6 Dec 2013
• Rio Tinto announced that it will move to suspend alumina production at Gove (Northern Territory) after determining the refinery is no longer a viable business in the current market environment. Job losses to follow, approximately 1,100, on top of 1000 plus reductions at Qantas.
• The Australian share market fell this week and looks set to finish down more than 3%, its largest correction since early October. Positive retail data and Chinese data failed to move the market as concerns rose regarding lower economic growth and higher unemployment. Falls in the banks led the way.
• Global markets were also lower, taking a much needed breather, following a very strong 4 weeks.
• Coca Cola Amatil (CCL) announced the appointment of Alison Watkins as group MD. She is currently the CEO ofGrainCorp, and will replace CCL’s current long serving group MD, Terry Davis. Her appointment is seen very favourably given her more recent and longer term track record of growing businesses.
• Westfield Group (WDC) will move to merge its Australian and NZ business with Westfield Retail Trust (WRT) to form a new venture to be known as Scentre Group. The international business of WDC will become Westfield Corporation.
• Gold is heading for the first yearly retreat since 2000. The gold price continues on its downward trajectory (worst November since 1978) given the expectation that the US central bank will begin to reign in its stimulus measures in Q1 2014 and given that inflation concerns are nowhere to be found at present.
• Further downward pressure was placed on the Aussie dollar (90c against US dollar) given the Government’s rejection of a planned foreign takeover raised concern that foreign investment flows into the country may weaken.
• The RBA left interest rates at the record low of 2.5%. The last cut was in August. The RBA’s main concern is now the heightened Aussie dollar. Rates look to be on hold from here.
• Domestic private credit rose by a paltry 0.3% in October, revealing that conditions on the consumer and investor front are still amiss. Especially the case when you consider that investor housing is up 6.4% on this time last year and is included in the 0.3% October number.
• Australia’s manufacturing industry contracted in November with the main gauge falling below 50 points (meaning activity in the sector is contracting). The fall in the reading broke the promising run of the previous 2 months. The result can be directly linked to the Aussie dollar.
• 3rd quarter GDP (economic growth) data was weaker thus putting downward pressure on the Australian economic outlook. The reading also puts further pressure on the RBA to potentially cut rates again, but action seems unlikely right now.
• Treasury’s top economic forecaster has said that Australia should brace for the weakest income growth in half a century in the coming 10 years. The only way to maintain recent income levels would require labour productivity growth to be consistently high for a decade, at levels never achieved before.
• The 2 month average in residential housing approvals cracked the 200,000 mark (best since 1994) with house prices up 8% on the same time last year (fastest since October 2010).
• The US manufacturing sector continues to strengthen, benefiting from a low US dollar, access to cheap energy, and rising employment costs in China (i.e. shifting manufacturing back home). Extremely flexible US labour laws also assist.
• The fallout from Treasurer Joe Hockey’s decision to block the attempted takeover of GrainCorp by US firm Archer Daniels Midland continued. The Treasurer cited that the deal would be against national interest and so the stock price fell more than 25%. The decision caught most by surprise with the federal opposition, ex-Liberal party frontbenchers, and the business community denouncing the decision. It appears that the Treasurer was overruled by the PM in order to keep the Nationals happy.
• The Treasurer struck a deal with the Greens to gain their support regarding the planned abolition of the debt ceiling. The Greens and Labor had previously declined to support the increase in the ceiling from $300bn to $500bn. Sense has prevailed (i.e. there’s no need for a debt ceiling), but at what cost…..
• The federal government’s mid-year economic and fiscal statement (MYEFO) will likely be released next week and will contain a projected figure for peak debt. Treasurer Hockey indicated he wants as little debt as possible but also indicated that he has to deal with what he’s inherited.