Reserve Bank expects world economy to weaken in 2012: Midday Roundup

The Reserve Bank noted a slight improvement in domestic economy data at its last meeting, but was swayed to cut rates by the patchwork economy, the European sovereign debt crisis and mixed news on the world economy.

“Overall, members concluded that growth in the world economy was likely to weaken over the coming year,” minutes from the RBA’s December meeting show.

The minutes, released this morning, said the board believed it would be “highly likely that the sovereign credit and banking problems would weigh heavily on economic activity there over the period ahead, and there was a non-trivial possibility of a very sharp contraction.”

Balancing evidenced of a major investment boom and the economic strength of Australia’s trading partners against the growing risks posed by Europe, the Reserve Bank agreed that “there was scope for a modest reduction in the cash rate at this meeting.”

The RBA this month cut rates for the second consecutive time.

Small business up 4.5% year-on-year: ANZ

Small business sales have risen for the seventh straight month, and are up 4.5% year-on-year, ANZ says.

ANZ general manager small business Nick Reade said November saw “overall trading conditions for small business showing signs of recovery”.

“This is likely due to the outlook for interest rate reductions which appear to have gone someway to lifting the cautious mood of consumers, which has been impacting the spending habits of many Australians.”

“Recent cuts to business lending rates, coupled with the slight lift in consumer sentiment should also start to see cashflow positions for small businesses easing.”

“Overall it’s a slightly more optimistic story leading into Christmas trading and despite seeing relatively flat year-to-date growth figures, the consecutive monthly sales increases is an encouraging sign for small businesses.”

The bank’s small business sales trends report finds that year-to-date sales rose by just 1.9%.

Retail sales rose by 2.4%, and non-retail and services were up 5.8%, ANZ said.

Restaurants outperformed with a 10% rise year-on-year, and regional and rural small businesses were up an annual 5.4%, it said.

The data is based on the value of credit, Eftpos and debit transactions processed through ANZ merchant terminals and all ANZ card transactions processed through other systems for businesses at least two-years-old with annual turnover of less than $5 million.

Billabong shares plummet for second day

Billabong shares have plummeted another 16% after following more than 34% yesterday, following the company’s announcement of a significant profit downgrade as the European crisis weighs heavily on its sales.

Billabong shares are down 14% to $1.71, well below the point at which shares were issued and its lowest share price in over a decade.

City Index chief strategist Peter Esho told Fairfax the decline has filtered through to other parts of the industry, with the announcement coming after a similar downgrade from JB Hi-Fi last week and amid a European debt crisis.

“The washout continues,” he said. “I think there have been a lot of mid-tier funds that have just sold off the stock regardless of value – trust broken with management, don’t want to be caught up on capital raising, don’t think it will recover.”

“A bunch of other guys are also shorting, although you would think the price has bottomed,” he said.

Sharemarket opens flat on North Korea concerns

The sharemarket has opened flat this morning following a weaker result from the United States, with fears over the future of North Korea’s leadership weighing on investors.

The benchmark S&P/ASX200 index was down 8.5 points or 0.2% to 4051.9 at 12.00 AEST, while the Australian dollar was trading at $US0.99c.

AMP shares were down 0.24% to $4.13, while Commonwealth Bank shares had risen 0.87% to $48.71. NAB shares rose 0.52% to $23.27, as Westpac rose 1.25% to $20.30.

In the United States, the Dow Jones Industrial Average fell 100 points or 0.8% to 11,766.3.

Fitch warns over Euro ratings

Fitch Ratings has warned it could lower the credit ratings of Europe’s investment banks if they rely on support from troubled countries.

Fitch said it had put the top rating for the European Investment Bank and the Council of Europe Development Bank on “rating watch negative”.

The organisation said in a statement that it had also put ratings for countries Belgium, Cyprus, Ireland, Italy Spain and Slovenia on watch.

The firm noted these credit watches “could lead to a downgrade between one and two notches for these countries, which are all shareholders of CEB and EIB”.