ASX Hits Record High as US Inflation Drops
The Australian sharemarket closed at a record high on 12 July 2024, following positive US inflation data that sparked hopes for interest rate cuts. The S&P/ASX 200 jumped 69.7 points to close at 7959.3 points, surpassing its previous peak set in April.
US Inflation Surprise
The US Consumer Price Index showed an unexpected decrease, marking the first negative print since March 2020. This development led traders to fully price in a 25 basis point rate cut from the Federal Reserve by September.
"The latest number reinforces Powell's view the risks towards inflation are now more balanced," said John Kerschner, head of US securities at Janus Henderson.
Market Reactions
The Australian dollar briefly surged near US68¢ before settling at US67.7¢. Australian bonds rallied, with the 10-year yield dropping to 4.32% and the 3-year yield falling to 4.06%.
In the local market, investors cycled out of technology stocks and into rate-sensitive sectors such as banking, real estate, and consumer discretionary. The technology sector was the only one to end the day lower, dropping 1.2%.
RBA Implications
The US data has tempered rate hike expectations for the Reserve Bank of Australia. However, NAB's head of FX strategy, Ray Attrill, cautioned against presuming the US data would significantly impact the RBA's next move.
Australia's own quarterly consumer price data, due later this month, will be crucial for the RBA's decision-making. ANZ's chief economist, Sharon Zollner, forecasts a headline figure of 1.1%, which could potentially lead to an RBA rate hike in August if it exceeds expectations.
CFMEU Boss John Setka Resigns Amid Misconduct Allegations
In a shocking turn of events, John Setka, the powerful Victorian branch secretary of the Construction, Forestry, Maritime, Mining and Energy Union (CFMEU), has abruptly resigned. The announcement came on 12 July 2024, just hours before explosive misconduct allegations involving Setka and the CFMEU were set to be published.
Controversy Surrounds Setka's Departure
Setka's resignation follows a joint investigation by several prominent Australian media outlets, including The Australian Financial Review, The Age, The Sydney Morning Herald, and 60 Minutes. The findings of this investigation are scheduled to be released in the coming days.
"No individual is greater than the union, this union is and always should be about the members," Setka stated in his resignation announcement.
A Turbulent Legacy
During his 12-year tenure as CFMEU's Victorian branch secretary, Setka has been a controversial figure. He was previously convicted of harassing his estranged wife and made contentious comments about anti-domestic violence campaigner Rosie Batty. These incidents led to his expulsion from the Labor party in 2019 by Prime Minister Anthony Albanese.
Most recently, Setka faced criticism for threatening to slow down AFL construction sites if the league didn't sack its head of umpires, a move condemned by ACTU leader Sally McManus.
As the CFMEU navigates this leadership change, the upcoming revelations from the media investigation are likely to shed more light on the circumstances surrounding Setka's sudden departure.
ACCC Targets JB Hi-Fi's The Good Guys in Latest Crackdown
In a bid to protect Aussie consumers amidst the cost-of-living crisis, the Australian Competition and Consumer Commission (ACCC) has set its sights on JB Hi-Fi's The Good Guys. The watchdog alleges the retailer's voucher promotions may be misleading customers.
Questionable Voucher Tactics
The ACCC's investigation reveals that over 100 promotions in the past few years potentially misled shoppers. Vouchers offered with purchases often came with undisclosed strings attached, such as short expiry dates.
"Do you think you would have bought that fridge if you knew that you had to return to The Good Guys the next week?" questions Anthony, highlighting the ACCC's concerns.
ACCC's Broader Focus
This action against The Good Guys follows similar moves targeting Qantas and Woolworths. ACCC Chairwoman Gina Cass-Gottlieb attributes this increased scrutiny to the current economic climate, stating they've been tasked with examining "everyday transactions" and factors driving price increases.
What Makes an Elite CEO?
The discussion shifted to qualities of top CEOs, with experts valuing leaders who:
- Understand their customers deeply
- Can simplify complex business concepts
- Own and actively invest in company stock
Earnings Season Preview
As the reporting season approaches, key themes to watch include:
- Erosion of pricing power
- Pressure on profit margins
- Companies potentially "hiding" profits
- Businesses trying to align with AI trends
Stay tuned to Business Australia News for in-depth coverage of these developing stories and expert analysis of the upcoming earnings season.
BHP Nickel Shutdown: Kalgoorlie Feels the Pinch
As BHP's nickel operations in Western Australia face closure, Kalgoorlie businessman Ashok Parekh criticises the slow response from state and federal governments. The shutdown, set for October, will impact around 3,000 workers across the Goldfields region.
A Stark Turnaround
Just a year ago, BHP was planning a billion-dollar smelter rebuild in Kalgoorlie. Now, workers are drowning their sorrows at Parekh's Palace Hotel. The mining giant has promised $900 million for maintenance, eyeing a potential restart in 2027.
"If you look at the last six months or so, including Ravensthorpe, the Mincor mines and others, there have been 6,000 jobs lost," Parekh said. "The state and federal governments are not really seen to be doing much about it."
Too Little, Too Late?
Despite alarm bells ringing last August, government action only began in January. The Albanese government added nickel to its critical minerals list, while WA offered royalty relief. However, these measures couldn't stem the tide of Indonesian supply flooding global markets.
Workers Face Tough Choices
At BHP's nickel refinery south of Perth, workers now face a difficult decision: relocate within BHP's Australian operations or accept redundancy. One anonymous worker appreciated the company's efforts to soften the blow, saying, "They're trying to make sure people are safe, and they're giving us a decision, which is good."
As Kalgoorlie grapples with this economic setback, questions linger about the future of Australia's nickel industry and the effectiveness of government support for crucial mining sectors.
Fortescue's Controversial Probe Sparked by AFR Report
Iron ore giant Fortescue's recent investigation into former employees, which has stirred controversy over alleged surveillance of children and families, was triggered by a report in The Australian Financial Review (AFR) in January 2024.
Court documents reveal that Fortescue began investigating ex-workers who joined green metals startup Element Zero following an AFR interview. This probe led to surveillance of former employees Michael Masterman, Bart Kolodziejczyk, and Bjorn Winther-Jensen.
Key Developments:
- Executive Chairman Andrew Forrest claimed ignorance of the spying, citing legal teams' lack of communication.
- Element Zero's lawyers accuse Fortescue of omitting crucial information in court submissions.
- The AFR article quoted Dr Kolodziejczyk stating their work was developed independently of Fortescue.
"Everything we do was developed after Fortescue and doesn't bring anything from Fortescue," - Dr Kolodziejczyk to AFR
Fortescue's investigation focused on reviewing projects, email inboxes, and laptops of former employees, suspecting intellectual property leakage. However, Element Zero and the ex-Fortescue staff reject these allegations, asserting their technology was developed independently.
The controversy has raised questions about corporate ethics, employee privacy, and the fine line between protecting company interests and respecting individual rights in Australia's competitive business landscape.
Gas Prices Surge Despite Government Efforts to Curb Energy Costs
Australian households are bracing for a significant increase in gas prices, with major cities seeing hikes of over 10% despite government attempts to control energy costs. This surge comes as a blow to families already grappling with high living expenses and inflation.
Key Points:
- AGL Energy, Origin Energy, and EnergyAustralia have announced price increases
- NSW households face some of the steepest rises, with increases up to 11.5%
- The price hike occurs despite a federal cap on wholesale gas prices
- Electricity prices remain relatively stable due to regulated default tariffs
Energy analysts suggest that the government's price cap policy may have inadvertently set a price floor rather than a ceiling for gas supply contracts. This has particularly affected retail users, who now face reduced market liquidity and fewer supplier options.
"The price cap has ended up setting a floor rather than a ceiling for gas supply contracts," said MST Marquee analyst Saul Kavonic.
Consumer advocates warn that these increases will further strain household budgets. Brian Spak from Energy Consumers Australia noted, "Electricity prices haven't increased that much [this year] but they haven't come down either... Increasing gas prices and gas bills just make the problem that much worse."
The situation is complicated by forecasts of potential winter gas shortages and the trend towards electrification. While this might put upward pressure on gas prices in the short term, increased electrification could eventually lead to lower electricity costs due to improved network efficiency.
As Australians navigate these rising energy costs, the government faces renewed pressure to address the ongoing challenge of affordable and sustainable energy supply.
Brookfield Eyes Sale of Victorian Wind Farms Amid Neoen Takeover
Canada's Brookfield has initiated early discussions to sell 2.8 gigawatts of proposed wind farms and battery projects in Victoria. This move comes as the company seeks to address potential competition concerns surrounding its $10.6 billion takeover of French renewable energy developer Neoen.
The Australian Competition and Consumer Commission (ACCC) has launched an inquiry into the takeover, focusing on whether the merger would harm competition in the electricity supply chain. Of particular concern is Brookfield's ownership of grid operator AusNet and the potential for unfair advantage in network access.
Key Points:
- Projects up for sale include the Moorabool battery near Geelong and the Navarre and Kentbruck green power hubs
- Formal sale process expected to begin in August, with final bids due around November
- ACCC inquiry is the most advanced among global regulators examining the deal
- Brookfield has offered to sell Neoen's Victorian development projects and separate management of Neoen and AusNet in Australia
"We are willing to be flexible and to find solutions for whatever challenge we may see," a Brookfield spokesperson stated, emphasising the company's commitment to securing regulatory approval.
The ACCC has requested responses from interested parties by 26 July, with a decision provisionally set for 3 October. Any agreement for the sale of the Victorian portfolio would be conditional on ACCC approval of the takeover.
This strategic move by Brookfield highlights the complexities of mergers in the rapidly evolving renewable energy sector, as companies navigate regulatory hurdles while striving to expand their clean energy portfolios.
Aussie Bitcoin Miner Iren Faces Short Seller Attack
On 13 July 2024, shares of Australian-born bitcoin miner Iren plummeted over 20% on the New York Stock Exchange following a damning report by short seller Culper Research. The report challenges Iren's claims about its data centres' capabilities for artificial intelligence (AI) applications.
Key Points:
- Culper Research alleges Iren's data centres are unfit for high-performance computing (HPC) needed for AI
- Iren's shares closed down 13% at US$11.20, despite being up 65% this year
- The company operates data centres in British Columbia and is developing a 600-megawatt site in Texas
Short Seller's Claims
Culper Research argues that Iren has "dramatically misrepresented" its data centres' potential for HPC workloads. The report describes Iren as "a Prius at the Grand Prix" and claims upgrading the facilities would cost "billions".
"We believe Iren is a painfully transparent stock promotion that will unravel as investors realise the company's HPC claims are nonsense," stated Culper Research.
Iren's Response
Co-CEO Dan Roberts told AFR Weekend that Iren is "limited in what we can say about reports of a certain nature" as a public company. He emphasised the company's focus on growth and serving AI cloud service customers.
Expert Analysis
Analysts at Bernstein SG dispute several of Culper's claims, maintaining an "outperform" rating for Iren with a target price of US$26. They argue that Iren's new site in West Texas could be developed as an AI data centre.
As the cryptocurrency and AI markets continue to evolve, the debate surrounding Iren's capabilities and future prospects is likely to remain heated.
Australia's High Corporate Tax Rate Hurts Investment and Workers
Australian businesses are grappling with one of the world's highest corporate tax rates, according to a recent OECD report. With an effective average tax rate of 28.5%, Australia ranks second only to Colombia among developed nations, far exceeding the OECD average of 22%.
Impact on Competitiveness and Investment
Economists warn that this uncompetitive tax system is stifling investment and negatively impacting workers. UNSW economics professor Richard Holden notes that Australia has shifted from having one of the lowest corporate tax rates in the 1990s to one of the highest today.
"Almost every other country has been reducing their rates over time, and we haven't," Professor Holden said.
The high tax rate is deterring foreign capital and encouraging super funds to invest abroad, leading to a decline in investment as a share of total economic activity.
Calls for Reform
Industry Minister Ed Husic has called for corporate tax reform, either by lowering the statutory rate or introducing an economy-wide investment allowance. However, Treasurer Jim Chalmers has not endorsed these suggestions, and the Coalition has not proposed cutting the company tax rate.
Benefits of Lower Corporate Taxes
Previous Treasury research found that about two-thirds of the long-term benefit from lower corporate taxes flows to workers through higher real wages. The remaining third benefits shareholders via increased profits.
Professor Holden argues for cutting the corporate tax rate to 25% across the board, emphasising that it would boost investment, increase productivity, and potentially foster the creation of new companies.
ANZ Under Scrutiny for Alleged Bond Trading Misconduct
In a troubling development for one of Australia's largest banks, ANZ is facing allegations of inappropriate trading practices and workplace issues within its markets division. The Australian Treasurer's office has described the situation as "disturbing".
Key Points:
- ASIC is investigating ANZ for potentially manipulating a $14 billion government bond sale in April 2023.
- ANZ has admitted to possibly inflating its government bond trading volume figures.
- The bank has been excluded from recent major government transactions.
The Australian Securities and Investments Commission (ASIC) is probing whether ANZ traders deliberately drove down bond futures prices, effectively increasing the government's borrowing costs. This alleged misconduct has led to ANZ's exclusion from significant government debt sales, including an $8 billion transaction and a landmark $7 billion green bond issue.
"Where we find any evidence of wrongdoing those involved will be held accountable and action will be taken," stated ANZ CEO Shayne Elliott and head of institutional banking Mark Whelan in a staff email.
Banking analyst Brian Johnson warns this could be a "significant issue for ANZ", drawing parallels to previous cultural failings in the banking sector that resulted in hefty fines and increased compliance costs.
As investigations continue, ANZ has engaged external legal counsel to assist in examining both the bond trading allegations and workplace culture concerns within its Australian markets business. The outcome of these investigations could have far-reaching implications for ANZ's reputation and future participation in government bond markets.
