Today’s top stories in business news cover political maneuvers affecting unions, evolving interest rate expectations, strategic shifts in state investment, landlord movements, significant acquisitions, and economic competitiveness updates. Here are the detailed reports.
Albanese Government to Split CFMEU Amid Setka Feud
The Albanese government is set to introduce new laws allowing the manufacturing division to exit the CFMEU. This move comes in response to the ongoing conflict between CFMEU's Victorian construction boss, John Setka, and the AFL.
Workplace Relations Minister Tony Burke will table the bill next week. The legislation lets the manufacturing division hold a member ballot to decide on leaving the union, a step that mirrors the previous demerger success of the CFMEU’s mining division.
This decision follows recent clashes between Prime Minister Anthony Albanese, Minister Burke, and John Setka. The conflict intensified after Setka demanded the AFL sack its new umpires’ chief, Stephen McBurney, due to his past role with the Australian Building and Construction Commission.
Minister Burke stressed the need for the manufacturing division to have a choice. "The status quo is unsustainable. We will provide the opportunity for members to vote on their future," he said.
The CFMEU manufacturing division has sought to break away since 2020, after Setka turned on its secretary Michael O’Connor over domestic violence charges. However, while the mining division successfully used previous laws to demerge, the manufacturing division struggled.
The ACTU, represented by secretary Sally McManus, supports the government’s move, highlighting the unique situation within the CFMEU and condemning Setka's vendettas.
John Setka’s branch is now rallying construction workers to oppose the manufacturing split, distributing petitions across the supply chain.
Opposition spokeswoman Senator Michaelia Cash plans to introduce her own demerger laws, criticising Setka's tactics and calling on Labor to protect workers, especially vulnerable women in the manufacturing sector.
The legislation, if passed, reflects a significant shift in the CFMEU’s structure and aims to resolve internal conflicts that have plagued the union in recent years.
Traders Rethink Interest Rate Cuts as RBA’s Hawkish Stance Persists
Reduced Rate Cut Bets
Traders have lowered their bets for an interest rate cut this year after the Reserve Bank of Australia (RBA) considered a rates hike in June. Inflation is cooling slower than forecast, prompting caution.
As expected, the RBA didn’t rule out any action, noting inflation remains above target. Money markets now see a 37% chance of a rate cut before Christmas, down from 67% before the meeting. Bond traders have postponed the expected rate cut to May 2025.
Antares Capital's portfolio manager, Tano Pelosi, noted the hawkish tone in the RBA's statement, citing persistent inflation, weak productivity, tight labour markets, rising house prices, upcoming tax cuts, and strong consumption.
“Market pricing for cuts this year seems premature,” said Pelosi.
Rate Hike Possibility
Traders also see an 8% chance of a rate hike this year, making the RBA one of the few central banks, alongside the Bank of Japan, where the next move might be up.
Bond yields rose, with the three-year rate increasing to 3.86% and the 10-year bond yield climbing to 4.17%. The Australian dollar increased by 0.3% to US66.28¢.
RBA Governor Michele Bullock confirmed that while a rate hike was considered, they did not consider cutting rates yet. Bullock stressed the need to monitor inflation closely, warning of risks if inflation doesn’t drop to target levels soon.
Betashares chief economist David Bassanese called the next RBA meeting in August “live,” suggesting a potential rate hike if June’s inflation data disappoints.
The RBA has increased the cash rate 13 times since 2022 to curb inflation, which remains at 3.6%, above the 2%-3% goal. The bank forecasts inflation to return to target next year and hit the mid-point by 2026.
Kris Bernie from Kapstream disagreed with the possibility of a rate rise, citing global trends of central banks cutting rates.
High Hurdle for Rate Cut
Despite the cautious outlook, some fund managers believe a rate cut is still possible this year. Tim Hext of Pendal anticipates potential rate relief by November, while Angus Coote of Jamieson Coote Bonds forecasts a cut by November, citing the lagging effects of monetary policy.
Damien Hennessy from Zenith Investment Partners highlighted that the RBA can afford patience with inflation targets amid expected softer growth.
“Despite upcoming tax cuts and stimulus measures, growth should remain sub-trend, easing inflation pressures over the next 6-12 months,” said Hennessy, predicting a rate cut by year-end.
NSW Overhauls Investment Strategy with $47 Billion OneFund
Boost in Equities Allocation
NSW's recent decision to consolidate multiple investment funds into the $47 billion OneFund has sparked both optimism and concern among equity investors. The mandate for TCorp, the state's investment manager, is to pursue aggressive returns of CPI plus 4.5% annually.
TCorp will now allocate 55% of OneFund into equities, a significant increase from the previous 40%. This shift puts approximately $26 billion in the hands of third-party fund managers, providing a timely boost to the funds management sector.
Leaner and More Focused Structure
The OneFund consolidation moves more than six smaller NSW investment funds into a single entity, streamlining the process with one investment objective, one asset allocation framework, and one management team. However, this restructure results in a 10% reduction in TCorp’s investment staff, cutting six jobs.
Scepticism Toward Active Management
Despite the increased equity allocation, TCorp is cautious about the value added by traditional stock pickers. Chief Investment Officer Stewart Brentnall notes a smaller allocation to active managers compared to peers, favouring index or index-like strategies. TCorp employs just three active managers in emerging markets and five in Australia, with no active managers in developed markets.
Asset Allocation Changes
To meet the ambitious target, TCorp’s new asset mix includes 55% equities, 10% credit, 5% cash, 8% alternatives, and 23% illiquid assets. Liquid assets such as shares, cash, and bonds will be reallocated in the next month, while illiquid assets like property and infrastructure will be adjusted over the next year.
By comparison, the Commonwealth’s Future Fund, which has a similar objective, had 37.2% in listed equities and 30.2% in illiquid assets as of March 31.
Focus on Comparative Advantages
While TCorp will maintain its external management strategy for equities, it will not establish an internal equities team. Brentnall emphasises TCorp’s focus on leveraging its comparative advantages and cost-effectiveness, stating, “Unless we can do something demonstrably better or cheaper than externally, we’re not going to internalise.”
NSW’s bold move with OneFund aims for higher returns while emphasizing efficiency and strategic asset allocation.
Investors Flee Victoria Amid Tax Changes, Boost WA and Queensland Markets
More than 3000 landlords exited Melbourne in May, marking a 34% increase from last year, as state tax changes and weak investment returns drove them away, according to Suburbtrends. Founder Kent Lardner notes that nearly 4000 homes were listed across Victoria, further straining the already scarce rental market.
“More landlords are leaving due to increased taxes, converting rentals into owner-occupied homes. This could drive up rents,” Lardner said.
NSW also saw a notable investor exit, with 3593 rental properties sold in May, a 20% increase year-on-year. Sydney alone had 2372 investor-owned properties listed, up 17% from last year.
Nationally, 13,198 ex-rental properties were listed for sale last month, a 10.7% annual increase. Notably, almost 500 properties sold in Parramatta and inner southwest Sydney, and nearly 400 in the inner west and Hornsby areas.
Rich Harvey, CEO of Propertybuyer, suggests NSW's new land tax regime, which freezes the tax-free threshold at the 2024 level, is pushing investors to other states. “The new tax rule is a disincentive for buying more properties in NSW,” Harvey said.
Damian Collins, managing director of Momentum Wealth, expects the fleeing investors to reinvest in Western Australia. “Higher land tax bills are pushing investors from Melbourne and Victoria to more tax-friendly markets like WA,” he said, adding that 35% of their clients are interstate investors, mainly from the east coast.
CoreLogic research director Tim Lawless agreed that investors are drawn to markets like WA and Queensland for higher capital gains, better rental yields, and lower taxes. Victoria had the smallest increase in approved loans for investors over the year to April at 25.7%, compared to 70% in WA and 53.8% in Queensland.
Melbourne’s west, southeast, inner city, northeast, and inner east had the most investor-owned listings. Total stock in Melbourne rose by 17% in May from last year, now standing 13% above the five-year average.
Westpac predicts home values may weaken until the surplus stock is absorbed, especially with high-interest rates slowing market turnover. Despite Melbourne’s slower price growth, home values edged up by 0.1% last month.
The Reserve Bank held interest rates steady at 4.35% on Tuesday, the same rate since a 25 basis point rise in November last year.
Brambles Eyes Loscam’s Southeast Asia Business
Brambles, the ASX-listed logistics giant, is making a move for Loscam's Southeast Asia operations. Brambles previously merged its CHEP China pallets business with Loscam and now wants to expand further.
Street Talk reveals that Brambles, valued at $20.2 billion, has engaged Greenhill Australia to help prepare a non-binding offer for Loscam's Southeast Asia unit. This unit is part of a larger sales package, including Australia, New Zealand, and China, managed by UBS.
Sources indicate that antitrust issues prevent Brambles from acquiring Loscam’s ANZ business. However, Brambles is eager to secure Loscam's Southeast Asian operations, which span China, Indonesia, Thailand, Taiwan, Vietnam, Malaysia, Myanmar, Singapore, and the Philippines.
Greenhill is focused on securing the Southeast Asia business, although Brambles might also increase its investment in China. Brambles already owns 20% of the combined CHEP-Loscam China business, following a 2022 merger.
Brambles, which reported a 17% rise in net profit to $US392.1 million ($598 million) for the December half, is a major player with 353 million pallets and containers under the CHEP brand. North America accounts for 47% of its business.
Competing with Brambles for Loscam’s assets are private equity firms KKR, advised by Morgan Stanley, and The Carlyle Group, which are preparing to present first-round offers.
This activity follows reports that UBS has been showcasing Loscam's CEO Sirin Limpaitoon and local leader Daniel Bunnett to potential buyers in Australia and Asia.
Owned by China Merchants Group for 14 years, Loscam provides pallets, trays, crates, and bins to retailers and supermarkets. The current sale sees China Merchants Group, along with minority stakeholders Trustar Capital and FountainVest Partners, seeking an exit.
Stay tuned for further updates on this major acquisition in the logistics sector.
CleanTech Lithium Eyes ASX Debut with $20 Million Raise
CleanTech Lithium, based in Jersey and currently listed on London’s AIM, is preparing for its ASX debut. With Phil King’s Regal Funds Management holding a 15% stake, the company is actively engaging Australian fund managers for support.
CleanTech’s Executive Chair, Steve Kesler, is currently on a roadshow in Sydney, following meetings with investors in Perth. London broker Fox-Davies is managing the float, which aims to raise $20 million, targeting a $100 million market capitalisation on the ASX. The launch is set for before the end of August.
The company operates in Chile's lithium triangle, distinguishing itself through Direct Lithium Extraction (DLE). This method avoids traditional brine evaporation, reducing environmental impact and aquifer depletion. According to CleanTech, DLE offers higher purity lithium, crucial for supplying the EV market with “green lithium”.
CleanTech’s flagship project, Laguna Verde, aims to complete a pre-feasibility study by September. The project anticipates 30 years of production at 20,000 tonnes annually, projecting a $2.7 billion post-tax net project value.
The company’s second project, Francisco Basin, is undergoing scoping studies, with a projected 12-year mine life at similar production rates to Laguna Verde. CleanTech’s asset portfolio also includes targets at Llamara and Salar de Atacama.
CleanTech’s innovative approach and strong project pipeline position it as a key player in the sustainable lithium market. The upcoming ASX listing provides a significant opportunity for Australian investors to participate in the green energy revolution.
Reserve Bank Faces Tough Challenges as Inflation Persists
Reserve Bank Governor Michele Bullock is under pressure to explain why high interest rates are hurting Australian households but failing to curb inflation effectively.
At its latest meeting, the Reserve Bank held the cash rate steady at 4.35%. Despite some easing, inflation remains high and is falling more slowly than expected. Bullock emphasised the need for vigilance, noting, "We’re on a narrow path, but it does appear to be getting a bit narrower. We need a lot to go our way if we’re going to bring inflation back down to the target range of 2 to 3 per cent."
A primary factor countering the bank's efforts is the significant spending by federal and state governments. This has boosted demand and reduced the impact of the high interest rates meant to balance supply and demand.
Bullock avoided directly criticising government budgets at the press conference, stating, “The conversation of the board today wasn’t specifically on the budgets but on the total context. You need to think about them in the context of what else is going on.”
Bullock has been careful not to create friction with Canberra, but persistent high inflation may force the Reserve Bank to highlight the role of governmental spending in maintaining inflationary pressures.
Australian households are feeling the pinch, facing higher costs of living and increased debt repayments. The Reserve Bank is hoping that sluggish household spending will ease inflation pressures. However, if inflation remains high, the bank might have to increase interest rates further, which could damage its reputation, especially as other major central banks are cutting rates.
Bullock might soon face the difficult task of explaining why the Reserve Bank's policies haven't tamed inflation, possibly pointing to the substantial spending by the federal and state governments as a significant factor.
Navigating this political landscape will be a challenging test for Bullock’s term as governor.
NSW Essential Workers Reject Budget Pay Rise
NSW Budget Highlights
Essential workers and public servants in NSW have rejected the state budget's 3.5% annual pay rise, demanding wages that surpass inflation.
Treasurer Daniel Mookhey unveiled a disciplined budget on Tuesday, contrasting it with Queensland's pre-election spree. The $12 billion allocation focuses on government service delivery, housing, and public sector wage rises.
Labor aims to fill thousands of vacancies for teachers, police, nurses, and other essential roles among the state’s 400,000 government employees.
Credit Rating Concerns
Moody’s Investors Service highlighted potential negative risks to NSW’s financial health and AAA credit rating due to increased infrastructure spending, reduced GST revenue, and the removal of the public sector wage cap.
Despite a $10.7 billion revenue increase from property taxes over four years, NSW faces substantial budget deficits for the next nine years.
Public Sector Pay Dispute
The budget targets a 3.2% annual growth in employee expenses, below union demands. Public sector unions demand significant pay rises: 25% over four years for police, 20% over three years for firefighters, and 15% in one year for nurses.
Mark Morey, Unions NSW Secretary, stated that workers would strive for raises beyond the government's 10.5% offer over three years.
Economic Projections
Moody’s senior credit officer John Manning warned that achieving the projected 2.2% annual expenditure growth will be tough due to inflation and wage cap removal. Labor plans a two-year pay freeze for senior executives, judges, and politicians as part of its wage containment strategy.
The budget also prioritises housing, school upgrades, and cost of living relief for essential workers, including domestic violence support services and payroll tax rebates for bulk-billing GPs.
