s it for this week. And next week, I’ll be talking to Robert Wilkinson, the CEO of Cyber Marathon Solutions about cyber security, And I’ll be talking to Rabobank economist Michael Every about China’s economic and market challenges.

For the most exclusive access to leading economists and business leaders from around the world, subscribe      to Talking Business from my website leongettler.com.

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