The US inflation rate sits at 8.3% in August, likely keeping the Fed on track for another big rate hike and spooking the markets
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.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business on the Apple podcast store or on 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 33 in our series for 2022 and today’s date is Friday September 16.
First, I’ll be talking to Jane Livesey, Cognizant’s CEO for Australia and New Zealand (ANZ) and a Director at Contino and Servian.
I’ll also be talking to economist Saul Eslake.
But now, let’s talk to Jane Livesy
US inflation was firmer than expected in August, likely keeping the Federal Reserve on track for a third-straight 75 basis-point interest-rate hike. The consumer price index increased 0.1% from July, after no change in the prior month, Labor Department data showed Tuesday. From a year earlier, prices climbed 8.3%, a slight deceleration. Core CPI, which strips out the more volatile food and energy components, advanced 0.6% from July and 6.3% from a year ago. All measures came in above forecasts. Shelter, food and medical care were among the largest contributors to price growth. The acceleration in inflation points to a stubbornly high cost of living for Americans, despite some relief at the gas pump. Price pressures are still historically elevated and widespread, pointing to a long road ahead toward the Fed’s inflation target
Goldman Sachs is planning to implement a round of lay-offs in the coming weeks that threatens to result in hundreds of job losses among the bank’s employees. In a sign of the dealmaking slowdown on Wall Street, Goldman will restart its annual cull of underperforming bankers, which it paused during the pandemic at a time when banks were struggling to keep up with the workload. The process typically results in between 1 and 5% of company-wide employees losing their jobs, with the impending review set to result in lay-offs towards the lower end of that range. At the end of June, Goldman had about 47,000 employees across investment banking, trading, asset and wealth management, consumer banking and operational functions.
King Charles III is not guaranteed to replace Queen Elizabeth II on the $5 note as the government is yet to decide what will be done, Assistant Treasurer Andrew Leigh says. Following the Queen’s death, coins bearing the effigy of King Charles will start entering circulation next year , but Leigh said swapping the Queen for the King on the $5 note was not a given. When asked if he was open to the idea of putting someone other than the King on the $5 note, such as Eddie Mabo or Evonne Goolagong, Leigh said those decisions were for a later date. Prime Minister Anthony Albanese said he was focused on the Queen’s funeral for now, rather than a redesign of the $5 note.
Consumer confidence softened by just 0.5% last week, despite the Reserve Bank raising interest rates by 0.5 percentage points, according to an ANZ and Roy Morgan survey.
Above-average trading conditions and profitability pushed measures of business confidence higher in August, but successive rate rises by the Reserve Bank are dampening consumers’ willingness to spend money on non-essentials, new data shows. Measures of business confidence increased in August, according to NAB’s monthly business survey, and measures of trading conditions, employment and profitability remained above average.
The value of assets managed with a responsible investing framework has risen to $1.54 trillion, accounting for 43% of the total market, according to the industry’s association. In a new survey, the Responsible Investment Association Australasia said there was some $2.06 trillion in assets under management that had been “self-declared as practising responsible investment”. However, research conducted by EY for the association ruled out some $521bn, which failed a scoreboard of measures. The RIAA also provides a certification scheme for responsible investors. The survey also found that performance concerns were the strongest deterrent to the responsible investing market for survey respondents, followed by a lack of viable products or options. A lack of trust and concerns about greenwashing were also significant deterrents, the survey found.
A waning Covid-19 pandemic and the easing of health restrictions have pushed online retail down in the past three months, while traffic is up in shopping centres and at omni-channel stores. But a broader shift online – traffic rose 23% in the 12 months to August at a basket of 54 retailers tracked by analysts at investment bank Jarden – has been a major boon to Amazon. The online store has lifted its share to account for more than 40% of all online traffic in Australia. In a note on the retail sector, Jarden analysts forecast it will overtake eBay as the most visited transactional site in the country in the next 12 months. The other major online winner is Flight Centre, according to the research note distributed late last week, with traffic increasing by 167% in the last year. Travel and soft goods were the only two categories that saw a rise in online traffic in the three months to August – the former boomed, increasing 377% in the period. The analysts, led by Ben Gilbert, said the negative online traffic trend reflected the cycling of lockdowns in the previous corresponding period and was consistent with credit card data produced by Commonwealth Bank, as behaviours taken up during the pandemic began to unwind. “Online penetration (excluding food) is back to the pre-Covid trend as stores reopen, with this set to benefit malls and omni-channel retailers,” wrote Mr Gilbert. “By brand, traffic was strongest for Flight Centre while soft goods improved. Kathmandu (up 30%), City Chic (up 16%) and Just Jeans (up 12%), with Mitre 10 (up 25%) and Nick Scali (up 9%) stronger also.”
Competition between cashed up farmers and corporate investors for prime farmland is expected to drive rural property prices up more than 20% for a second successive year, before growth starts moderating from 2023, according to Rabobank. That rosy outlook is the chief finding of the rural lending specialist’s latest Australian Agricultural Land Price Outlook report and comes as ABARES, the research arm of the Department of Agriculture, forecasts at least another $80 billion of farm production this financial year and as farmers prepare for a likely third consecutive La Nina summer of heavy rains. The challenges of rising interest rates, higher input costs and already elevated land prices are expected to slow the market down from next year, but the bank does not anticipate any price corrections under its base case forecast. Rural property transactions tracked by agritech company Digital Agricultural Services indicate that land prices have increased more than 25% so far for this calendar year, the Rabobank report said. Arable cropping and dairy farmland increased by 27% in 2021, and grazing country rose 33% “This suggests full-year 2022 sales will easily yield double-digit growth. The size of land deals is also continuing to increase,” said the report’s author, RaboResearch general manager for Australia and New Zealand Stefan Vogel.
Alan Joyce’s last year running Qantas could be the most lucrative in his 14 years as CEO, according to disclosures in the annual report and notice of annual meeting released on Friday. If shareholders at the annual meeting approve the grant of 698,000 performance rights issued under a special COVID-19 retention plan, Joyce will be in the running for a benefit of $3.5 million given the rights have a fair value of $4.98 each. To convert these rights into shares, Qantas must have cut costs by $1 billion, have net debt within the range approved by the board, and report an underlying profit before tax. Joyce is also entitled to about 1 million long-term incentive plan performance rights, comprised of 371,500 rights under the 2020-2022 LTIP, 325,500 rights under the 2019-2021 LTIP, and 343,500 rights under the 2018-2020 LTIP. All of these shares have vested but Joyce and the Qantas board agreed to defer the decision on conversion until at least August 2023. If these rights were converted to shares and sold at today’s price, they would be worth $5.2 million. Joyce’s base salary for 2022 was $2.2 million and will be the same in 2023. He has not earned a short-term incentive for two years. But if he earns one in the 2023 financial year at the maximum rate of 120% of base pay, he will pick up $2.6 million. If the stars align for Joyce and for Qantas, which is not certain given the chaos besetting the global aviation industry, he will earn a remuneration and share package totalling about $13.5 million in 2023, which would exceed his previous record pay of $10.86 million in 2018.
Tens of billions of dollars of infrastructure slated for the next decade, much of it in the regions, could be under threat in the next two budgets as Treasurer Jim Chalmers searches for savings ahead of the October 25 budget. A suite of regional programs promised to then-Nationals leader Barnaby Joyce in return for his party’s support to the Coalition’s net zero carbon emissions by 2050 policy are also being reviewed by the government as it combs through past Morrison’s pledges. Joyce boasted in June he had secured nearly $30 billion. Few of the funds and projects announced in the March budget were officially signed off before the swift move to an election campaign – and none had begun construction. The government’s ongoing rorts and waste audit is scrutinising all these funds alongside grants and infrastructure pledges. Prime Minister Anthony Albanese told business leaders last week that the October budget would see cuts in discretionary funding that had been allowed to surge under the Coalition.
The nation’s super funds turned negative in August as markets were hit by central banks’ efforts to dampen rampant inflation. The median balanced option delivered a return of minus 0.5% in the month, driven by losses across developed markets, according to research house SuperRatings. It comes after funds swung to a positive performance in July, with a short-lived a recovery in equity markets boosting returns after a volatile June. The 12-month return illustrates the challenge facing the nation’s biggest investors: the median balanced option returned minus 3.8% for the year through to August 31, while the median growth option returned minus 4.8% . Over the month, the median growth fund returned minus 0.4%. SuperRatings executive director Kirby Rappell said investment performance in the month was hit by higher interest rates across developed markets. Central banks have been pushing through rate hikes for months in a bid to get inflation under control. The Reserve Bank has hiked five times in as many months, pushing the cash rate from its ultra-low 0.1% to 2.35% to dampen demand and keep a lid on rising prices. Economists are expecting the central bank to hike at least a couple of more times in this cycle, bringing the cash rate above 3%. Meanwhile, central banks in the US and Europe have been on a similar path to get inflation back to target, to little avail. Inflation in the US is tracking above 8%, while in Europe it sits at 9%. Australia’s inflation rate is about 6%.
IFM Investors will turn the screws on Australian airports, ports, roads and hospitals to slash their carbon emissions to avoid a 40% collapse in asset values. IFM has already set a 2030 interim emissions reduction target of 40% on its infrastructure portfolio from 2019 levels, as part of a commitment to reach net-zero target by 2050. IFM has a stake in Vienna Airport, which has Austria’s biggest solar plant. IFM also part owns Melbourne Airport, which has completed a solar farm with 30,000 solar panels that delivers 15% of the airport’s electricity needs. The Future Fund also found in recent research that insured losses from natural disasters had increased from about $US10 billion a year in the 1980s to $US45 billion in the last decade
Huge surges in cybercrime, including ransoming, fraud and data theft, will leave Australia 30,000 cyber professionals short over the next four years of what is required to cover the security needs of the country, according to new research. Over the next four years, the shortfall in qualified cybersecurity professionals is forecast to hit 30,000 unfilled positions across Australia. This is four times the number that has been quoted by industry and industry groups previously. The figure is revealed in new research commissioned by CyberCX and undertaken by independent think tank Per Capita. Cybersecurity skills are now in shorter supply than cloud computing and cloud infrastructure, and Australia faces a fight for talent from more developed markets in the US, UK and Canada, the report said. It also noted the anticipated growth in workforce shortages in Australian cybersecurity, database management and ICT (information and communications technology) security exceeds 38%, outstripping forecasts for care and software development. The report said the current Australian cybersecurity workforce was around 68,400. “Domestic and international evidence put the current shortfall at 25,000-30,000 positions that will be needed by 2024. Both estimates appear to be derived soundly, with the [National Skills Commission] estimates based on ABS Labour Force Survey data,” the report said. One of the glaring gaps that needed to be tackled was the gender distribution of cybersecurity workers. According to the NSC, women make up just 21% of the workforce. Universities and TAFE had been doing heavy lifting in terms of bringing qualifications and curriculums up to date. However, graduates were not job-ready and completion rates in TAFE, particularly in ICT engineering, were declining.
Cyber insurance premiums have soared in the past year as claims surged in response to a rise in damaging attacks by hackers. The cost of taking out cyber cover had doubled on average every year for the past three years, said global insurance broker Marsh. Honan Group, another broker, pointed to an 80% rise in premiums in the past 12 months, following a 20% increase in the cost of cover in each of the previous two years. The chief reason for the price rises is the increase in the number and size of claims relating to ransomware, where criminals use malicious software to block access to an organisation’s computer system until a sum of money is paid. It is estimated that in the past year, 38% of cyber incident claims in Australia involved ransomware payments,
The Star Entertainment Group has been found unfit to hold its Sydney casino licence following a damning inquiry into its suitability, but the regulator has yet to determine whether the group will be stripped of the licence or subject to further remedial action. The NSW Independent Casino Commission (NICC) published Adam Bell SC’s report on Tuesday, which found The Star unsuitable to hold a casino licence in NSW. The public inquiry was launched in 2021 after the media alleged The Star enabled suspected money laundering, organised crime, large-scale fraud and foreign interference in its Australian casinos for years, even though its board was warned its anti-money-laundering controls were failing. Alleged money laundering, criminal infiltration and fraud took centre stage during the inquiry, which led to the resignations of Star executives, including former boss Matt Bekier and chairman John O’Neill. Star had claimed that the significant overhaul of its senior ranks made it suitable to continue holding its casino licence.
Pharmaceutical giant Johnson & Johnson will pay $300 million to women who suffered chronic pain, psychiatric injury and internal injuries from the company’s defective pelvic mesh implants, as part of the largest product liability class action in Australian history. The landmark settlement follows the Federal Curt declaring Johnson & Johnson negligent over the testing and sale of the implants in November 2019, after a seven-month trial. While the number of women expected to receive payouts is yet to be confirmed, there were 1350 in the original case and Shine Lawyers, which ran and funded the matter, expected thousands more to join at the time. At least 8000 women reportedly had the implants in Australia and more than 100,000 globally, with many already receiving or currently fighting for compensation over the same procedures overseas. The $300 million would help women pay for treatments for the injuries caused by the implants, said Shine Lawyers’ class actions practice leader, Rebecca Jancauskas.
Entain faces an investigation over whether it failed to comply with its responsibilities to combat serious and organised crime over at least four years. In a move that could see the corporate bookmaker face tens of millions of dollars in fines, the investigation by financial crimes regulator Austrac will focus on whether it has complied with its obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act. Austrac also said it has been assessing other corporate bookmakers and that its “supervisory campaign with the corporate bookmakers sector may lead to other areas of focus in this sector”. While it is listed on the London Stock Exchange, Entain owns the Ladbrokes and Neds betting brands in Australia and as a corporate bookmaker mostly operates online wagering brands. Entain is also one of the finalists in the bidding for the West Australian wagering licence that is up for sale with a $1bn price tag, competing for the asset with ASX-listed Tabcorp and BetR.
And that’s it for this week. And next week, I’ll be talking to Damian Andreasen, ANZ Country Manager for HiBob, the company behind Bob the HR platform transforming how organisations operate in the modern world of work today. He’ll talk about HiBob’s mission and vision and what it means for Australian business. And I’ll be talking to Indeed economist Callam Pickering about the latest jobs figures.
In the meantime you can catch me on Facebook, Twitter, Instagram, LinkedIn and YouTube. And if you want leave a comment. For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business on the Apple podcast store or on my website leongettler.com.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.
