RBA welcomes property slowdown, Shares jump: Economy Roundup

Reserve Bank of Australia head of financial stability Luci Ellis has said the RBA welcomes a slowdown in the property sector, but has also played down the worries regarding the levels of household debt in Australia.

However, she also says investors could lead the market into a housing bubble. Speaking to the CPA Congress in Brisbane, Ellis said speculative buying could increase.

“If rental yields are very low, investors are buying properties without really thinking about the rental yield,” she said. “Buying an asset just because you are expecting the price to rise in the future, well that is actually the academic definition of a bubble.

“So that would be undesirable and be seen as a problem.”

But she also played down fears, noting that investors and buyers are showing more “financial caution” than in previous years.

“Our reading of recent data is that the Australian household and business sectors have, in aggregate, entered a phase of expansion. But they seem to be showing more financial caution than they did prior to the crisis,” Ellis said in her speech.

“Growth in dwelling prices has tapered off in recent months, especially in more expensive suburbs. Housing credit growth has slowed. New lending to first-home buyers reverted to closer to its historical share of loan approvals after the additional government grants expired.

Ellis noted that the RBA considered the recent cooling in house prices as a “desirable” effect.

Meanwhile, finance minister Penny Wong has said the Government will continue to make tough decisions on spending despite ruling from a minority.

“We have to do what’s right, but we do have to work with the parliament in order to achieve it,” she told Business Spectator.

“And I think it’s important that we continue the discussion which is currently afoot in the Australian community about what the right economic settings are because that will not only be an issue for the … government, but it will also be an issue for the parliament more broadly.”

In the mining sector, speculation has grown that Rio Tinto and BHP Billiton will walk away from a multi-billion joint venture. According to an SMH report, Rio Tinto chairman Jan du Plessis has said the venture has not succeeded.

“I think with regard to the (joint venture) and why it didn’t succeed … we should simply work on the basis that both parties worked well and in good faith to make this thing work and both parties agreed, simultaneously, it wasn’t possible,” he is quoted as saying.

Shares higher on US services performance

The Australian share market has opened higher today following a solid night on Wall Street where stocks rebounded due to good results from services companies.

The benchmark S&P/ASX200 index was up 67 points or 1.45% to 4673.9 at 12.15 AEST, while the Australian dollar has opened higher on commodity prices to US97c.

ANZ shares increased by 1.7% to $23.98 while Commonwealth Bank shares grew 1.1% to $51.79. Westpac shares gained 1.3% to $23.40 as NAB gained 1.2% to $25.68.

Fortescue Metals has been ordered to pay $US3.7 million in a dispute with Armada over a shipping contract.

“In all other respects, the arbitration decision fully upheld Fortescue’s valid termination of the COA (contract of affreightment) and as such Fortescue will be entitled to recover its costs from Armada,” Fortescue said in a statement.

“The finalisation of the Armada dispute brings to an end the settlement of all the shipping contracts suspended by Fortescue in December 2008 following the global financial crisis.

Aevum has entered a trading halt as it prepares to negotiate final details with Stockland regarding the $320 million takeover.

“Aevum is seeking a trading halt pending finalisation of an agreement entered into with Stockland Development Pty Ltd in relation to Stockland’s revised offer,” Aevum said in a statement to the ASX.

“Aevum considers that certain details of the agreement will be material information for the market.”

As reported by the Australian Financial Review, Optus is in talks with the National Broadband Network regarding a plan to transfer its cable customers to the network.

QR float interest continues to rise

QR National chief executive Lance Hockridge has said the company has received “enormous” interest from investors ahead of its float to take place later this year.

“We’ve had a great deal of interaction with potential investors, retail investors of Australia, institutional investors in Australia and overseas,” he told reporters today. “The extent of the interest has been enormous.”

“I think it is all related to the fact that this is a great company with a great history and a great reputation.”

Meanwhile, the pace of growth in the US non-manufacturing market accelerated quicker than expected, with the Institute for Supply Management’s services index increasing from 51.5 to 53.2.

The result was above the 50-point level separating expansion from contract, and economists noted the activity was higher than expected.

“The numbers are obviously better than expected,” Wells Fargo currency strategist Vassili Serebriakov told Reuters. “We are in a sweet spot where indicators no longer point to a double-dip recession. Instead, they are consistent with a slow recovery.”