Services sector contracts in January, Kraft shareholders approve Cadbury deal: Economy Roundup

The Australian services sector has contracted during January for the first time in four months, according to a private index, with activity down in all states except Western Australia.

The Australian Industry Group – Commonwealth Bank Performance of Services Index fell 2.6 points to 47.4, under the 50-point level separating expansion from contraction.

AIG chief executive Heather Ridout said in a statement the decision by the Reserve Bank to leave rates on hold in January was a welcome move given the new results.

“Since hitting a high point in October 2009, the Australian PSI has dropped 7.4 points to 47.4, suggesting the consecutive increases in the official interest rate in the final three months of 2009, compounded by the diminished impact of government stimulus, have significantly curtailed services activity.

“Businesses have responded to the more uncertain demand outlook by reducing supplier deliveries and relying on existing inventories.”

The seasonally adjusted estimate on the balance of goods and services resulted in a deficit of $2.2 billion in December 2009, representing an increase of $524 million, according to the latest figures from the Australian Bureau of Statistics.

For credits in seasonally adjusted terms, goods and services rose 4% to $19.7 billion, non-rural goods increased by 5% to $571 million. Rural goods rose by $135 million, or 7%, while non-monetary gold fell by 4% or $46 million.

In debits, goods and services rose 6% to $22 billion, while intermediate and other merchandise goods rose by 11% to $760 million. Services debits rose by 1% to $42 million.

Shares rise due to Wall Street boost

The Australian sharemarket has opened higher today after Wall Street recorded rises due to good performances in the housing industry.

The benchmark S&P/ASX200 index was up 24 points or 0.52% to 4629.4 at 12.00 AEST, while the Australian dollar also rose to US88c.

ANZ shares declined by 1.6% to $21.55, while Commonwealth Bank shares also fell by 0.8% to $53.11. NAB fell by 1.1% to $25.67, with Westpac also falling 1.9% to $23.15.

AXA Asia Pacific Holdings has recorded a 3% decline in funds under management to $81 billion in 2009, compared to $83.89 billion in funds under management, administration and advice in the previous year.

In Australia total funds declined 4% to $59.03 billion, while inflows for AXA also fell by 22% to $7.61 billion for the full year.

“We performed strongly in 2009 with growth in most of our businesses. This was against the background of a difficult year for our industry with the impact of the global financial crisis affecting investor confidence and reducing industry sales in many of the markets in which we operate,” chief executive Andrew Penn said in a statement.

CSR will learn today whether it can proceed with its demerger plans and submit the proposal to a shareholder vote.

Justice Margaret Stone of the Federal Court will rule today on whether the proposal can be put to a vote, following a hearing in which CSR’s asbestos liabilities were investigated. The company has maintained these investigations should have occurred after the demerger proposal was voted upon.

Insurance Australia Group has now raised its insurance margin guidance to between 11.5-13% for the 2010 financial year, with the company expecting first-half profit to increase to $488 million.

“Our overall performance in the first half is a significant improvement on the previous corresponding period, with more than half of the expansion in our insurance margin derived from operational improvements,” chief executive Michael Wilkins said in a statement.

Kraft shareholders approve Cadbury deal

Overseas, Kraft shareholders have approved the proposed Cadbury takeover deal that will see the formation of the world’s largest confectionary group.

“The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals. Together we have impressive global reach and an unrivalled portfolio of iconic brands, with tremendous growth potential,” Kraft chief executive Irene Rosenfeld said in a statement.

“I warmly welcome Cadbury employees into the Kraft Foods family and look forward to meeting many of them in the days and weeks ahead.”

Elsewhere in the United States, News Corp has posted a second-quarter net income after tax of $US254 million, compared to a loss of $US6.4 billion in the same period last year.

Revenue rose 10% to $US8.7 billion, while shares also increased 5.57% to $17.81. Chief executive Rupert Murdoch said the results show the company is recovering, assisted by the strength in its entertainment departments such as the blockbuster hit Avatar.

“We continue to reap the benefits from the restructuring and cost containment measures we instituted before the downturn began and I am pleased that our unrelenting focus has translated to growth across our businesses that will reward stockholders for years to come.”

On Wall Street, stocks rose due to positive news from the property sector with pending home sales on the rise. The Dow Jones Industrial Average gained 106.78 points or 1.05% to 10,292.31.