Stocks, dollar down — but economic signs strong for month ahead
Spooked traders knocked value off 90% of local stocks in early trading on Monday morning as the S&P/ASX 200 plummeted more than 60 points, or 1.14%, during the first 30 minutes of trading.
At 11.30am the index had recovered slightly to 5721.3, which is 1.12% or 64.7 points down on opening levels.
Monday morning’s trading comes after the US Dow Jones Industrial Average fell 1% to 12,114 on Friday, and left the benchmark US index down 4.2% for the week — the biggest seven day fall since March 2003.
The Australian dollar was also affected by market jitters, diving below the US78-cent mark to US77.87 cents at 11.45am. Some analysts are predicting the Australian dollar could go as low as US76 cents in the near term.
All eyes are now looking towards Wednesday’s announcement by the Reserve Bank of Australia (RBA) on interest rates.
Today’s TD Securities-Melbourne Institute monthly inflation gauge for February rose 0.2%. The gauge’s annual 3.4% is well above the RBA’s 2%-3% target range, adding fuel to speculation about possible interest rate rises.
In ANZ’s weekly economic roundup, the bank’s economists say the predicted 0.9% growth in December mean “risks to interest rates remain clearly skewed to the upside in the near term”. Westpac’s economic team, on the other hand, put growth at just 0.3%.
— Mike Preston
New loan program to provide business boost for young people
Budding business people locked out of traditional forms of finance because of a lack of assets are set to be given a leg up through a new micro-enterprise finance program launched by the National Australia Bank today.
The $18 million-scheme offers low interest loans of between $500 and $20,000 to aspiring entrepreneurs participating in the Federal Government’s New Enterprise Incentive Scheme, the Enterprise Network for Young Australians (ENYA) or local enterprise hubs in Victoria, New South Wales and South Australia.
Karen Ford, a project manager at ENYA, which helps people aged 18-29 build businesses and develop business skills, says without programs such as these most young people just wouldn’t be able to start up businesses.
“Young people don’t tend to have the property or track record usually required to secure loans, but that doesn’t mean they don’t have the business skills required to run a successful business,” she says.
Ford says while information technology and online business where the most common kind of start-ups by young people, she expects an extremely diverse range of businesses to come through the program.
The program, initially structured as 12-month pilot, echoes successful micro-finance programs in developing countries such as India and Bangladesh. Participants in the scheme will be required to participate in financial literacy, business skills and business mentoring programs to help ensure the ongoing viability of their businesses.
The United States has had micro-finance institutions providing micro finance (usually up to $US35,000) to small business owners without access to bank loans since the 1990s. They call it bootstrap capital.
— Mike Preston
Expect broadband black hole initiative
Prime Minister John Howard has foreshadowed that later this week he will make an announcement that will improve internet broadband access.
In fact, there will be several announcements “which will greatly enhance the access of Australians to broadband services”. But what could they be?
Not much, predicts telecommunication pundits. Probably it will be a re-launch of the $50 million black hole initiative designed to help people in black holes, access broadband. The guidelines were announced last March and since then, there has been little progress.
Stuart Corner, telecommunications editor at ITWire, says to expect more talk about empty strategies that will not make that much difference, and that will certainly not give Australia the broadband access and services that the US enjoys.
— Amanda Gome
Nudie yoghurt hits the shelves
Expect Nudie yoghurt on the supermarket shelves starting this week. Nudie has struck a big deal with global giant Nestle to license the Nudie brand to the yoghurt category.
Nestle brand manager, Cameron Wood, says Nestle will manufacture and market the new Nudie products, which will be made to Nudie recipes and have no preservatives and artificial colors. Nudie wants $15 million of the $680 million yoghurt category in the first year.
Nudie also negotiated an ice cream deal with Nestle in 2005. The three year old start up, which has built one of Australia’s strongest brands through shunning traditional advertising in favor of viral marketing, has expanded into smoothies, soups and ice creams. Wood says there are no plans to use Nudie for any other categories at present.
— Amanda Gome
What happens to the Cash Converters franchisees?
On Friday, Cash Converters managing director Peter Cumins lost an appeal over a $1.5 million tax bill, which dates back nine years to share sales after acquiring 10% of the company in a management buy-out from his brother, founder Brian Cumins.
Founder and former chairman Brian Cumins is due to be served this week with a creditors petition as part of a tax office attempt to bankrupt him over his failure to pay $38 million in back taxes and penalties. And former director and long-time company lawyer Michael Cooke was bankrupted, unable to pay a $5.6 million tax bill. They have both stood down from the board, reports The Age newspaper.
What about the franchisees in the 122 stores in Australia? Will they be affected by the actions taken against the managing director and those former directors? Smartcompany.com.au has attempted to contact the company, but there was no response before publication.
— Jacqui Walker
Economic round-up
Inventories (0.1%), manufacturing sales (1.8%) and wholesale sales (1.8%) all increased in December, according to business indicator figures released by the Australian Bureau of Statistics on Monday.
Company gross operating profits were also up 2.5% (seasonally adjusted). ANZ economist Riki Polygenis says the good profit figures suggest “a pick-up is in prospect”.
And Monday’s Australian Industry Group-Commonwealth Bank Performance of Services Index rose 5 points to 54.5, keeping the index above the key 50 level separating expansion from contraction.
Stronger growth in sales and new orders, and renewed inventory-building, underpinned the improvement in February, especially in the wholesale trade and property and business services sectors.
