Dramatic losses suffered by the Australian sharemarket this morning in response to evidence of further woes in the US housing market could have implications for the likelihood of an August interest rate rise, economists say.
The S&P/ASX 200 opened 3% lower than yesterday’s 6258.5 close and at midday is down 134.5 points, or 2.1%, to 6124 points.
The drop in Australian markets followed selling in the US, where the benchmark Dow Jones Index lost as many as 448 points over night and closed down 331 points, or 2.3%, to 13,473.57. European markets also fell significantly.
The fall was triggered after markets already nervous about the impact of growing default levels in the US sub-prime mortgage market received news of a slump in new and existing home sales. Existing home sales in June in the US fell 3.8% to their lowest level since 2002, while the number of new home sales fell 6.6%, both figures reportedly well below market expectations.
Continued weakness in US and Australian markets could see the Reserve Bank of Australia stay its hand when it meets to consider interest rates on 7 August, NAB head of Australian and industry economics Jeff Oughton says.
“After last week’s CPI figures we thought it was a 60/40 proposition that interest rates would rise, but given what’s happening in markets and what may well happen in the next week or so that is open to question, so we’ll be watching the market very closely over the next 10 days and no doubt the RBA will be too,” Oughton says.
TD Securities senior strategist Joshua Williamson says the crucial issue will be whether financial market jitters feed into the real economy of consumers buying and businesses selling and employing.
“If the fall is maintained, and there is a risk of further falls, that may see households and firms curtail expenditure. That will be what the RBA is looking for, and if that becomes apparent it may mean a delay in the timing of an interest rise at the very least.”
But there is still a good chance of an interest rate rise in August. HSBC chief economist John Edwards says: “The RBA will ponder these events, but it will decide to tighten anyway – many people, including the RBA, have been saying that there will be a correction for some time, so this won’t come as a real surprise,” he says.
Globally, however, central banks may feel less of a need to raise interest rates as a consequence of market falls. According to a new International Monetary Fund report, recent sustained global economic growth of 5.2% a year may mean many economies will have to lift interest rates as capacity constraints bite.
Many of the central banks in these economies will view today’s softening as “a useful correction”, Edwards says.
– Mike Preston
TOP OF PAGE
Victorian Premier John Bracks resigned as Premier and a member of Parliament this morning. His decision will be effective as of Monday morning when the Labor caucus meets to elect his replacement.
Bracks, 52, who has been a popular leader, said that his decision was “confirmed” by the events of the past few weeks when his son was charged with drink-driving after being involved in a car accident.
Bracks, who nominated Treasurer John Brumby as his preferred successor, says it is the right time for him to move on because he felt he could no longer give his 100% commitment to the job and was not prepared to commit to contest the 2010 election.
– Jacqui Walker
TOP OF PAGE
The Federal Court has rejected claims by the Seven Network that its pay television arm C7 was driven out of business when it was deprived of pay TV rights to the AFL and NRL in 2000.
The case, which Seven launched seven years ago, rested on pay TV company Foxtel’s refusal to carry C7 content before it lost the rights to the AFL.
Justice Sackville said: “I conclude that Foxtel did not take advantage of its power in the retail pay television market in any of the ways alleged by Seven.”
Seven Network is considering whether it will appeal.
– Jacqui Walker
TOP OF PAGE
Super funds for public sector employees and large corporates outperformed the retail funds relied on by many SME owners and employees, analysis of a new report by the Australian Prudential Regulation Authority shows.
Retail funds earned members an average return on investment over the past 10 years of 5.3%, well behind the 8% achieved by public sector funds, 7.8% achieved by corporate funds and 6.7% return for industry funds.
Overall, the report shows that super contributions grew an average of 12% annually over the past 10 years, with member and employer contributions growing 14.2% and 11.4% a year, respectively.
The report follows a recent finding that none of the top 30 Australian financial planners recommend have an industry fund on their recommendation list.
– Mike Preston
TOP OF PAGE
Qantas has been ordered to re-instate a flight attendant who was sacked for stealing 16 macadamia nut chocolates and three biscuits.
The flight attendant, with 32 years experience, was searched after arriving in Tokyo last August and staff found the chocolates, biscuits and a couple of Qantas pens.
The Australian Industrial Relations Commission accepted the attendant’s evidence that he was indifferent to the items knowing they were to be thrown away after the end of the flight.
The AIRC found that the dismissal was disproportionate to the gravity of the misconduct and was harsh, unjust or unreasonable under the Workplace Relations Act.
– Jacqui Walker
TOP OF PAGE
The Federal Government tried to upstage Kevin Rudd’s housing summit yesterday by announcing a major overhaul of public housing funding that would increase private sector investment.
Rudd announced that he would set up a national housing supply research council to advise government and the Council of Australian Governments to improve the match between supply and demand.
– Jacqui Walker
TOP OF PAGE
More than 150 businesses, individuals and industry groups have made submissions to the Productivity Commission inquiry in the retail tenancy market.
Today is the last day submissions on the controversial issue can be lodged with the commission, which will produce a draft report by late September before conducting open public hearings in October.
– Mike Preston
TOP OF PAGE
Eleven Perth commercial air-conditioning companies and 18 company directors have been collectively fined more than $9.1 million by the Federal Court for engaging in illegal price rigging and bid fixing.
The cartels existed between 1991 and June 2003 and involved companies tendering for commercial air conditioning and mechanical services projects in Western Australia. The Federal Court found that some directors and managers of the companies had agreed on who would submit the lowest price for jobs ranging in value $46,000 to $9.4 million.
Financial penalties of more than $1 million dollars were imposed on Mechanical Project Management Pty Ltd, Centigrade WA Pty Ltd, Direct Engineering Services Pty Ltd and HVAC Construction Limited.
“The court’s decision marks its strong disapproval of such widespread and long running collusive practices within the mechanical services industry in Western Australia,” ACCC chairman Graeme Samuel says. “It is a clear message that anyone involved in a cartel will be liable for a substantial pecuniary penalty.”
– Mike Preston
TOP OF PAGE
