|Bid||71.43 x 0|
|Ask||71.43 x 0|
|Day's range||71.18 - 71.46|
|52-week range||53.44 - 91.05|
|Beta (5Y monthly)||0.75|
|PE ratio (TTM)||12.93|
|Earnings date||12 Aug 2020|
|Forward dividend & yield||4.00 (5.62%)|
|Ex-dividend date||19 Feb 2020|
|1y target est||73.17|
(Bloomberg Opinion) -- It’s not only gold that glitters. Since touching its weakest level in more than a decade in March, silver has doubled to a seven-year high of almost $23 an ounce. Partly, it’s a rally fueled by the same low-yield, weak-dollar haven dynamic that has pushed bullion to within spitting distance of a record. Investor demand is booming and silver — which is the best conductor of electricity — has industrial uses, too. Short-term supply, meanwhile, has been dented by pandemic-related closures. The metal can keep shining.Silver tends to loosely track gold. Like the yellow metal, it is benefiting from investors’ jangled nerves, with the global economic recovery looking slow and further coronavirus outbreaks almost certain. Rock-bottom borrowing rates have also reduced the opportunity cost of holding a non-interest-bearing asset, and there’s no sign of a change. Investor demand is responsible for much of this accelerated rally. This year alone, exchange-traded funds have increased their gold holdings by more than a quarter to surpass 106 million ounces, according to data compiled by Bloomberg, taking the total value to almost $200 billion. Silver holdings have climbed 40%, to more than 850 million ounces. In the futures market, net managed money long positions are climbing back toward levels seen at the end of 2019. The Silver Institute, meanwhile, estimates retail bullion coin sales jumped by an estimated 60% in the first half from a year earlier. Speculative interest in China, which helped drive silver to all-time highs in 2011, is also showing signs of life.Demand from other quarters is less dramatic, though still encouraging. It helps that silver has a range of applications, unlike gold, which is generally too expensive for industrial uses. Not all are growing: Appetite from photography has ebbed since the advent of the digital camera, while the consumer electronics and automotive sectors have suffered from the squeeze the pandemic has put on households. Yet silver jewelry is expected to drop less than gold, given its relative affordability. Solar panels, meanwhile, should benefit from green-tinged recovery efforts — photovoltaic cells account for about a fifth of silver’s industrial demand. China is the world’s biggest solar power market, and will increase installations this year, despite the slow start to 2020. The country’s silver imports have been running above average. Longer term, the advent of next-generation telecoms technology will help, too.All the while, supply has been severely disrupted by coronavirus closures and other containment measures, particularly in Peru and Mexico. The Silver Institute earlier this month put the expected drop in mine production at 7% for 2020, even after recent restarts. The issues go beyond the pandemic. Output has been trending lower in recent years, with large primary-silver mines aging and new ones holding less of what is one of the world’s rarest metals. Silver is usually a byproduct, meaning most production comes from mines that primarily dig out zinc, lead, copper or gold. That’s good news for miners like Mexico’s Fresnillo Plc, with large primary silver operations. Despite marginal increases expected from 2021, rivals can’t simply crank up production in response to higher prices. At a time of tight exploration budgets, a little shiny silver can’t make up for plenty of lackluster zinc.Comparing silver with gold suggests the rally has further to run. The silver-gold price ratio, currently around 1.2%, is edging closer to its long-term average of around 1.5%, according to analyst Vivek Dhar at Commonwealth Bank of Australia. He points out previous sharp run-ups in silver have seen the ratio climb to 2.2% or 2.4 before retreating%. That leaves room for silver to keep shining. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Earlier this week investment bank Goldman Sachs (NYSE:GS) predicted gold climbing to $1,800 per ounce on a 12-month basis. That would be a new high for the year, above the $1,788.80 reached at the beginning of April, which was also the highest since 2012.
(Bloomberg Opinion) -- When a bank admits it may have transferred money to the Philippines for customers suspected of sexually exploiting children, you’d better hope it has a good excuse.That's not the case with Australia’s oldest lender, Westpac Banking Corp. A review the bank commissioned into 23 million breaches alleged by the country’s anti-money laundering agency Austrac concluded Thursday with a slap on the wrist.“While the compliance failures were serious, the problems were faults of omission,” Chief Executive Officer Peter King said in a statement released with the report. “There was no evidence of intentional wrongdoing.”That’s not good enough. We set banks far too low a bar if our standard is only that they don't knowingly aid and abet criminal activity. Ensuring that banks don’t unwittingly facilitate such breaches is precisely why they have compliance departments. It’s hardly a defense to admit that Westpac’s internal risk management was so threadbare that it failed to pick up obvious shortcomings over a period of years.Westpac’s review points to some very zeitgeisty explanations for its failure: that the alleged breaches happened at a time of rapid technological change; that regulators are more focused on financial crime; that the public has higher standards for companies these days; and that corporate boards are now expected to be more interventionist.Looking at the details of the cases, though, many of the places Westpac fell down would have been familiar to bankers as far back as the Medicis. Managers didn’t know enough about who their customers were, or scrutinize the patterns of their payments to detect suspicious activities. They didn’t look deeply enough into the relationships of their correspondent banks either, exposing themselves to risks one step removed via their banking relationships. And the board failed to interrogate and closely examine these activities.These aren’t novel mistakes driven by the dizzying speed of life in the 2010s — they’re failures in the compliance culture that should be at the core of operations for anyone in the business of lending money.Compliance officers have historically been resented within banks, because they’re seen as a cost center whose job is to stop their colleagues from making money. Before the 2008 financial crisis, the risk of a fine from regulators seemed remote, while the reward of revenues from sailing close to the wind was temptingly close. No one wanted internal auditors sticking their noses in and preventing profitable activities or setting up costly reporting protocols. That function is nonetheless crucial if we’re to maintain integrity in our banking system.For all the report’s talk about sins of omission, weak compliance by Westpac (and its larger peer, Commonwealth Bank of Australia, which paid an A$700 million penalty, or roughly $483.2 million, in 2018 to settle a separate money-laundering case with Austrac) wasn’t an accident.The way to improve a bank’s compliance capability isn’t a mystery. You simply need to hire and pay more compliance officers and give them more authority throughout the organization, something that banks in most rich countries did after the collapse of Lehman Brothers Holdings Inc. Australia’s lenders kept partying like it was 2007.Indeed, the increasing sums that Westpac has been spending on compliance in recent years, eating into each profit release, are evidence that the lucrative go-go years weren’t generated by any special genius, other than the choice to turn a blind eye to weak internal regulation.Take a look at the cost-to-income ratios of Australian banks, a decent measure of how much cash they’re paying out on staff and systems in relation to their revenues. Only in Singapore, Hong Kong, Taiwan, Sweden and Norway do large lenders manage to provide their services at so little internal cost. One way of looking at those figures is to assume that banks in those countries are simply more efficient than elsewhere — but compliance is difficult and expensive, and if you want it done well you may find that your profits aren’t what they once were.Westpac has promised to turn over a new leaf, just as Commonwealth Bank did after settling its Austrac case.“We completely accept that some important aspects of Westpac’s financial crime risk culture were immature and reactive,” King wrote, “and we failed to build sufficient capacity and experience in some important areas.”Let’s hope so — but the equity market reaction gives cause for concern. With the S&P/ASX 200 index barely up on the day, Westpac shares jumped as much as 5.4% at the open. If management has truly grasped the nettle on their compliance controls, shareholders are going to have to get used to that spending eroding their profits far into the future.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Brazil has just overtaken Russia to claim second spot in the global tally of coronavirus cases, behind only the U.S. The epidemic is threatening to disrupt supply in the world’s second-largest exporter of iron ore as China’s steel demand recovers, driving prices above $100 a metric ton for the first time since August. The scale of the unfolding health cataclysm suggests they won’t reverse soon, even if the rally looks unsustainable.Last year was unusually dramatic for iron ore. A fatal dam collapse took out almost a quarter of Brazilian miner Vale SA’s original 2019 target of 400 million tons. Weeks later, a tropical cyclone in Australia dented global output further. The supply impact then was immediate and clear, and prices responded accordingly. This year’s surge has been almost as much about fear of disruption as about current supply, as an outbreak at Vale’s Itabira complex showed last week. Vale said it obtained an injunction to continue work at the operation after prosecutors sought to temporarily shut down activities for coronavirus testing.Demand is helping to raise the temperature. Iron ore is highly dependent on China — which accounts for over two-thirds of global imports — and has benefited from the restart there more markedly than base metals. Chinese industrial output recovered strongly in April, port stockpiles have been coming down, steel inventories have declined and mill margins look healthy enough. Steel industry purchasing managers’ index numbers for May confirm the trend. That helped push physical spot ore to $101.05 a ton Friday, while futures in Singapore are trading just shy of $100.China’s appetite will ease, though, and possibly before the rest of the world picks up. As Commonwealth Bank of Australia analyst Vivek Dhar points out, China significantly increased the annual local government special bond quota this year, usually used to fund infrastructure — but only 40% is now available for the remaining seven months of 2020. And while the National People’s Congress last month talked up infrastructure plans, it was the measured approach most had expected, not a repeat of the binge spending of 2008. So there’s reason for analysts, including Bloomberg Intelligence, to point to cooler prices in the year ahead.In any case, demand hasn’t been the real driver here, supply has. For now, the market has no answer to the key questions of when Vale can get back to pre-disaster production targets, and what the epidemic means for Brazil. On Sunday, President Jair Bolsonaro joined supporters protesting against Congress and the Supreme Court in Brasilia, stoking concerns of a constitutional crisis to compound the health disaster.In the short term, it’s hard to be optimistic. Bolsonaro has repeatedly dismissed the seriousness of the illness and appeared maskless over the weekend, despite local regulations. Brazil already has the fourth-highest death toll globally, with more than 29,000 fatalities — five times where it was a month ago. More worrying for the iron-ore market is how fast the illness is spreading outside big cities, a problem even if mining operations are considered essential, and exempt from lockdowns for now. That could change. Both the rate of infection per person and fatalities per inhabitant have been highest in the impoverished north, which is home to Vale’s giant Carajas operation. The nearby 200,000-strong town of Parauapebas alone, where Vale has contributed testing, tracing and medical help, has more than 2,500 cases as of Sunday .It is noticeable that both Australia’s iron-ore majors, constrained by bottlenecks, and China have given signs of expecting more disruption in the future. China is preparing to allow state-owned companies to develop the giant Simandou deposit in Guinea. Down Under, miners are considering alternatives, too. BHP Group has indicated it is looking at options to increase export capacity at Port Hedland, in Western Australia.These initiatives will take time to have an impact. Increased supply and lower prices are coming eventually — just not soon. Iron-ore bears take note.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- These are the most consequential months in the Reserve Bank of Australia's 60-year life, but the economic downturn of historic proportions means nobody is celebrating this diamond jubilee. So deep is the damage inflicted by the Covid-19 pandemic that the central bank's greatly enhanced profile in the economy and markets will be with us for years. That's consistent with a tremendous expansion in the role of the state as leaders Down Under endeavor to simultaneously restore growth and contain infections. The combative relationship between the federal and powerful provincial governments has given way to national priorities, blurring distinctions between responsibilities. In effect, the modus operandi of what was once seen as an economic nirvana has undergone a revolution. Projections suggest much of this is warranted; that makes it no less momentous. Gross domestic product may shrink 10% before bouncing in the second half of the year, the central bank warned Friday in its quarterly outlook. The late growth spurt won't be enough to prevent an annual retreat of 6%. Australia’s GDP hasn't gone south by anywhere near that much since the RBA opened its doors in early 1960. Prior to the central bank’s inception, monetary policy was conducted by the government through what’s now the publicly traded Commonwealth Bank of Australia. The last recession produced a decline of 1.1% in 1991, which seemed severe living through it. The growth streak that followed has gone down in global economic folklore. Buoyed by closer trading ties with China and an unparalleled resources boom, Australia even skated through the Great Recession without two consecutive quarters of contraction. That’s over. The unemployment rate will climb to 10% over coming months and still exceed 7% at the end of next year, under the RBA’s main scenario. It was 5.1% at the end of 2019. The profound shock of the pandemic quickly pushed the bank to cut borrowing costs to almost zero and undertake quantitative easing to suppress the yield on government bonds. Governor Philip Lowe signaled that ultra-easy policy will remain until the country is well down the recovery road. The RBA is also purchasing bonds sold by state governments, saying Tuesday that it will further expand the range of securities eligible for its market operations to include investment-grade debt issued by non-bank companies. While the bank makes its monetary-policy decisions independently, this effectively leaves the six state and two territory administrations more dependent on national authorities and extends the reach of the public sector into corporate life. The former diminishes, at least temporarily, pretensions that local administrations have of separation from the center. The latter is a step toward reversing the intellectual and policy thrust of successive governments since the 1990s, when assets like Qantas Airways Ltd. and Telstra Corp. were unloaded.This rebellion against precedent extends to the political process. Prime Minister Scott Morrison has created a so-called national cabinet to deal with Covid-19. The team of rivals brings state premiers and chief ministers into the federal sanctum, meeting to co-ordinate on business and school closures and prospective re-openings, as well as hospital operations. During the emergency, this elite group has become the core Australian decision-making body. Several of the regional premiers are from the Australian Labor Party, which opposes Morrison’s conservative bloc in the federal parliament. To appreciate the radicalism, imagine Donald Trump bringing New York’s Andrew Cuomo and California’s Gavin Newsom, both Democrats, to the cabinet table in Washington. An effort at seamless decision making addresses the needs of the moment. The public rightly has little time for jurisdictional disputes, even through the constitution gives states a lot of authority. Critics contend that the new set-up is eroding democracy: The national cabinet makes decisions, yet is accountable to no single legislature. Such unity of purpose likely has a finite life. At some point, the electoral cycle will resume. Templates for new national political and economic structures now exist that would have unthinkable a year ago. Catastrophic bushfires over the Christmas-New Year holiday period midwifed a big federal intervention in firefighting, an area states have historically dominated, and led to the biggest military deployment since World War II. In the monetary arena, the ground has been laid for long-term policy activism and rock-bottom rates with potentially far-reaching consequences. Consumers, businesses and governments now know the RBA will backstop them in ways few contemplated not so long ago. And the longer Lowe and his successors keep rates low, the greater the risk of a backlash should they have to change course and begin withdrawing stimulus — an antipodean taper tantrum. Not the anniversary year the RBA anticipated. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- While their peers in other countries weathered a season in hell after the 2008 financial crisis, Australian banks partied.Spared the recession that devastated lenders elsewhere, valuations soared to as much as three times book value — extraordinary levels when most banks in developed countries were trading at a discount to book.At one point in 2011, all of the country’s big four banks (Commonwealth Bank of Australia, Westpac Banking Corp., National Australia Bank Ltd. and Australia & New Zealand Banking Group Ltd.) were worth more than Bank of America Corp. in terms of market capitalization. Now, the U.S. lender is worth more than all four — put together.The road to the dismal present has been paved with money-laundering scandals, government inquiries, super-taxes, a housing market downturn and of course the coronavirus, but it’s another factor that has been most crucial: dividends.Bank valuations, after all, aren’t a disinterested vote on the credit quality of a company. Instead, they’re shareholders’ best guess of the current value of future payouts, adjusted for the risk that the share price itself may rise or fall.That’s been particularly important in Australia, thanks to the outsize influence of individuals managing their own retirement savings through so-called self-managed superannuation. In most of the world, fund managers focused on capital growth dominate the stock market, to the extent that many tech companies treat paying cash back to shareholders as a failure of imagination. In Australia, the retirement savers who make up a fifth of the stock market prize a steady and stable income, so generous dividend-payers like the country’s banks have consequently done well.Even when its valuation peaked at three times book in 2015, Commonwealth Bank, the biggest of the four, was still paying out dividends equivalent to more than 6% of its share price. Australian banks were offering all the income security of owning a bond, but with equity-style returns. There was just one problem. Much though they may have behaved like bonds to their investors, Australian bank shares were equity all along — and with the party finally ending, it’s shareholders who are ultimately taking the hit. On Monday, Westpac joined ANZ in deferring its decision about whether to make a payout this year. NAB went one step further last week, cutting its payout by about two-thirds and tapping shareholders for cash by selling A$3.5 billion ($2.2 billion) in new stock.It’s a sign of how crucial payouts have become to Australian bank shareholders that even with an unemployment rate tipped to hit 10% this year, both Westpac and ANZ are presenting their moves as delayed decisions rather than outright cancellations. Even in a crisis, giving up the gospel of dividends risks breaking the implicit contract between management and shareholders that’s supported valuations (and paid for executives’ Maseratis) for a generation.The trouble is, shareholders are already voting with their feet. Price-book valuations have slumped to positively European levels; only Commonwealth Bank is now valued at a premium to its net assets. Unlike other countries, which have spent more than a decade deleveraging, Australian household debt was at record levels relative to income just before the coronavirus struck.As rising unemployment and falling property prices eat into borrowers’ ability to repay, investors are (rightly) making the assessment that the first call on banks’ cash for the foreseeable future is likely to be funding defaulted loans. Next will be fines, like the A$1.06 billion Westpac set aside Monday for dealing with a money-laundering case.The silver lining is that those plunging share prices are making dividends, in isolation, look more attractive than ever. If the coronavirus downturn proves less drastic than feared and Westpac ends up paying out full-year cash in line with last year’s, it would be yielding around 11% at current share prices — not bad at a time when its best one-year term deposit account is paying 1.2%.It’s a mark of how bad things have gotten for Australian banks that even the perennial promise of payouts isn’t enough to tempt shareholders back this time.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Australia shouldn’t be concerned about its escalating government debt in response to the coronavirus crisis because of the long record of responsible fiscal policy, Reserve Bank Governor Philip Lowe said.“If ever there’s a time to borrow, now is it,” the RBA chief told the Australian Broadcasting Corp.’s Four Corners program in a report on the scramble to combat the economic fallout from the epidemic. “We shouldn’t be worried” about the debt, it cited Lowe as saying.Australia is spiraling toward its first recession since 1991 with Treasury predicting unemployment will double to 10% as restrictions to stem the spread of the virus shut down much of the services industry. In response, the government and central bank assembled a massive fiscal-monetary injection worth 16.4% of gross domestic product to aid households and firms.“It’s the right thing to do,” Lowe said of the government’s largess. “We have the capacity to borrow, our interest rates are as low as they’ve ever been, the Australian government has a long record of responsible fiscal policy, so the budget accounts are in reasonable shape.”Trying to run a budget surplus has become an article of faith in Australia -- electorally it’s viewed as a sign of good economic management -- and the government was on track to return the books to the black this fiscal year.Now, the budget deficit is set to blow out to A$155 billion ($98 billion), or 8.1% of GDP, according to Commonwealth Bank of Australia, the nation’s largest lender, which sees outstanding government bonds swell to 40% of GDP in fiscal year 2021.Lowe told the government in early March that “it was hard to spend too much money here,” according to the ABC, yet it spent less than 1% of GDP in the first fiscal package. The RBA chief said it was “understandable” the government didn’t go for a bigger response at the time because the scale of the crisis wasn’t completely clear.In January, Treasurer Josh Frydenberg said he was only expecting a “dent” to the economy from the outbreak in China. In February, that became a “substantial but not necessarily severe” impact.The RBA governor gave the government a rare forewarning of the monetary policy response the central bank would be delivering.“I gave an outline to them of my thinking, and they’ve done exactly the same with me,” Lowe said, referring to the RBA’s cut at its March meeting.The RBA held a second, emergency meeting in mid-March, where it cut the cash rate to its effective lower bound of 0.25%, announced a bond-buying program and a lending facility to get credit into the economy.“I thought this was going to be perhaps a once-in-a-lifetime event and it required a truly extraordinary response,” said Lowe, who took the helm of the RBA in 2016. “I didn’t think in my term of governor, I’d be buying A$40 billion of government bonds, which we’ve done in the past few weeks and lending over A$100 billion to the banking system.”Lowe made clear where he stands in the debate on whether the lockdown should be soon lifted in order to limit the economic damage, signaling health comes before all else.“If we need to have restrictions for six months to contain the virus, that’s what we need to do,” he said.The government’s lockdown response is working well by global standards. At the weekend, the nation had recorded just over 6,500 cases of the virus and 67 deaths.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Every day for the past month, Britain’s Ryan James has hit the phones from the Brisbane hostel he’s sharing with about 16 other backpackers, seeking a rural job in the midst of Australia’s coronavirus lockdown. But he’s found “no farm work at all.”James, 26, is competing with some of the 118,000 other working-holiday visa holders who aren’t able to access emergency government funds available to citizens, along with thousands of Australians now jobless after restaurants, cafes and pubs shut.Backpackers will “end up getting scared off and not come back,” he said in a warning to the nation’s A$48 billion ($30 billion) agricultural industry. “When everything’s back to normal, they’re going to rely on us again.”That could have lasting implications for Australia’s capacity to pick and process crops. While industry groups say there’s anecdotal evidence of a surge in demand for farm work from locals as unemployment doubles to a forecast 10% this quarter, economist Saul Eslake said post-lockdown the nation will likely once again return to its traditional reliance on international arrivals, which could create a shortage of labor.“Problems will arise when those who are here finally return home and aren’t replaced,” said Eslake, an independent economist who has analyzed the Australian economy for 40 years. “While the government’s position that the line on welfare needs to be drawn somewhere is understandable, it will probably be a factor that prospective backpackers will consider when deciding whether to come here in future.”The dilemma comes in the wake of a government misstep earlier this decade, when it announced it would replace a tax-free threshold for backpackers earning less than A$18,200 with a 32.5% levy on all their income. After intense lobbying from farmers concerned that a large swathe of the itinerant workforce would be removed, the rate was reduced to 15% and ultimately scrapped altogether.Traveler BacklashConcern about the tax contributed to a 5% fall in working-holiday visa applications in the fiscal year following its announcement on May 2015 as the budget-travel community used social media platforms to warn against staying in Australia. Similar advice now could be dire for farmers, especially with the global backpacker market already expected to significantly contract due to economic recessions and soaring airline fares.“Seasonal labor is important to many parts of Australian agriculture and, if it’s not there, then that becomes significant down the track, particularly for horticulture,” said Tobin Gorey, director of agriculture strategy at Commonwealth Bank of Australia.The strenuous labor on Australian farms, which backpackers need to endure for at least three months of a typical two-year stay allowed under working-holiday visas, has become a rite of passage for young international travelers, while also becoming an important cog in the economy. According to Tourism Australia, in 2016 working-holiday visa holders hailing from nations including the U.K. (18% of total arrivals), South Korea (11%) and Germany (10%) generated A$3.4 billion of revenue.Now, international backpackers fear they will be overlooked by farmers due to fears they may be carrying the virus, especially after news bulletins showed youth hostel patrons ignoring social-distancing restrictions and partying at Sydney’s Bondi Beach. Prime Minister Scott Morrison has since insisted backpackers in cities must self-isolate for 14 days before they can travel to rural areas for work, yet that may not be possible in crowded hostels and dorms.In a bid to addresses criticism that his fiscal aid packages had ignored working-holiday makers, Morrison’s conservative government this month changed visa rules so working backpackers can extend their stay for as long as 12 months by working on farms.Food SecurityThe decision came after primary producers raised concerns that border lock downs could threaten food security due to new restrictions on foreign labor with seasonal-workers visas, who typically hail from Pacific Islands nations. One-third of peak seasonal farming jobs are usually filled by overseas workers, according to a 2018 survey of more than 2,400 farms released last year by the Australian Bureau of Agricultural & Resource Economics & Sciences.Still, the government has refused to give the more than 2 million temporary visa holders -- who include working-holiday makers and foreign students -- access to emergency welfare such as payments of A$1,500 a fortnight available to about 6 million Australian residents.Morrison, whose government insists backpackers first prove they have at least A$5,000 in savings before they can receive a visa, has been blunt about what James and other budget travelers should do if they can’t find enough work to support themselves.“Australia must focus on its citizens and its residents to ensure that we can maximize the economic supports that we have,” he told reporters on April 4. For those who can’t pay their own way, “there is the alternative for them to return to their home countries,” he said.The demand has been criticized by some backpackers who either can’t afford the few expensive flights still available or are barred from entering their own locked-down nations. Still, governments including the U.S. have repeatedly warned citizens they won’t be bailed out if stuck overseas.Backpackers StrandedAustralian’s main opposition Labor party is calling for Morrison’s government to do more to support stranded working-holiday makers and other temporary visa holders.“So long as this population remains in Australia, then they need to be supported,” Deputy Labor Leader Richard Marles told parliament April 8.American backpacker Tia Fowler agrees. Speaking from a strawberry farm in the nation’s tropical northeast, she said she’s struggling to pay her rent just weeks after fleeing a tourist town on the doorstep of the Great Barrier Reef where she worked in a restaurant.“It got so bad so quickly,” she said. Now, she’s only getting less than 20 hours of work a week planting fruit near Bundaberg, about 220 miles north of Brisbane, as she says the farm is crowded with too many workers. “I understand I’m very lucky to have a farm job right now at all, but I am frustrated.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Australia’s budget deficit will blow out to A$155 billion ($94 billion) and outstanding government bonds swell to 40% of gross domestic product in fiscal 2021, according to the nation’s largest lender, as Prime Minister Scott Morrison pumps cash into an economy threatened with recession.The economy will contract by 7.5% and unemployment jump to 7.8% in the current quarter, estimates Gareth Aird, a senior economist at Commonwealth Bank of Australia. The budget shortfall will gape to 8.1% of GDP in the fiscal year starting July 1 and outstanding bonds soar to A$790 billion, he said.“It is clear that a significant proportion of the domestic economy will remain shut in some capacity through the June quarter and most likely the early part of the September quarter,” Aird said. “At the same time, an unprecedented amount of fiscal and monetary stimulus, as well as industry support, has been unleashed.”Australia’s government and central bank have unleashed a fiscal-monetary injection of about A$320 billion -- or 16.4% of GDP -- to try to cushion the blow on businesses and households from deteriorating demand and a collapsing labor market. Bloomberg Economics expects the economy will contract 10% in the first three quarters of 2020 in the deepest downturn in 90 years.Commonwealth Bank forecasts GDP will drop by 3.4% for 2020 as a whole.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Australia’s banking chiefs are braced for a nightmare scenario of a 10% economic contraction, “shockingly high” unemployment and spiraling loan losses as shockwaves from the coronavirus ripple through the economy.As Prime Minister Scott Morrison’s administration follows other countries in shutting down large segments of the economy to try to stem the virus’s spread, signs of individual and business tolls are starting to multiply.Tens of thousands of workers have already been sent home as retailers and airlines all-but close and queues outside job centers lengthen. Australia’s lenders are watching this play out in real time, with hardship telephone numbers ringing off the hook as consumers and businesses try to access relief packages.Banks are the “ICU unit of the economy,” Australia & New Zealand Banking Group Ltd. Chief Executive Officer Shayne Elliott said Monday at an Australian Financial Review event -- conducted online due to the pandemic. “Corporates and households will come into care and we will have this unfortunate role at some point of having to decide who comes out at the end.”A week ago, Commonwealth Bank of Australia Chief Executive Officer Matt Comyn said he would have estimated the economy would shrink by about 5% in the first quarter. Now, a 10% contraction is a “reasonable assumption,” Comyn said at the same event. “No question there are going to be higher loan losses.”The nation’s banks have special dispensation from the competition authority to co-operate throughout the crisis and have banded together to launch a range of hardship measures, including allowing consumers to suspend mortgage payments for up-to six months.National Australia Bank Ltd. Chief Executive Officer Ross McEwan echoed his counterparts on the dire outlook for the economy.“I think you will see very, very large GDP drops,” he told the the same forum. “Unemployment will also go shockingly high for a period of time.”NAB’s economics research team said Friday the jobless rate could soar to 12% and hold there for the remainder of the year.Right now, the three CEOs emphasized that the focus is on getting through the crisis and being prepared to help the economy reboot on the other side. In the medium term, that’s likely to mean tough choices about who gets help.“There is no playbook for this,” McEwan said. “We’ve not seen this sort of health and financial crisis at the same time.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Australia’s economy is likely to suffer a quarterly contraction for the first time in nine years, based on an initial estimate of the coronavirus’s impact from the nation’s Treasury and Reserve Bank.Both told a parliamentary panel in separate hearings that they expect half a percentage point cut from gross domestic product in the first three months of the year. Treasury head Steven Kennedy said the effects may spill into the second quarter, but Treasury wasn’t forecasting a recession.“The economic impact of COVID-19 is likely to be deeper, wider and longer when compared to SARS,” Kennedy told lawmakers Thursday, referring to the 2003 epidemic. “It will create more risk of a prolonged downturn and fiscal support will be needed to accelerate the recovery of the economy.”The government is expected to release a fiscal “boost” for the economy in coming days, though it has tempered expectations about its scale. Prime Minister Scott Morrison said the package will be measured and targeted and not in the league of the huge stimulus deployed by the Rudd government in 2008-2009.Josh Williamson, a senior economist for Australia at Citigroup Inc., projects it will be A$3-A$5 billion ($2-$3.3 billion) “at most,” equivalent to about 0.1% of GDP. “Such a package would be designed to offset the expected loss of output, rather than deliver a material boost to activity that closes the negative output gap that existed prior to COVID-19.”Commonwealth Bank of Australia, the nation’s biggest lender, said Thursday that a contraction in the first quarter is “a distinct possibility.” Citi is also seeing a negative result, as are other forecasters.The RBA sees exports of tourism and education -- which account for about 5% of GDP -- falling around 10% this quarter. Deputy Governor Guy Debelle cautioned that the situation is evolving rapidly and the bank’s estimates didn’t include supply chain disruptions.“We are hearing about that in the construction and the retail sector,” he said. “But how long-lasting and how severe that is, we’re just not in a position to tell.”The central bank cut interest rates by a quarter percentage point to 0.5% Tuesday and traders are pricing an 85% chance it will do so again in April. That would take the cash rate to its effective lower bound and open the door to unconventional measures.Kennedy similarly said Treasury’s estimate didn’t include supply chain disruptions or broader sentiment-related impacts.The Treasury secretary said of the budget, which until recently had been forecast to return to surplus, that “allowing fiscal policy to temporarily deteriorate as a result of this shock” was a sensible response.Meantime, PWC released a report looking at worst case scenarios, such as the economic consequences of coronavirus escalating to a global pandemic. In such a scenario, 50% of the global population would be infected with the disease.The economic result would be a 1.3% cut to both global and Australian GDP over the course of a year. At an international level, that’s well below the peak of the financial crisis, when global GDP slumped by 5.2%.To contact the reporter on this story: Michael Heath in Sydney at firstname.lastname@example.orgTo contact the editors responsible for this story: Paul Jackson at email@example.com, Alexandra Veroude, Jason ClenfieldFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The Fed cut interest rates by half a percentage point in an emergency move. Australia’s benchmark stock index has a new leader. And it’s too late to impose travel bans in the U.S. to curb the virus there. Here are some of the things people in markets are talking about today. EmergencyThe Federal Reserve slashed interest rates by half a percentage point in the first such emergency move since the 2008 financial crisis, amid mounting concern that the coronavirus outbreak threatens to stall the record U.S. economic expansion. The rate cut, which came between the central bank’s regularly scheduled meetings, was announced hours after Group of Seven finance chiefs held a rare teleconference to pledge they’d do all they can to combat the fast-moving health crisis. “My colleagues and I took this action to help the U.S. economy keep strong in the face of new risks to the economic outlook,” Fed Chairman Jerome Powell told a hastily convened press conference in Washington on Tuesday. “The spread of the coronavirus has brought new challenges and risks.” Investors weren’t impressed by either the G-7 promise or the Fed’s move. After rallying earlier in the week on anticipation of action, the S&P 500 index fell more than 3% while the 10-year Treasury yield plunged below 1%. Traders are betting that the Fed will have to do more, with the futures markets pricing additional easing later this year. Here’s what the market didn’t like about Powell’s scant tools.Markets DownStocks in Asia are set to resume declines after the emergency Federal Reserve rate cut sent Treasuries surging and U.S. shares slumping on concern it won’t be enough to cushion the economic hit from the spreading coronavirus. The yen and gold surged. Futures pointed lower in Japan, Hong Kong and Australia, with regional shares poised to snuff out two days of gains. The S&P 500 Index fell almost 3% following the Fed’s 50 basis-point rate cut and comments from Chairman Jerome Powell that the virus outbreak will weigh on activity “for some time.” The two-year Treasury yield sank below 0.65%, while the 10-year plunged below 1% for the first time and the dollar retreated, while Australian bonds opened higher. Elsewhere, oil advanced for a second day after an OPEC+ committee recommended a larger supply cut to offset lost demand from the spread of the virus.It’s Too LateOver in the U.S., the coronavirus has already spread so far that experts say draconian limits on domestic travel probably wouldn’t be effective. But the outbreak could still have widespread effects on transportation as people opt to stay home and transit workers call in sick, and could end up doing more harm than good. In fact, some studies have shown that travel restrictions have limited effect. “When you’re dealing with an influenza virus-like transmissions, it’s like trying to control the wind,” said Michael Osterholm, director of the Center for Infectious Disease Research and Policy at University of Minnesota. “People may want to try to limit their time in large crowds, but I don’t think that a domestic limitation on travel is going to help at all.” At least 100 coronavirus cases have been confirmed in the U.S. Six deaths linked to the virus have been confirmed in Washington state, most clustered around a nursing home. Meanwhile, Apple has now restricted employee travel to Italy and South Korea as the virus continues to spread. The number of global cases reached 90,441, and the death toll has risen to 3,123.Blood Beats BankingAustralia’s benchmark stock index has a new leader: A biotechnology firm that makes therapeutic products from human blood. With a market value of A$142 billion ($93 billion), CSL Ltd. now accounts for 8.2% of the S&P/ASX 200 Index, compared with 8.1% for Commonwealth Bank of Australia. The Melbourne-based firm charged ahead of CBA after Australia’s central bank cut its benchmark rate, which sent bank shares lower. The unseating of CBA is notable in a market that’s dominated by banks. The nation’s big four lenders — CBA, Westpac, Australia & New Zealand Bank and National Australia Bank — make up about a fifth of the S&P/ASX 200 Index. CSL collects blood plasma from donors and turns it into therapies to help patients who have autoimmune disorders or problems with blood clotting. It also manufactures flu vaccines.Super TuesdayAmerica’s Democratic presidential hopefuls face a key test on Tuesday local time: Contests across 14 states, plus American Samoa, that will award more than a third of all delegates to the Democratic convention in July. This week, former U.S. Vice President Joe Biden has coalesced the Democratic Party’s establishment around him as he tries to thwart self-described democratic socialist Bernie Sanders. And it still might not be enough. Sanders holds the advantage in key contests — including delegate-rich states like Texas and California — and former New York Mayor Michael Bloomberg threatens to play spoiler. So the risk for moderate Democrats is that the exit of Pete Buttigieg and Amy Klobuchar is too little, too late. (Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.)What We’ve Been ReadingThis is what’s caught our eye over the past 24 hours.Two Hong Kong brothers are taking on Tesla with an $195,000 electric supercar. Emission curbs are helping this Thai jet-fuel firm cushion the blow from the virus. YouTube has become a refuge for Pakistan journalists battling censors. Easter is shaping up to be air travel’s next test of the virus impact. The World Bank is offering $12 billion in virus aid to developing nations. Satellite pollution data is showing that China is getting back to work.To contact the author of this story: Sybilla Gross in Sydney at firstname.lastname@example.orgTo contact the editor responsible for this story: Alyssa McDonald at email@example.comFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Australia kicked off an expected worldwide policy response to China’s slowdown and fallout from the coronavirus with an interest-rate cut that’s set to operate in tandem with fiscal measures to cushion the economic blow.Reserve Bank chief Philip Lowe reduced the cash rate by a quarter percentage point to 0.5%, a new record low, as expected by traders and half of economists surveyed. The governor said he’s prepared to ease further as the virus outbreak is having “a significant effect” on Australia’s economy.“The uncertainty that it is creating is also likely to affect domestic spending,” Lowe said in a statement Tuesday announcing the decision. “The board is prepared to ease monetary policy further to support the Australian economy.”The Australian dollar jumped as much as 0.5% immediately after the decision and traded at 65.43 U.S. cents at 4:56 p.m. in Sydney. An expected narrowing of the rate differential between the RBA and the Federal Reserve, where markets expect three cuts this year, was a likely driver of the bounce.Lowe is a reluctant cutter. As recently as last month he said that balancing all the risks in the economy favored staying still. This stance was jettisoned following the shutdown in China that’s hit Australia’s tourism and education industries and other exporters. The virus’s spread now poses a worldwide risk.“Policy measures have been announced in several countries, including China, which will help support growth,” Lowe said in the statement. “In most economies, including the United States, there is an expectation of further monetary stimulus over coming months.”Global policy makers have sought to reassure markets they are ready to respond to the epidemic as fears mount that the world economy is heading toward recession. The leaders of the International Monetary Fund and World Bank said they stood ready to help member nations, while Group of Seven finance ministers and monetary officials will speak by teleconference Tuesday.“The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower,” Lowe said. “It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path.”In this case, though, Australia’s central bank isn’t going to have to face the downturn alone, with fiscal support in prospect.“The Australian government has also indicated that it will assist areas of the economy most affected by the coronavirus,” Lowe said. Before the RBA meeting, Prime Minister Scott Morrison said the Treasury is working closely together with the other agencies “to address the boost that we believe will be necessary.”Morrison urged major banks to pass on any RBA cut. The four top lenders have all since confirmed that mortgage rates will be reduced by the full amount.The RBA now has only one 25 basis-point cut left in the locker before it reaches its effective lower bound of 0.25%. Lowe will find himself dragged toward quantitative easing, should the economy need further monetary stimulus.What Bloomberg’s Economists Say“The Reserve Bank has fired the starter’s gun on a widely-anticipated round of coordinated central bank easing. Further cuts were flagged, alongside a package of fiscal support. Risks now lie with the RBA utilizing unconventional monetary policy tools, particularly if there are dislocations in domestic credit markets.”James McIntyre, economistLowe said the RBA will ensure that the Australian financial system has sufficient liquidity.Yet even before wildfires and the virus, Australia’s economy wasn’t particularly strong. Gross domestic product probably rose 0.4% in the final three months of 2019 from the prior quarter, and 2% from a year earlier, economists estimated ahead of data Wednesday.“GDP growth in the March quarter is likely to be noticeably weaker than earlier expected,” Lowe said, having removed any 2020 forecast from the statement. “Once the coronavirus is contained, the Australian economy is expected to return to an improving trend.”One area helping Lowe is the currency, the economy’s traditional shock absorber that has depreciated almost 7% since the start of the year. China’s fiscal and monetary stimulus will also assist in time.(Updates with comment from Bloomberg economist in 13th paragraph.)\--With assistance from Tomoko Sato.To contact the reporter on this story: Michael Heath in Sydney at firstname.lastname@example.orgTo contact the editors responsible for this story: Paul Jackson at email@example.com, Alexandra Veroude, Victoria BatchelorFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- For a fresh perspective on the stories that matter for Australian business and politics, sign up for our new weekly newsletter.Australia is set to keep interest rates unchanged Tuesday as policy makers keep searching for signs that prior stimulus is encouraging households to spend. Hovering over the meeting is the specter of a viral-induced slowdown in China.Governor Philip Lowe will keep the cash rate at 0.75% at the Reserve Bank’s first meeting of the year, according to 22 of 25 economists, with markets pricing similarly. The turnaround -- the majority began the year forecasting a February easing -- was driven by a fall in unemployment in the final two months of 2019.“The economic data has generally come in on the stronger side over recent months,” said Kristina Clifton, a senior economist at Commonwealth Bank of Australia. “But the virus has the potential to impact on economic growth as consumers spend less, business and consumer confidence drops and tourists and people traveling for business delay their plans.”Most economists trying to discern the impact of novel coronavirus have harked back to the SARS epidemic 17 years ago. Yet, that was a different world. Australia’s links to China’s economy have increased exponentially since. The numbers tell the story:China’s share of Australian exports was 33% in 2018-19 vs 7% in 2002-03Tourists from China jumped to 15% of total arrivals from 4% over the same period; and now account for more than a quarter of total visitor spendingAlmost a quarter of new foreign students are from ChinaChina bought 82% of Australian iron ore shipments last year, compared with 32% in 2003China’s benchmark iron ore contract fell by its daily limit of 8% and Singapore’s contract has collapsed 11%, driven by a combination of concerns that the virus could strike near-term demand in China and expectations that global seaborne supplies are poised to expand.A complete shutdown of Chinese tourism and student travel for a year would cut Australian GDP by almost 1 percentage point, “with significant additional multiplier effects,” according to Westpac Banking Corp.The Australian tourism industry is already dealing with a demand shock following the wild fires that drove cancellations from abroad amid images of major cities choking on smoke, Australians fleeing their homes and fallen native animals.Lowe cut interest rates three times between June and October to shore up consumer spending amid weak wages growth and elevated debt. The economic data in the past month has exceeded expectations.What Bloomberg’s Economists Say“Economic data in the rear view mirror supported the RBA’s view that the economy had reached a gentle turning point. But that now needs to be reassessed. The twin shocks of ongoing bushfires and the unfolding coronavirus outbreak are still playing out. There’s little hard data for the RBA to draw on to form a view on how badly the turning in the economy has been derailed, and how much additional stimulus may be required.”James McIntyre, economistMoney markets have also begun to shift, with a March easing coming into view, whereas last week the broad expectation was that there was little prospect of the RBA easing before April. Cash-rate futures on Monday were pricing in a 60% chance of a cut next month, up from less than 40% last Wednesday following stronger-than-expected inflation data.Lowe will be questioned on the disasters when he addresses the National Press Club Wednesday in a speech titled “The Year Ahead.”On Friday he, Deputy Governor Guy Debelle and other senior officials will appear in Canberra for the RBA’s semi-annual parliamentary testimony. Concurrently, the RBA releases its Statement on Monetary Policy that includes updated forecasts for economic growth, inflation and unemployment. It’s expected that near-term GDP growth projections will be lowered.One area where the RBA’s easing has impacted quickly is housing: Sydney and Melbourne are leading the rebound, with data Monday showing prices climbed 1.1% and 1.2% respectively in January.The labor market has also stood strong, with unemployment falling to 5.1% in December from 5.3% in October. Data Monday showed job advertisements jumped 3.8% in January.(Updates with comment from Bloomberg economist in 10th paragraph, money markets pricing in chance of March easing in 11th.)\--With assistance from Tomoko Sato.To contact the reporter on this story: Michael Heath in Sydney at firstname.lastname@example.orgTo contact the editors responsible for this story: Paul Jackson at email@example.com, Alexandra Veroude, Nasreen SeriaFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Swedish payments and banking firm Klarna became the most valuable European fintech startup after new funding pushed its post-money valuation to $5.5 billion.Klarna reached that status after raising $460 million in an equity round that will help it “continue its rapid rise in the U.S. market where it is currently growing an annual rate of six million new U.S. consumers,” the company said in a statement on Tuesday.With its new funding, the Stockholm-based startup leapfrogs European fintech darlings TransferWise and N26, which have recently been valued at $3.5 billion.Klarna helps online shoppers arrange financing at points of purchase, as well as provide merchants with payment tools. It challenges companies such as PayPal Holdings Inc., Square Inc. and Adyen NV, each of which has their own twist on facilitating commerce between sellers and shoppers.Dragoneer Investment Group led the raise, according to the statement. Other participants included the Commonwealth Bank of Australia, HMI Capital LLC, Merian Chrysalis Investment Co. and Sweden’s AP1 state pension fund, as well as accounts managed by BlackRock Inc. These additional investments follow the January announcement that the rapper known as Snoop Dogg had invested in the Swedish firm.Numis acted as exclusive financial adviser and placement agent to Klarna.To contact the reporters on this story: Ali Ingersoll in London at firstname.lastname@example.org;Niklas Magnusson in Stockholm at email@example.comTo contact the editors responsible for this story: Giles Turner at firstname.lastname@example.org, Nate Lanxon, Molly SchuetzFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.