Thursday, October 20, 2011

Global jitters back on reality check that EU leaders won't agree on bailout deal at weekend meeting; Australian investors also spooked

A workable solution to Europe's deepening debt crisis is looking even more remote today.

Plans to tackle what threatens to become a fully blown banking crisis have stalled after a new split emerged between France and Germany on how to operate the European bailout fund.

Here's my analysis from this morning's edition of AM.

Despite an ultimatum from the G20 that EU leaders agree on a solution, this weekend's meeting has gone from "make or break to "deadlock".

In the meantime, uncertainty remains about the level of financial firepower needed to prevent a potential cascade of sovereign defaults that could engulf Europe's debt exposed banking system

Tuesday, October 18, 2011

Reserve Bank signals rate cut - if inflation behaves.

By Business editor Peter Ryan - analysis
The Reserve Bank has signalled that next week’s highly anticipated consumer inflation data could be the trigger for cutting the official interest rate.
In the minutes from its September meeting, the RBA board noted that the latest data shows the pickup in underlying inflation had been “more gradual than initially indicated” suggesting the medium term outlook for inflation will be comfortably between the 2 and 3 percent target band.

Listen to my analysis broadcast on The World Today.
The Board indicated the case for a rate cut from the current 4.75 percent on Melbourne Cup Day was getting stronger given the subdued local economy outside of mining.
“An improved inflation outlook, if confirmed by further data, would increase the scope for monetary policy to provide some support to demand, should that prove necessary,” the Minutes said.
The mood for a rate cut has been fuelled by a recent revision to measures of underlying inflation by the Australian Bureau of Statistics (ABS) which reduces annual inflation from 2.7 percent to 2.5 percent.
Most economists agree consumer inflation data for the September quarter, to be released on October 26, will be a critical factor in the RBA’s November meeting.
The minutes also note eased financial conditions, a softening labour market and a lowering of fixed interest rates for some home loans as additional signs of an economy under pressure.
The RBA board also underscored the uncertainty on global financial markets, reflecting concerns about a possible Greek debt default and concerns about the stability of Europe’s banking system.
“Reflecting these developments, share prices of financial institutions, particularly those in Europe, had fallen significantly and had been extremely volatile.
“At one stage, the share prices of the three largest French banks had fallen by more than 30 percent in the month, to be 75-90 percent below their pre-crisis levels.”
However, the RBA remains confident about the health of the Australian banking system, despite volatility for share prices, exchange rates and bonds.
“Domestic banks remain well positioned to withstand a further period of dislocation, with deposit growth continuing to outpace lending growth.
“Australian banks continued to have good access to short term markets onshore and offshore."
However as a result of global and local conditions and low yields on bonds, markets are optimistic about an easing: “there was an expectation that the cash rate would be reduced significantly by the end of next year.”
The RBA has also confirmed the Australian consumer remains cautious, with varying economic conditions – the two speed economy – complicating the task of assessing the strength of the overall economy.
The Reserve Bank board meets on November 1, Melbourne Cup Day, a year after rates were increased to the current 4.75 percent.

Fear returns as Germany warns of "no miracle cure" for Europe debt crisis

Global stocks have taken a hit this morning after Germany's finance minister warned there'd be no miracle cure for Europe's debt crisis.

The comments have dampened hopes that Eurozone leaders will hammer out a comprehensive solution when they meet at the weekend.

The reality check pushed investors back to the sidelines, and the Australian dollar also fell.

Worried investors have been grasping at any sign of optimism that Eurozone leaders might get their acts together especially after the German chancellor Angela Merkel and French President Nicolas Sarkozy said the weekend summit would offer a comprehensive solution

But this morning, Germany's finance minister Wolfgang Schaeuble said while there would be a five point plan, no one should expect a miracle cure or a definitive solution

That's done nothing to ease concerns about European banks, as a result stocks fell around 1.6 percent across Europe

The renewed fear saw investors dump the Australian dollar from last night's high of 103.7 US cents to a low of 101.49 US cents this morning.

Monday, October 17, 2011

Companies on notice over director pay as shareholders test new veto power in hot AGM season

Shareholders in Australia now have new powers to oppose what they see as excessive pay increases for senior executives and non-executive directors.

The first sign of the new regime may be seen when the annual general meeting (AGM) season kicks off this week.

Under new laws, company directors have to face re-election if more than 25 per cent of shareholders reject a remuneration report for two years in a row.

This new power came after some large parachutes for executives who failed to keep shareholders happy. Former Telstra CEO Sol Trujillo is one example cited after he left the telco after an unpopular tenure with $30 million in entitlements.

Now both retail and institutional shareholders will have real powers to punish boards who misjudge public and investor sentiment, by vetoing a remuneration report.

Until now, such votes have not been binding.

I spoke with Vas Kolesnikoff, chief executive of the Australian Shareholders' Association, on this morning's edition of AM.

He told me it's a brand new day for corporate accountability.

Sunday, October 16, 2011

Midmarket companies - Australia's trillion dollar sector - best placed amid global uncertainty. Also unfazed about carbon tax fallout.

Much of the current debate on Australia's two (on indeed multi) speed economy more often than not focusses on challenges facing big business and minnow sized small companies.

But in the face of global and local uncertainty, the companies in the middle - known as the midmarket sector - appear to be best placed to withstand any fallout from Europe's debt crisis.

According to a report by GE Capital, Australia's midmarket companies turn over more than a trillion dollars a year contributing more than three million jobs.

And despite the current emotional debate in some quarters, most mimarket companies are also unfazed by the carbon tax and instead see it as an opportunity.

I spoke with GE Capital's managing director in Australia and New Zealand, Skander Malcolm, in this interview aired on AM.