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 2019 and today’s date is Friday December 6.
First, I talk to Stefan Rust, CEO of Bitcoin.com
Rabobank economist Michael Every on how the prospect of a meaningful US-China trade deal is looking less and less likely.
But first, let’s talk to Stefan Rust.
President Donald Trump signaled he would be willing to wait for another year before striking a trade agreement with China, casting doubt on the likelihood of a phase-one accord within weeks between Washington and Beijing. “I have no deadline,” he told reporters Tuesday in London when asked if he wanted an agreement by year-end.
Stocks dropped in Europe and U.S. equity futures sold off as Trump’s comments indicated no urgency to reach a deal by Dec. 15, which U.S. Commerce Secretary Wilbur Ross on Monday called a “logical deadline.” The Trump administration has threatened to impose tariffs on more Chinese imports starting that day. Those levies would hit American consumer products such as smartphones, toys and children’s clothing in the days before the Christmas holiday.
US President Donald Trump also threatened to open up another front in his trade war with the rest of the world, warning he may slap tariffs on the dozen-plus NATO members that haven’t met his demand to rev up their defence spending. Mr. Trump has been insistent that members of the trans-Atlantic military alliance each take a proportionate share of the burden, equivalent to 2% of their GDP. Arriving in London on Tuesday for a NATO leaders’ meeting, he warned that the laggards “are gonna be dealt with”.
And the Australian economy is looking pretty crook according to the latest data which suggests the stagnating economy is at risk of turning into something worse and teetering on the edge of recession.
ANZ Job Ads slid a further 1.7% in November and are now down almost 15% from their cyclical peak in May 2018. Although there has been a longer lag than usual, the downturn in the number of advertisements may be starting to filter through to the labor market. In October, we saw the first substantial fall in three years of 19,000 jobs in the employment numbers.
Australia’s Nov AIG manufacturing PMI is down 3.5pts to 48.1. This tends to be volatile month to month but suggests manufacturing growth in Australia is pretty weak,
The weakest productivity numbers in at least 25 years have unsettled the outlook for an economic recovery, a pick-up in wage growth and a string of budget surpluses predicted by the Morrison government and the Reserve Bank of Australia. Labour productivity in Australia has fallen for the first time in 25 years, raising serious concerns about what economic reforms are in place to improve the productivity of workers. Official figures show that labor productivity fell 0.2% in fiscal 2019, or even more, down 0.8%, when adjusted for the quality of work performed, according to the Australian Bureau of Statistics. The figure is the first negative recording since the data series began in 1994.
Predicted budget surpluses will not be as large as the treasurer, Josh Frydenberg boasted they would be in April, according to a new analysis. Deloitte Access Economics expects the federal government’s budget update on 16 December will point to a surplus of $5.3bn for the 2019/20 financial year, which would be smaller than the $7.1bn forecast in April. Similarly, the budget surplus projection for 2020/21 is also expected to narrow to $8.4bn, from $11bn. Economist and partner at Deloitte Access Economics, Chris Richardson, said that while overall strong commodity prices have benefited Australia, coal prices are now off the boil.
Australia’s property frenzy is back in full swing, with home prices surging the most in 16 years in November. National property values jumped 1.7% last month, the largest gain since 2003, according to data from CoreLogic. Sydney and Melbourne continued to lead the rebound, with prices up 2.7% and 2.2% respectively. Annualized gains over the past three months in both cities are tracking in the mid-20% range, CoreLogic said. At that rate, home values will recoup all their losses from the recent downturn and be back at record highs early next year.
But the number of building approvals fell by 0.8% in October according to the Australian Bureau of Statistics and has been falling for 23 months.
And according to the Australian Bureau of Statistics, the seasonally adjusted estimate for company gross operating profits fell 0.8% in the September quarter 2019. The seasonally adjusted estimate for wages and salaries rose 1.0% in the September quarter 2019.
As expected, the RBA board, at its final meeting for the year, kept rates on hold at the historic low of 0.75%. The RBA stared down increasingly disappointing economic data, preferring to “wait and assess” the impact of the three cuts delivered since June.
The economy has posted annual growth of 1.7% in the September quarter, up from a decade low of 1.4%, according to numbers out on Wednesday with GDP in the September quarter rising 0.4%. The annual rate of household consumption is 1.2%, down from 1.4% indicating that the three interest rate cuts this year and the $7.8 billion in tax relief have not had quite the stimulatory effect the government had been hoping for.
Australia has recorded its second consecutive current account surplus – the first time in 46 years. The current account recorded a $7.9 billion surplus, driven by steady growth in exports of iron ore and gas. The result far exceeded the consensus of economists for a $6.1 billion surplus and indicates Australia is becoming far less dependent on foreign capital. Official figures showed that the largest quarterly goods and services surplus on record of $21.1 billion and a smaller net income deficit of $13 billion ( a measure of income flowing out of the country) contributed to the first time there have been two consecutive current account surpluses since 1973.
Fears of a long, hot summer causing large-scale blackouts have forced the Australian Energy Market Operator to lock in a record 1600 megawatts of emergency reserves to help the electricity grid survive the next three months. Amid ongoing concerns about the “deteriorating reliability” of older coal-fired power stations, AEMO chief executive Audrey Zibelman said the purchasing of reserve capacity was a necessary and cost-effective insurance policy to ensure the grid stays intact through the summer. It is estimated to cost the market operator $44 million. The AEMO summer readiness report said they were preparing for hot summer with higher than average temperatures which can increase the likelihood of generator failures.
They said there was a 10% chance of exceeding the maximum demand forecast for this summer. AEMO said despite 3700 megawatts of additional capacity coming into the grid since last summer – the bulk of which was roof-top and large-scale solar – there was still a possible shortfall of 125 megawatts in Victoria this summer. Bushfires also pose an “ongoing and significant risk” of transmission network disruption, according to AEMO’s assessment of the energy market, while the Bureau of Meteorology has forecast severe drought to persist over summer and an 80% chance that average temperatures would be hotter than normal.
Retailers are hoping the tide has turned for consumer spending after stronger than expected sales over Black Friday and Cyber Monday and early signs confidence is improving as house prices rebound. Online retailers Amazon and Kogan broke sales records over the four-day shopping spree, and eBay, which was expecting double-digit sales growth, said spending rose more than four times faster than predicted.
The Morrison government has flagged worker empowerment measures such as employee share schemes as it seeks to change the conflict-based narrative on industrial relations to how “co-operative workplaces” could improve productivity and wage growth. Industrial Relations Minister Christian Porter released a discussion paper that seeks to collate “best practice examples” for businesses to create a harmonious workplace so as to foster innovation and lift wages, the paper flags the government would also take action to facilitate the co-operative model.
Suggested ways to create co-operative workplaces include giving workers a financial interest in the company through employee share schemes, flat accountability structures and giving workers a voice in the decision-making process. Mr. Porter’s move follows the government’s stunning defeat in the Senate late last week when One Nation unexpectedly used its balance of power to block the Ensuring Integrity Bill. And it comes amid concerns that slow wage growth is becoming entrenched. Reserve Bank deputy governor Guy Debelle last week said annual pay increases of 2% to 3% a year had become the norm in Australia.
The prudential regulator will examine the departure of former Westpac compliance officer Amanda Wood who was reportedly demoted after flagging breaches at the heart of the scandal engulfing the bank. Australian Prudential Regulation Authority chairman Wayne Byres told a parliamentary hearing on Monday that its investigation into Westpac over the 234 million money-laundering breaches will focus on culture and governance failures, including whether internal red flags were ignored.
Industry funds First Super, TWU Super, and Sunsuper are pushing for more executive accountability at Westpac and are ready to split with the influential Australian Council of Superannuation Investors over board appointments and remuneration at the embattled bank’s upcoming annual general meeting.
Former senator Nick Xenophon says Chinese tech giant Huawai has been “treated incredibly unfairly”. So, for a fee, he’s going to help turn things around. And Huawei is delighted to have the former senator – or more correctly the law firm he recently established with former journalist Mark Davis – on board as its “new strategic counsel”. Huawei says Mr. Xenophon will “be helping to defend our company locally against malicious and false attacks designed to cause us reputational damage”.
That reputational damage has come on the back of suggestions that Huawei – the world’s biggest phone supplier – is too cozy with Beijing and has been using its equipment to spy on other countries and companies. Recent reports that it’s been helping censor and surveil Uighur Muslims for the Chinese Communist Party have reinforced that narrative.
In 2018, Australia banned Huawei from its 5G rollout and the US has led a campaign to have its allies follow suit. America has also forbidden the use of the telco’s networking equipment. Mr. Xenophon questioned the logic of an earlier ban on its equipment being used for the National Broadband Network after news emerged in 2017 that 40 Huawei phones had been purchased for Defence and Foreign Affairs in March of that year. He was also part of the Economics References Committee’s inquiry into the foreign investment review framework, which reported in 2016.
Bedding retailer Adairs is outlaying about $85 million in cash and shares to buy pure play online furniture and homewares retailer Mocka. Mocka is a 12-year old family-owned vertically integrated online retailer that sells indoor, outdoor and nursery furniture, home decor products such as rugs, mirrors and cushions, and home storage products. The acquisition is aimed at differentiating Adairs’ product range, boosting sales in New Zealand, and accelerating its online sales growth. The purchase price includes $43.4 million in cash and $5.7 million in escrowed Adairs shares upfront, as well as deferred payments based on Mocka’s earnings over the next three years.
Woolworths is facing a class action over the payment shortfalls to its salaried store employees over a two year period. The company was informed that a Canberra law firm intends to file an employee class action proceedings against it in the Federal Court of Australia. Adero Law estimates the underpayment bill at $620 million. In late October, the company discovered it had underpaid a number of its staff by $300 million. The group is making interim payments to the affected staff and is estimating the one-off payments could be in the range of $200 million to $300 million before tax.
The country’s largest shopping mall, Chadstone, is about to get even bigger. Retail landlord Vicinity Centres will pump another $685 million into developing its trophy centre in Melbourne’s eastern suburbs, announcing plans to add more levels on two car parks, a nine-storey commercial office, and an upgraded fresh food precinct. The works, which also include an expansion of Chadstone’s extensive dining and leisure precinct, will need approval from the local council and a green light from the centre’s half-owner, billionaire shopping magnate John Gandel. The flagship centre is one of the landlord’s best trading malls, underpinning the group’s profits and making up about 21% of the value of Vicinity’s property portfolio.
The Federal Court has fined Optus $6.4 million for misleading customers over the time frame of the mandatory switch to the NBN, in a case brought by the Australian Competition and Consumer Commission (ACCC). The court ruled in favour of ACCC’s claim that Optus made “misleading claims about home internet disconnections to consumers” in an effort to win broadband customers from its competitors.
The ACCC said Optus had emailed 138,988 of its mobile customers saying their home broadband services, which were provided by Optus’ competitors, would be “disconnected very soon”. It urged them to “make the switch” to Optus’ NBN products “before it’s too late”. Once homes are ready to connect to the NBN, they have 18 months before the legacy ADSL or cable connections are switched off. Both NBN Co and retail service providers give customers repeated notifications over that 18-month period.
Conservationists have launched a court battle against Clive Palmer’s proposed Queensland coal mine saying it will destroy wildlife and impact graziers. The owners of the 8000-hectare Bimblebox Nature Refuge in central Queensland filed an objection to Waratah Coal’s proposed mining project in the Galilee Basin on Monday in the land court in Brisbane. The Bimblebox co-owner Paola Cassoni says Palmer wants to build a mine that will destroy a nature reserve where more than 150 bird species, including the endangered black-throated finch, and other wildlife have been observed.
GrainCorp is set to pocket a bittersweet insurance payout of about $57.3 million after Australia’s driest spring on record slashed national crop production forecasts. Official Commonwealth forecaster ABARES has cut its winter grain production estimate from 33.9 million tonnes in September to just 29.4 million tonnes, a fall of 13% in three months, with harvest, already over or drawing to a close in many farming regions. The production downgrade comes after a combination of record low rainfall and Australia’s fifth-warmest spring exacerbated a prolonged drought in much of Queensland and NSW.
The consumer watchdog has blasted Coles, Wesfarmers and Woolworths for automatically linking credit cards with loyalty schemes, saying the practice is problematic and causes consumer harm. In its final report into loyalty programs, the Australian Competition and Consumer Commission said the links decreased privacy, while also increasing risks of discrimination and exclusion. ACCC chairman Rod Sims said the providers of the schemes could profile their customers, presenting opportunities to employ price discrimination techniques against some customers.
Takeover target Caltex has given its Canadian suitor encouragement that its $8.6 billion takeover offer is not too far off the mark, offering it limited access to its accounts at the same time as rejecting the $34.50 a share price as inadequate. The move came after discussions with investors, the feedback was that the price was “skinny”, representing just a premium calculated at 15.8%, Caltex chief financial officer Matthew Halliday said. It has left Quebec-based Alimentation Couche-Tard, which argues the premium is more than double that, well short of the full due diligence and exclusivity on negotiations that it wanted. But it still leaves scope for a friendly deal and came as little surprise to the market, where investors and analysts have been signaling they expected a sweeter price would be needed.
And that’s it for this week. And next week I’ll be talking to Matt Poll, an experienced business leader with a passion for innovation. He has recently founded Neos (neos.co.uk), which is an InsureTech business that is focused on delivering smart home protection products and services. Prior to this, he spent fifteen years in the Insurance industry working in the UK and US with AXA and RSA. And I’ll be talking to economist Nicholas Gruen.
And of course, I’ll be bringing you all the week’s news. In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Have a great week, take care, be good and looking forward to bringing you Talking Business next week.