Consumer confidence drops to two-year low: Midday Roundup

Consumer confidence has now dropped to its lowest point since June 2009 with consumers still keen on saving their money instead of spending, the latest Westpac-Melbourne Institute Index of Consumer Sentiment has revealed.

The latest index dropped 2.6% in June from 103.9 to 101.12.

Westpac chief economist Bill Evans says the result is soft, and points out that when the June 2009 result was calculated, the result for how respondents feel about the economic conditions over the next 12 months was 85.2. Now, that same reading is 97.9 – overall, consumers are more confident than they were two years ago about the future.

But Evans says that this confidence is “offset by respondents’ concerns about their own financial position”.

The index of how respondents feel about their financial position was 75.9 in June, compared to 82.4 in June 2009. And the outlook for finances over the next 12 months was just 95.5 in June 2011, compared to 113.8 in June 2009.

“Interest rates remained on hold for a seventh successive month and the Reserve Bank toned down its strongly hawkish language,” Evans noted about the recent economic climate.

“However, the commentary from the media and our own research indicates that households still expect rates to be rising over the next 12 months.”

Evans also noted respondents were unusually concerned about tax – there have only been three periods over the last decade when it has been such a significant issue, including the introduction of the GST, the 2010 mining tax debate and the current time.

“The degree of negativity from respondents about taxation issues is large and broadly similar in the three periods. It appears that despite steady interest rates and falling petrol prices, concerns about the introduction of a price on carbon are rattling households.”

The index measuring family finances compared to one year ago dropped 2%, the index for the next 12 months rose by 1.1%, economic conditions over the next 12 months fell by 6.2% and the index of whether it now is a good time to buy household items fell by 2.1%.

Evans notes the result, combined with last month’s less hawkish commentary from the RBA, suggests rates will stay on hold in July – in fact, he says a hike will be seen in November at the earliest.

“We expect that the Board is still inclined to raise rates but economic reports like the employment
report last week and the evidence from this survey as to how concerned and cautious households currently have become are making it very difficult for the board to make the case.”

Housing starts rise 3.1% in March quarter

Housing starts rose by a seasonally adjusted 3.1% in the March quarter, according to the latest figures from the Australian Bureau of Statistics, although starts are still down 12.9% over the year.

Private sector housing starts fell by 1.9% to 23,124, while “other” residential building increased by 14.7%

Flights still in chaos over ash cloud

The airline industry is still suffering due to the massive ash cloud caused by a volcano in Chile, with Virgin and Qantas suspending flights to and from Perth airport today.

While Virgin was continuing to make flights to Adelaide and Tasmania yesterday, the company has announced flights to and from Perth as a safety precaution.

“The ash plume is forecast to be at a lower band level of approximately 15,000 feet and with this in mind, Virgin Australia will suspend all services into and out of Perth as a precautionary measure,” group executive of operations Sean Donohue announced in a statement.

Qantas has also announced flights to and from New Zealand have been cancelled, while flights to and from Buenos Aires have been postponed 24 hours. No flights to and from Tasmania will depart until 2pm today.

QBE shares fall 4% on weakened profit margin

QBE Insurance Group shares fell almost 4% after the company cut the forecast for insurance margins following a string of unprecedented natural disasters.

Shares were down 68 cents to $16.60 this morning, QBE’s lowest since last November.

Floods in Queensland and earthquakes in New Zealand and Japan means QBE’s first half insurance profit margin would be lower than the previous period’s 15.7%.

The amount of catastrophe claims to the end of May is expected to total $780 million.

In a statement QBE chief executive, Frank O’Halloran said, “achievement of our targeted 2011 insurance profit margin will be largely influenced by the level of large risk and catastrophe claims incurred in the remainder of the year”.

Shares flat despite Wall Street rally

The Australian sharemarket has opened flat today despite a rally on Wall Street where positive retail sales data has relieved fears of a market slowdown.

The benchmark S&P/ASX200 index was down two points or 0.06% to 4582 at 12.10 AEST, while the Australian dollar remained flat at $US1.06c.

AMP shares lost 0.61% to $4.90, while Commonwealth Bank shares gained 0.16% to $50.53. Westpac lost 0.82% to $21.86 as NAB gained 0.86% to $24.69.

Optus close to NBN deal

Optus is close to signing a deal with the National Broadband Network to shut down its cable network and transfer customers over to the NBN.

According to the Australian Financial Review this morning, the deal is believed to be worth between $500 million and $1 billion. A final amount is subject to conditions being met by either side.

The deal is expected to be announced shortly after Julia Gillard finalises the NBN Company’s $11 billion deal with Telstra, which could be completed as early as next week. Optus is also expected to complete a deal with NBN to use its fixed line carriage.