RBA to watch inflation data closely, IBM profit disappoints: Economy Roundup

The Reserve Bank of Australia will consider upcoming inflation data before it decides to move on interest rates, the minutes of its latest board meeting reveal.

The minutes of the meeting, at which the RBA decided to keep the official interest rate unchanged at 4.5%, reveal data on inflation and performance in the European banking sector will weigh heavily on the 3 August decision.

“Members noted that the coming month would see important announcements about the health of the European banking sector, which had the potential to have a significant impact on financial markets and global confidence.”

“Headline inflation was expected to rise, owing to the effects of some tax increases, with the year-ended increase in the CPI rising above 3%. The important question for the Board at its next meeting would be whether the new information materially changed the medium-term outlook for inflation.”

The minutes also address the tension in European financial markets, the funding of Australian banks and the performance of global equity markets. The board noted that while US recovery is continuing “at a moderate pace”, labour market conditions have still softened and jobless data is “disappointing”.

Meanwhile, as reported by the Australian Financial Review, the Australian Securities and Investments Commission allegedly called off an investigation into Babcock & Brown even though concerns had been raised.

The publication has reported both PricewaterhouseCoopers and Deloitte questioned whether the company was complying with its financial services license. Former Babcock employees told the paper that the company had used compliance strategies that were appropriate for a smaller firm, which caused ASIC to close its investigation at the time.

The Korea Gas Corporation has signed an agreement to purchase liquefied natural gas from the Wheatstone gas project in Western Australia.

Chevon announced this morning its Australian subsidiaries had signed an agreement with KOGAS, the largest purchaser of LNG in the world. It will buy 1.5 million tonnes for 20 years.

Shares open flat after Wall Street lead

The Australian sharemarket has opened flat today after receiving mixed leads from various offshore markets overnight, along with Wall Street which opened the week slightly higher after falling 2.5% last Friday.

The benchmark S&P/ASX200 index was up 12 points or 0.28% to 4370.4 at 12.15 AEST, while the Australian dollar rose slightly higher to US86c.

Commonwealth Bank shares have dropped 0.2% to $50.40, while NAB shares gained 0.3% to $24.12. Westpac lost 0.1% to $22.10, as ANZ gained 0.6% to $22.16.

The Australian has reported the new Basel III bank rules could force local banks to build up an extra 2% capital during economic booms.

A spokesperson for Wayne Swan apparently said Australia would cooperate with the Basel Committee in reforming financial systems, but he also said it would need to keep in mind the Australian economy performance much better than many others.

The Swiss Basel Committee said in a statement that banks would be asked to build up capital when authorities determine there is excess credit growth.

“This will help ensure the banking system has an adequate buffer of capital to protect it against future potential losses,” it said in a statement.

In the mining sector, Iluka Resources has recorded a production drop in the June quarter compared with its 2009 results.

The company said in a statement total mineral sands production for the quarter to 30 June was just 418.2 kilotonnes, representing a 9.6% decline. However, the company says good time are ahead with a rebound in demand.

“Demand recovery for zircon in 2010 reflects a rebound in demand in China to pre global economic crisis levels, a recovery in European demand and robust North American demand,” Ilulka said in a statement.

“Demand for high grade titanium dioxide products (rutile and synthetic rutile) has also recovered,” the company said.

Wall Street stocks rise on tech sector

IBM recorded a decline in technology services contracts during the second quarter and announced revenue figures below analysts’ expectations.

The company announced revenue rose just 2% to $US23.7 billion, although analysts had been expecting $US24.2 billion.

“Things are improving — we’re coming out of the recession — and services signings is one of the indicators that people would like to see at least grow from year over year,” Mark Demos, portfolio manager at IMB shareholder Fifth Third Asset Management, told Reuters.

“There were some currency hits that people were expecting, but even with that, it might have been a little bit weaker than people were expecting.”

Overall on Wall Street, the Dow Jones Industrial Average gained 56.63 points or 0.56% to 10,154.43.