Watch out: here comes the super tax
Will Labor's emphatic victory sow a super seed that could damage it forever? (more…)
Will Labor's emphatic victory sow a super seed that could damage it forever? (more…)
As we now know, Trump and tariffs are important to what happens to our stock market. Good news on a potential trade deal to be announced soon, has taken share prices up on Wall Street, so it’s more than likely that we’ll all get wealthier today via our super funds, as our market here rises. But don’t forget this: like it or not, China is our main economic game. And this $1 billion worth of wine sales to our biggest export customer underlines my point.
Ironically, this good news for our winemakers and exporters has followed China scrapping its tariff on our wine, but it’s not all good news because overall, the global consumption of ‘the nectar of the gods and the grape’ is on the slide!
The Daily Telegraph’s wine watcher, Giuseppi Tauriello, reports that “Australian wine exports increased by 41 per cent to $2.64bn in the 12 months to March, according to the latest figures from Wine Australia, fuelled by $1.03bn in sales to China, which has re-emerged as the dominant export market.”
He added: “Exports to China peaked at $1.2bn before tariffs of up to 218 per cent were slapped on Australian wine in March 2021.”
While the latest figures show a swift rebound for Australian wine producers, Wine Australia market insights manager, Peter Bailey, warned most of the demand out of China was focused on the premium end of the market.
While numbers look good on an historical basis, the Chinese are buying top end wine (such as Penfold’s Grange), which has pushed up the value of exports, volumes are down for total exports. The actual volume is 23% lower than the five year average.
“Additionally, the average value of packaged wine shipped to mainland China was $23 per litre, much higher than any other major export market. The lower volume and high average value demonstrate that mainland China is a premium market for Australian wine and will therefore not solve oversupply issues in Australia.”
The big problem for our wine exporters is in the marketplace outside of China, where the value exports dropped by 13% to a 10-year low of $1.62 billion, while export volumes away from China were down 9% to 551 million litres – the lowest level in more than 20 years.
The numbers show:
Some of this can be explained because the UK has been in a serious economic slowdown after successive interest rate rises and leaving the EU.
While Hong Kong’s lower consumption would have been linked to Beijing’s tariff, the US slide in wine consumption could reflect two issues. First, the Americans have been tightening their belts because of big interest rate rises and second, there is a wellness trend that’s not good for winemakers and other death-threatening joys of life!
Our exports to the US are at low levels not seen since the early 2000s and President Trump’s tariff and buy US first mantras aren’t likely to help, so winemakers should pray for lower interest rates, a global economic recovery and the Chinese population of 1.42 billion going long wine consumption at all prices!
Wine Australia worries about the timing of all this with a potential trade war ahead, which hopefully could be less intense than what has been thought since Trump’s so-called “Liberation Day”. Overnight, Trump’s Commerce Secretary, Howard Gutnick, hinted at a trade deal with a major trading partner and the stock market lapped it up.
The Dow finished up 300 points (or 0.75%), while the sensitive Nasdaq index, which goes up or down hard on what Trump’s tariff team say, was up 0.55%. This tech-heavy index is up over 14% since April 8, when the President started U-turning on tough tariff talk!
The Telegraph tells us that since “the return of the Chinese market has driven an increase in red wine exports, with shiraz and cabernet sauvignon the two most popular varieties. Shiraz exports were up 66 per cent to $595.3m, while exports of cabernet sauvignon were up 59 per cent $560.4m.”
I know Beijing has a lot of problems, making it hard to like what they’re up to with spying, Taiwan and influencing neighbouring countries, but let’s face it, the Yanks aren’t totally without flaws, and their new President plans to stick it to us economically for four years.
The facts are that in 2023 (as our own government report on trade reveals): “China accounted for 32.5% of Australia's total exports, making it the top destination for Australian goods and services. This strong trade relationship has significant implications for the Australian economy, impacting various sectors and contributing to the national income.”
And remember this: “Trade supports a substantial portion of Australia's total economic output, with 31% of GDP directly tied to trade activity.”
Like it or not, we’re stuck with China! And because of the Trump trade goals to “make America great again” (and more selfish!), we’re even more dependent on our Beijing buddies if we want Aussies in work and earning income.
One third of our gross domestic product (GDP) is powerful reason to put up with Beijing’s annoying ways. Here are out top trading partners. But where’s the UK?!
Australia’s top trading partners
The UK is number 12 on this list, with Vietnam more important to us. And look at the numbers of China compared to Japan — they’re three times bigger!
The Reserve Bank board met yesterday. While it didn’t change the cash rate of interest, it did change the ‘tone’ of its communication to the market about rate cuts and, importantly, rate rises that now we can confidently argue are off the table.
Right now, the cash rate is 4.35%. That’s a 13-year high after 13 rate hikes that started in early 2022.
In eco-speak, the RBA has gone from mildly hawkish, where rate rises were possible, to dovish hinting that a rate cut isn’t far off.
How was this message conveyed?
Consider the following evidence:
The tone and message change has led to money market players who buy bonds (whose prices are driven by what’s happening to official interest rates), are betting 70% that the first cut comes in February!
“The groundwork seems like it is being laid by the RBA for a February rate cut next year,” Luke McMillan, head of research at Ophir Asset Management told the AFR’s Cecile Lefort. “Market pricing certainly looks like a February rate cut is more likely than not.”
Angus Coote, co-founder of Jamieson Coote Bonds, told the AFR that the RBA’s next board meeting in February as “alive and well”. He’s tipping a February rate cut but this will lift the spirits of interest rate worriers and Prime Minister Anthony Albanese, as he can see a total of four reductions in 2025!
Before the February 18 rates decision happens, we’ll see unemployment and inflation readings that will be crucial in determining when cuts start and how many we get. The December quarter CPI comes out on January 29. This will be a ‘must watch’ number for the RBA and rate-cut hopefuls.
In all the analysis and utterances on why a rate cut might be closer than the calls last week (which were all talking about the first cut being in May), was the fact that the weak 0.3% growth rate was for the September quarter, which started in July and finished in September. It’s now two and a half months on, and house prices are starting to fall, auction clearance rates are too, and the ANZ-Indeed Australian Job Ads has fallen 27.6% from its peak in June 2022.
It was only mid-year that just about all borrowers went over the so-called mortgage cliff and went on to higher variable interest rate loans. This means the 13 rate rises are having a ‘reality bites’ impact.
At least 880,000 fixed-rate mortgages expired in 2023 and then another 450,000 this year. A report out yesterday from the Actuaries Institute reported that 1.6 million homes around the country were experiencing “extreme home insurance affordability pressures”.
It was suggested that close to 200,000 borrowers have or will drop their mortgage insurance, which could be a breach of the home loan agreement with their lender.
A survey by Finder.com.au showed how rate rises were starting to hurt. It found:
When I taught economics at the University of New South Wales, I talked about the time lag that went with monetary or interest rate policy. That lag is never the same, meaning it can be shorter or longer than expected. However, given we expected a rate cut in 2024 and we missed that chance yesterday, if the CPI on January 29 shows a lower core inflation number, then that February rate cut will be a really good chance.
Last year, leviathan property developer and builder Tim Gurner copped a media backlash when, according to Euan Black in the AFR he “claimed workers had taken their foot off the gas pedal since the pandemic”. And while manufacturing and mining bosses said he was on the money, the court of public opinion threw the book at Tim!
In support of Gurner’s view, the Minerals Council of Australia chairman Andrew Michelmore, who has more than 35 years’ experience in senior leadership roles in Australia, told The Australian Financial Review that office workers in certain parts of the economy were enjoying “a lifestyle that was not sustainable”.
However, the criticism from non-businessowners actually went global, with US politicians weighing into the argument over the expectations of new age workers.
With this in mind and at a time when old school business builders are worried that workers aren’t on the same page as their bosses, comes this story in today’s AFR with the headline: “Start-ups reject work-life balance ‘beast’.”
The newspaper’s Maxim Shanahan and Paul Smith at The AFR’s Entrepreneur Summit in Sydney yesterday tell us businessowners in start-ups argue that “workers must be prepared to ‘‘go to war’’, to help their companies succeed, rather than worrying about work-life balance.”
Anyone who has owned a business might understand this sentiment, but new laws are coming that will mean ‘warring’ entrepreneurs might have to go into battle with part-time fighters/employees!
Why? Well, the lawyers at claytonutz.com explain it this way: “The right to disconnect permits an employee to switch off and refuse to respond to contact or attempted contact from their employer (or a third party like a client, where the contact or attempted contact relates to work) outside their working hours, unless the refusal is ‘unreasonable’.
“It was pared back from an original proposal which would have seen employers banned from making contact with employees outside their usual working hours. Employees can exercise this right from 26 August 2024 (small business employers are exempt from the operation of the provisions for 12 months following their commencement, that is until 26 August 2025).”
This law change is certainly at odds with the sentiments of two successful entrepreneurs who spoke at the AFR Summit.
The reporters quoted Honey Insurance founder Richard Joffe and Goterra boss Olympia Yarger, who said tech workers needed to realise that “to succeed in a start-up, you’re not optimising for work-life balance”.
‘‘This idea that you can be in an exceptional environment and create wealth while sitting on the beach and finishing at five is just nonsense,’’ Joffe said. ‘‘I think the worst thing you can do is pretend to people that [working at] an early-stage company is a cakewalk, that it’s a ping pong table, and it’s a joke.’’
To use a quote I relied on yesterday (but is again appropriate), people who are risking their reputation, their money and their life in trying to build something important want committed employees.
On the other hand, employees, who don’t share the dreams and the profits of an entrepreneur, see life very differently.
History has shown that it is those entrepreneurs who can select the right people and who provide enlightened leadership, as well as equity options, are the ones who get the employees who make business success happen.
Great business leaders not only learn to deal with employees who aren’t the right fit, they also learn to deal with governments who don’t really understand the importance of job creators, worker trainers and big taxpayers.
One way an entrepreneur gets buy-in from their staff is to underline the importance of the business.
The AFR says the CEO of Goterra, Olympia Yarger, runs “a Canberra-based start-up that grows fly larvae and uses them to convert food waste into protein and fertiliser. It works with customers including Woolworths.”
She only keeps staff who she implies are effectively made of the right stuff. ‘‘The more traditional approach to work-life balance doesn’t exist at Goterra. We believe we’re in a climate crisis, and you don’t take work-life balance during a climate crisis,’’ Ms Yarger said.
‘‘That’s an upfront conversation we have with staff, so we’re attracting the sort of people who want that kind of work environment.”
We live in a new world with new age concerns for employees and their overall happiness, so it’s going to take a special group of entrepreneurs to create great businesses while not having a “we’re at war” mentality.
The likes of Steve Jobs and Elon Musk were “at war” leaders. Bill Gates was famous for 2am phone calls to his key staff, so the new age entrepreneurs will have to be outside-the-square thinkers to win at business and provide a winning life for their workers.