Thursday, February 26, 2015

Qantas back in the black after $2.8 billion full year loss - but Alan Joyce warns of more pain to come

Qantas has returned to profit after a painful transformation program that will ultimately cut five thousand jobs and strip two billion dollars in costs from the airline.

The half year after tax profit turnaround of $203 million follows a $2.8 billion annual loss announced last August.

Despite the good news, Qantas boss Alan Joyce says the pain isn't over yet and once again he's rejected suggestions that it's time for him to quit.

Thursday, January 15, 2015

Surprise fall in official jobless rate casts doubt on rate cut talk; Australian dollar surges

The ABC's Peter Ryan analyses the unexpected fall in the official jobless rate. According to the ABS, the estimate for December unemployment fell to 6.1 percent with 37,400 new full time jobs created. The surprise outcome saw the Australian dollar surge and puts new doubts on predictions that the Reserve Bank will cut the cash rate this year.

ACCC boss says regional consumers are probably right to feel gouged on petrol prices

Petrol prices - two different worlds in Australia

The competition watchdog has outlined how it hopes to unravel the mystery of volatile petrol prices and uncover why it's cheaper to fill up in the city than in regional Australia.

But the chairman of the Australian Competition & Consumer Commission Rod Sims says regional consumers are probably right to feel they're being gouged by petrol retailers.

Listen to my interview with Rod Sims broadcast this morning on the ABC's "AM" program.

"I think you'd have to say the presumption is that there's a bit of gouging going on in the sense that the price falls internationally aren't being properly passed on into the market place." Mr Sims told AM.

"We need to get more evidence on that, but that's how it looks at first glance."

The ACCC is under pressure to come up with answers after a recent directive from the Small Business Minister Bruce Billson to determine why people in regional Australia paid an additional 17 cents per litre for petrol in December despite a dramatic fall in the price of crude oil.

Back in July, the gap between capital city and regional prices was narrower at an average 5.7 cents per litre.

The ACCC says that every additional cent per litre costs Australian consumers close to $200 million every year.

While the ACCC is yet to prove anti-competitive activity that breaks the law, Mr Sims is looking for behaviour that might "out" petrol retailers for inappropriate community behaviour.

"Now what we're likely to find is people making a lot of profit. We can shine a light on that and it could embarrass some people into lower prices," Mr Sims told AM.

"Just for consumers being more empowered with more information about what the  profit margins are will I think drive more change and behaviour."

Although petrol prices are not regulated in Australia, the ACCC is now equipped with compulsory information gathering powers which requires companies and retailers to provide information at every level of the supply chain.

The ACCC will produce at least eight reports in 2015 which will examine petrol price movements and what drives volatility.

The first report, covering all capital cities and 180 regional locations,  is due next month and will look at international refined prices, terminal gate prices and the exchange rate.

The price of West Texas Intermediate Crude, the global benchmark, rose today by amost six percent to US$48.48 a barrel.

However prices have tumbled by nearly 60 percent since June as strong global supply outstrips waning demand.

Thursday, December 4, 2014

Weak economic growth puts interest rate cut on RBA agenda

So what do those surprisingly weak economic growth numbers which hit yesterday mean for interest rates?

And how worried will the Reserve Bank be that about the ultimate risk of a recession unless it steps in with emergency stimulus?

They're big unanswered questions and why some economists are now changing their forecasts to a interest rate cut in the New Year.

Listen to my analysis from this morning's edition of "AM".

The Reserve Bank has held the cash rate steady at the historic low of 2.5 percent since August last year.

The mantra - repeated on Tuesday when rates were left unchanged - has been about "a period of stability" as the economy adjusts from the fast unwinding mining investment boom.

The RBA has been taking what it sees as the most "prudent" course, despite calls for a rates hike to cool hot property investment in Sydney and Melbourne and the threat of a dangerous "bubble".

That strategy has been backed by third quarter growth slower than the most pessimistic forecasts and that with a collapse in commodity prices after the boom and a slowing in capital spending, Australia is in the midst of an "income recession".

The RBA board takes January off and meets on the first Tuesday of February - and the possibility of a rate cut to stimulate spending and to bring the dollar down is set to be high on the agenda.

The Australian dollar dived when the GDP data hit yesterday and this morning is hovering around 84 US cents on expectations of a rate cut in 2015.

Even before the weak GDP data, Deutsche Bank changed its rates forecast - down half a percentage point in two 25 basis point steps - with unemployment set to rise, inflation under control and no sign yet of a housing bubble.

Late yesterday, Goldman Sachs mirrored that prediction and is tipping the RBA will start cutting rates in March with followup in August taking the cash rate to a fresh historic low of two percent.

That could stoke further housing investment but stemming damage to the broader economy will be the RBA's main aim if the Board decides to blink and cut rates.

And unlike other central banks like the US Federal Reserve and the European Central Bank which have rates near zero, Australia has enough powder dry to press the rate cut button if needed.

The latest retail sales figures for October due this morning could add to concerns about the strength of the economy.

But forecasts are looking bleak just a few weeks before Christmas.

The consensus according to a Reuters survey is showing little or no growth - a rare zero percent outcome - with some economists are tipping a negative result.

That's more evidence that the cautious consumer is becoming a grinch, watching every penny and not spending despite Joe Hockey's call to spend up for Santa.

And a rate cut might just be the medicine or a temporary hit to get Australians spending.

Friday, November 28, 2014

Oil price dives as OPEC rolls out "do nothing" strategy

The price of oil collapsed overnight after OPEC nations decided against cutting production to prop up dwindling values.

And expectations are that crude prices might go even lower after the usually powerful Gulf producers decided to do nothing.

Listen to my report on The World Today

The deepening oil slide has hurt energy companies around the world and some big names in Australia have seen their share prices dive this morning.

Santos fell ten percent, Tap Oil nine percent and Oil Search was almost eight percent lower in late morning trade.
Despite the oil price sliding in recent months, weeks and days, there were low expectations for today's meeting of OPEC oil ministers in Vienna.

Not surprisingly the 12 member cartel delivered on that anticipation and maintained production of 30 million barrels a day, holding firm in the face of too much oil chasing too few customers and and growing pressure to tighten the oil tap.

So how low can the oil price go before OPEC bends to self interest and counters with lower supply to prop up the price?

OPEC secretary general Abdulla el-Badri wouldn't put a number on it and said he was relaxed - for now anyway.

"There's a price decline. That does not mean that we should really rush and do something," Mr el-Badri told reporters.

"We don't want to panic. I mean it. We want to see the market, how the market behaves, because the decline of the price does not reflect a fundamental change."

OPEC's decision to "do nothing" only sent the oil price lower.

West Texas Intermediate crude went to US$69 a barrel having fallen by a third this year.

Brent crude fell to its lowest level since 2010 shortly after the OPEC decision became public.

Analysts say that OPEC is being forced to let market forces apply and unable to use its traditional muscle because of slowing growth in Europe and China.

An even bigger complication is the United States - which is on its way to oil independence with local production of shale oil at a three decade high.

While OPEC's heavy hitters - Saudi Arabia, Kuwait and the UAE - are driving the "do nothing" strategy, smaller member nations are furious.

Venezuela - which relies on a high oil price to underpin government finances - is said to have stormed out of the meeting after the OPEC kingpins refused to cut production.

Wall Street was closed for the Thanksgiving Day holiday but elsewhere financial markets were hit hard.

Russia's ruble went to a record low and energy stocks in London were hit hard.

The Australian dollar is also a casualty of the oil price price - down to 85.1 US cents.

It's become a test of nerves for OPEC and oil investors.

So will OPEC blink before the global oil glut really starts to hurt?

Friday, November 21, 2014

Will the carbon bubble threat spark the next global financial crisis?

I was a participant in this forum at The University of Melbourne's Asia Pacific Social Impact Leadership Centre earlier this week.

Panelists included Professor Ross Garnaut, former Liberal leader Dr John Hewson, Tony Wood of the Grattan Institute and Jemma Green of Curtin University.

With $20 trillion of potentially stranded fossil fuel assets, the forum attracted a big and vibrant audience.

Prof Ross Garnaut (far left); Dr John Hewson (third from left); Peter Ryan, Jemma Green, Tony Wood, Ben Neville, Prof Nasser Spear, Deputy Dean Melbourne Business School.

Here are my opening comments from the Carbon Bubble forum to set the scene for panelists and the audience:

The G20 Summit at the weekend and President Obama’s success in getting the issue of climate change firmly on the agenda is an important backdrop for us this evening.

Rather than seeing Tony Abbott shirtfront Vladimir Putin as sections of the media seemed to expect in a physical sense – it’s now looking as though Mr Abbott might have been the target of a shirtfront from Mr Obama.

And just few days before at the APEC Summit in China there was the unexpected development - that even took a few cynics by surprise - when China and the US pledged to reduce or limit their carbon emissions .

The US to cut by 26 to 28 percent below 2005 levels by 2025 – and China to cap emissions by 2030 or sooner.

So over the space of a week – perhaps we’re seeing climate change and the short and long term impacts being taken a bit more seriously.

It is of course significant that climate change made it into the G20's closing communique.

So when you think about the potential or frightening reality of a “carbon bubble” you almost see your life flash before your eyes.

How our lives and our high expectations revolve around fossil fuels.

How most of us are conditioned to a world that grinds along based on dirty coal, oil and gas.

How big business, industry, politicians and a range of vested interests are locked in to immense wealth generated through energy sources that are perhaps better suited to their genesis back in the industrial revolution.

There was a key phrase journalists were using at the APEC Summit.

It was “APEC blue” - as Chinese authorities shut down factories and took cars and trucks off the road.

Dirty brown skies that could be mistaken for an overcast day made way for a crisp blue Autumn sky you don’t always see in Beijing – as China and the US prepared to announce their ambitious new targets to slash emissions.

The APEC blue sky shows what can be done if the world is watching – but of course turning aspirational targets and ambitions into tangible and believe outcomes is another.

So here’s the issue we’re facing.

What would happen if to avoid the worst impacts of climate change, governments agreed to accelerate their move away from the use of fossil fuels?

What if renewable technologies started to take over faster than expected and the supply of fossil fuels began to outstrip demand quite dramatically as governments, industry and consumers took climate change seriously and switched away?

A study by HSBC has estimated that if remaining massive reserves of fossil fuels become redundant – they would become unburnable or “stranded assets”.

HSBC has put a number on that – and it’s in the realm of $20 trillion.

Devaluing those assets could end up halve the sharemarket value of fossil fuel companies.

And if you though the Global Financial Crisis sparked by the Lehman Brothers collapse in 2008 was bad – the Carbon Bubble according to some experts would be a whole new world of pain.

So as the scientific evidence of climate change begins to ramp up – just how seriously should we be taking the carbon bubble?

And how should investors respond given that superannuation funds are exposed and in turn – we’re all exposed in terms of our retirement nest eggs.

That should ring a few alarm bells – even for the cynics – especially when in addition to HSBC, you have Standard & Poor’s, Citibank, the Bank of England, Oxford University and the London School of Economics saying we need to take the carbon bubble threat seriously.