Business confidence rises, Shares hit four-month high: Economy Roundup

The latest result from NAB’s monthly business survey show that although business conditions remained the same during August, business confidence has increased due to improving profit expectations.

The survey found the business conditions index remained steady at five points, while business confidence rose from two points to 11. The index for profitability increase by one point, while forward orders, and export sales indexes also increased.

“Business confidence rebounded nine points in August, following three months during which overseas financial turbulence and policy uncertainty contributed to more subdued readings,” NAB chief economist Alan Oster said in a statement.

“However, confidence has not returned to the euphoric levels recorded late last year and early this year.”

Business conditions in August were broadly unchanged: employment fell four points, trading declined one point and profitability rose one point. Employment is now at its lowest point this year, but remains in positive territory.”

The survey found conditions improved in manufacturing, recreation and construction, although they also fell in mining, finance, transport, wholesale and retail. Conditions are strongest in transport, with a reading of 22.

“Mining confidence may have been affected by concerns about Chinese growth and the initially indeterminate result of the federal election, which failed to provide an immediate assurance that the resource rent tax would be scrapped. Confidence levels are now more uniform across industries.”

Oster said the results indicate the RBA is likely to remain on hold with regard to interest rates for the rest of the year.

“The weakening domestic economy will need to be watched, although there is a risk that an underlying inflation outcome above 0.7% would lead to a 25 basis points rise in November.”

“As the economy gathers speed in 2011 the case for rate rises will become more compelling. In our base case, we have a 25 point rise in each quarter of 2011 bringing the peak to 5½% in late 2011. This pattern would be broadly consistent with a Taylors rule approach (based on our activity and core inflation forecasts).”

In a statement, Treasurer Wayne Swan has said Australia banks will not be affected by the new banking agreements announced by the nations drafting the Basel III rules in Switzerland.

“Australia is committed to reforming the global financial system to prevent a repeat of the failures that led to the crisis,” Swan said.

“There is still some way to go on agreeing these proposed reforms through the G20, but it’s expected that our banks will comfortably meet the new requirements,” he said.”

Shares open at four-month high

The Australian sharemarket has opened at a four-month high today following solid leads from Wall Street, where stocks continued to rise following last week’s production figures from China, along with easing fears over European banks.

The benchmark S&P/ASX200 index was up 20 points or 0.44% to 4635.4 at 12.20 AEST, while the Australian dollar also continued to climb over US93c this morning.

Commonwealth Bank shares gained 0.4% to $53.73, while NAB shares also rose 0.3% to $25.30. Westpac gained 0.4% to $23.48 as ANZ rose 0.2% to $24.07.

Meanwhile, mining billionaire Clive Palmer has said a profits-based tax on the industry will be more equitable that the current royalties scheme.

“It’s a much more equitable situation if companies like mine that make a lot of profit are taxed at a higher rate than say the royalties are – maybe double the rate – to make up for companies that don’t make a profit yet still employ a lot of people,” he told ABC TV yesterday.

However, Palmer also said he is still opposed to the 30% tax proposed by prime minister Julia Gillard. He prefers a 7-8% rent resources tax.

New figures from Fitch Ratings have revealed mortgage delinquencies stabilised during the second quarter of 2010, having come off a high due to upward movements in interest rates.

“The three consecutive hikes in the cash rate over the fourth-quarter 2009 put a stop to the improvement in prime residential mortgage-backed securities performance during the second half of 2009 and contributed to a peak in arrears the first quarter of 2010,” structured finance associate direct James Zanesi said in a statement.

“The interest rate hikes that ended in May this year are still expected to have an effect on households in the third quarter of 2010. A long-term impact is rather unlikely as households are currently bearing a standard variable rate that is still lower than long-term historical levels.”

Elsewhere, Westpac has added a managed funds tool, international shares and US exchanged traded options to its online investing portal.

“Traders and investors are returning to the market and new traders are entering the market as confidence builds after the global financial crisis,” head of online investing James Staltari said in a statement.

Qantas opposes Virgin-Etihad deal

Airline giant Qantas has opposed an alliance between Virgin Blue and Etihad, saying any deal would harm its customers. The move comes after Virgin’s proposed deals with Delta and Air New Zealand were both blocked by the ACCC.

“Qantas considers passengers will suffer considerable harm and inconvenience if tickets are booked on a new service during the interim period but final authorisation is ultimately denied,” Qantas said in its submission.

In New York, the stock market has continued to rise on good news from Europe on banking reform. The Dow Jones Industrial Average gained 81.36 points or 0.78% to 10,544.13.