Talking Business podcast December 4 2020
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 forty-four in our series for 2020 and today’s date is Friday December 4.
First, I’ll be talking to Andrew Laurie, successful entrepreneur and business coach, who is regularly ranked among the top business coaches in the world. And I’ll be talking to economist Nicholas Gruen about how COVID-19 has affected our clear thinking process as we search for solutions.
But now, let’s talk to Andrew Laurie.
In remarks for Congress, Federal Reserve chairman Jerome Powell says that the pace of improvement in the economy has moderated in recent months with future prospects remaining “extraordinarily uncertain”. Powell said that the increase in new COVID-19 cases both in the US and abroad was “concerning and could prove challenging for the next few months. A full economic recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities”. Powell also said while progress on developing vaccines had been “very positive”, significant challenges remained regarding the timing, production and distribution of the vaccines, and it remained difficult to assess the economic implications of this process with any degree of confidence.
Biotechnology company Moderna, one of the leaders in the race for a coronavirus vaccine, announced it would file for regulatory clearance — a critical milestone that brings the United States a step closer to having two coronavirus vaccines before the end of the year. Moderna’s vaccine was 94% effective at preventing illness in a 30,000-person clinical trial, the company said — a performance that exceeds expectations and is on par with the best vaccines. All 30 cases of severe covid-19, the illness caused by the virus, were in a group that received a placebo.
The economic impact of the coronavirus pandemic is of greater concern to Australians than the health effects, a new nationwide survey finds. With the virus suppressed in Australia and the economy emerging from recession, the latest True Issues survey finds 85% of people are concerned about the effect on the economy. This outstrips concerns about the ability of the health system to cope, which is still a relatively high 70%, or the 68% who fear family or close friends being infected. The True Issues survey is conducted quarterly by JWS Research to gauge the issues that concern voters the most and how they rate the government’s handling of each. The latest survey of more than 1000 voters, conducted from November 20-22, finds that while the usual concerns of health, the economy and the cost of living remain foremost in the minds of voters, the environment and climate change has become entrenched as a top-five issue of concern. Levels of concern over the environment and climate change waned a little in the middle of the year during the height of the coronavirus crisis, but the latest update shows they have returned to levels closer to those of last summer when the nation was ravaged by fire and drought. Climate change rates fifth in the latest survey with 38% rating it as an issue of concern. This is the same level as in November last year, as the drought hit and the fires took hold, and just below the 42% in February when the country was burning, and well above the 31% in July.
Toxic side effects from the coronavirus pandemic will cause further damage to the world’s pension systems, which are already struggling to cope with ultra-low interest rates and escalating financial pressures, according to a new study. Pension funds fear that many economies will manage only disappointing, stuttering recoveries after the crisis and that inflation will surge as a result of the massive emergency monetary measures introduced by central banks to stabilise financial markets, the research found. “Nine out of 10 of the pension funds warned that they expected investment returns to be lower in the current decade than the last and three-quarters expected inflation to increase.
The Organisation for Economic Cooperation and Development has warned Australia not to withdraw fiscal and monetary policy support before the recovery from the economic shock associated with the coronavirus pandemic is “well entrenched”. While the OECD is pointing to a relatively rapid recovery from Australia’s first recession in 30 years, it has warned the government and the central bank to support the economy during the transition. The new outlook published on Tuesday night notes the planned unwinding of Australia’s “strong” fiscal support rolled out during the first wave of the pandemic “will be a headwind to higher GDP growth in the second half of 2021”. It predicts that unemployment will also rise further because of the “gradual phasing out of job retention programs and increased labour force participation”. The OECD also points to two risks for the domestic outlook – a possible fall in business and consumer confidence “as reduced government support is accompanied by a rise in business liquidations and unemployment”. The second nominated risk is the escalating diplomatic crisis with Beijing. The OECD warns any “additional escalation in geopolitical tensions with China” could undermine growth in exports.
The Reserve Bank of Australia has kept the official cash rate and three-year bond target on hold at 0.1%. “In Australia, the economic recovery is under way and recent data have generally been better than expected,” Reserve Bank governor Philip Lowe said in a statement following the meeting. “This is good news, but the recovery is still expected to be uneven and drawn out and it remains dependent on significant policy support.” Dr Lowe reiterated that given the outlook for both employment and inflation, monetary and fiscal support will be required for some time.
Reserve Bank governor Philip Lowe has told a Parliamentary committee fiscal stimulus has played a “critical role” in supporting the economy through the coronavirus pandemic and he now expected unemployment to peak between 7% and 8%.
Australia has exited recession after the economy grew 3.3% quarter-on-quarter in the September quarter. Economists had expected 2.5% quarter-on-quarter growth. The quarterly rebound lifted the year-on-year contraction to 3.8%. Economists had forecast a contraction of 4.4%. The combination of massive fiscal and monetary stimulus snapped a two quarter run of negative growth. The economy contracted 7% in the second quarter following 0.3% in the first quarter.
National house prices are on track to recover losses suffered in the pandemic and hit a new high if the current level of growth is maintained. The latest CoreLogic property price index says shows house prices have continued to rise nationally in the face of the coronavirus-driven recession. Property analysts no longer expect 10 to 20% declines in house prices and expect that if the virus remains under control in Australia prices will rise more by early next year. After gains in October, CoreLogic’s national index recorded a second consecutive monthly rise in November, with dwelling values up 0.8% over the month and 3.1% over the year. CoreLogic’s head of residential research Eliza Owen said this showed a “new recovery trend” following a 2.1% drop in Australian home values between April and September.
The potential loss of Victoria’s AAA credit rating could cost the state up to $10 million per year, the Treasury has revealed. Treasurer Tim Pallas has acknowledged he cannot guarantee that Victoria will maintain its AAA credit rating as the state’s debt soars in the wake of two coronavirus lockdowns and widespread job losses. The massive spend in the state budget will take the government’s net debt to nearly $155 billion within three years, more than 28% of Victoria’s total annual economic output. International credit agencies have reacted coolly to the record level of debt and foreshadowed a review of the state’s AAA credit rating. If Victoria is stripped of its top credit rating, lenders will likely charge the state a higher rate of interest. Big rating agency Standard and Poor’s put Victoria’s AAA rating on a negative credit watch in August (the only state to attract that action) and last Tuesday reiterated its view from that time that there was “a one-in-two likelihood that we will lower our rating on Victoria”.
The Morrison government is rallying international support over its trade disputes with China, formally raising with the World Trade Organisation Beijing’s stonewalling of efforts to resolve issues and urging an end to discrimination against Australian exporters. Australian trade negotiators used a top level WTO meeting last week to complain that the moves against local exporters were unfair and the country was being singled out for harsh treatment. Prime Minister Scott Morrison has flagged a lifeline for winemakers after China’s Ministry of Commerce imposed tariffs of up to 200% on Australian wine on Friday over complaints it is being dumped. One of the worst-affected, Treasury Wine Estates, faces losing more than 30% of its annual profits because of the Chinese duties.
Australia’s largest wine company, Treasury Wine Estates, says its imports into China have been slugged with a massive 169.3% tariff, and it will implement emergency measures to minimise the damage. Treasury’s well-known brands include Penfolds, Wolf Blass and Lindeman’s. Trade relations between Australia and China deteriorated even further late last week after Beijing imposed crippling import taxes, ranging from 107 to 200%, on all Australian wine. The move followed the preliminary findings of a Chinese anti-dumping investigation, which claimed Australian winemakers were selling wine below the cost of production, and causing China’s winemakers “substantial harm”. Treasury Wine Estates said it expected demand for its wine in China to be “extremely limited” from now on. The tariffs, or so-called “anti-dumping security deposits”, will be charged to Chinese importers who order Treasury’s wines in bottles of 2 litres or less. In the wider context, the coronavirus sell-off and worsening Australia-China relations have caused Treasury’s share price to fall by more than half since late January (when its shares were worth $17.80).
Qatar has taken steps to shut down the $300 million-a-year lamb trade with Australia in the latest blow to farmers and meat processors already suffering from China import bans In what some see as another retaliatory blow linked to culturally insensitive diplomacy, Qatar has abruptly ended a subsidy which has underpinned the trade with Australia for the past five years. The Qatar move comes after the Morrison government raised concerns over invasive searches of Australian women travellers at Doha’s Hamad International Airport in October. Lamb exporters and sheep industry leaders were reluctant to publicly link the trade disruption to the outcry over the searches for fear of inflaming the situation. Karim Nol, the boss of Sydney-headquartered Al-Karim Exports, said Qatar was one of Australia’s biggest and most important markets and the trade disruption had come without warning.
Embattled casino operator Crown Resorts has tapped a former National Australia Bank executive to be its new chief compliance and financial crimes officer. Steven Blackburn will start on March 1 after serving as chief financial crime risk officer and group money laundering reporting officer at NAB. He will lead Crown’s new compliance and financial crimes department and report directly to the chief executive and the board.
The banking regulator has hit Westpac with enforcement action for lax compliance and “material breaches” of a standard on liquidity, forcing the bank to undertake independent reviews and fix issues. The action is yet another blow to Westpac after it agreed to pay a record $1.3 billion penalty to financial crimes regulator Austrac for millions of breaches of anti-money laundering laws. The Australian Prudential Regulation Authority announced the latest enforcement action against Westpac, in relation to breaches identified during 2019 and 2020. It slapped Westpac with a more onerous calculation of its liquidity ratio, and further action could be taken by APRA and its counterpart in New Zealand over the failings. Banks need to hold highly-liquid assets to be able to fund short-term cash outflows, and these levels are stipulated by regulators.
The financial services watchdog has dragged Australia’s biggest bank back to court over the slugging of inflated interest charges upon more than 2200 customers. The Commonwealth Bank is accused of charging 34% interest on business overdraft accounts between December 2011 and March 2018 despite the advertised rate of between 14.55% and 16%. The difference netted the bank more than $2.9 million, financial regulator ASIC said in court papers on Tuesday.
The plunging share price of Crown Resorts and the scrapping of its dividend has weighed heavily on James Packer’s flagship private company, which has slumped to a $400m paper loss and had more than $600m wiped from its assets. The financial accounts of the billionaire’s Consolidated Press Holdings, lodged with the corporate regulator late on Monday evening, reveal how the earnings hit Crown took due to COVID-19 had a knock-on effect on Mr Packer’s wealth. CPH made a $402m loss for the year to June 30 from only $16m revenue, compared to a $46 million profit from $321 million income in 2019. Much of the loss was due to the falling Crown share price during the 2020 financial year, in which it fell by more than 25%, and the subsequent fall in the value of the assets on the CPH balance sheet. Mr Packer has also missed out on a big payday from his major shareholding in Crown, which in August cancelled its final dividend for the 2020 financial year after its profits and revenue fell due to the forced closure of its Melbourne and Perth casinos at the height of the pandemic.
Retailers are reporting an exuberant consumer response to Black Friday the annual pre-Christmas sales bonanza, following months of lockdowns and closed borders and amid a growing optimism that the end of the pandemic is in sight. The National Retail Association had already projected a record-breaking Christmas season , including $5.3 billion of sales over the four days between Black Friday and its e-commerce counterpart, Cyber Monday. That included a projected $1.8 billion in online sales. Retailers said the early signs were that the weekend’s sales had drawn the expected shoppers both online and at brick-and-mortar stores.
Qantas has rejected a last minute attempt to save 2000 ground-handling jobs and will instead lay off those staff and outsource the work. The decision affects workers across 10 airports and takes the number of job cuts at Qantas since the pandemic to about 8500 – almost a third of the airline’s pre-pandemic workforce. Qantas originally said it would consider outsourcing ground-handling, baggage handling, catering and cabin service roles in August, believing it could save $100 million a year in staffing costs and another $80 million required to upgrade in-house equipment over the next five or so years. It prompted a stern reaction from the Transport Workers’ Union, who called on chief executive Alan Joyce to resign and payback JobKeeper subsidies given to the company. Due to Qantas’ enterprise bargaining conditions with the TWU, the union was able to submit its own bid last week to try to save its members’ jobs. However, Qantas criticised that bid in a statement on Monday, saying it had “significant gaps” and was unable to compete with third party offers.
And that’s it for this week. And next week, I’ll be talking to Tommy Huppert, founder and CEO of medicinal cannabis company Cannatrek which is doing a capital raising and developing export markets for Australian medicinal cannabis. And I’ll be talking to IFM Investors economist Alex Joiner about the latest GDP figures and the state of the Australian economy moving forward,
In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on 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.