Inflation slows to the lowest level in four years causing a flurry of economists to change their rate cut call to February. Plus, household budgets buckle under pressure, Star Casino's fire sale, and Boeing records a massive $11.8 billion loss.
This is Business Now with Ross Greenwood. Hi there, I'm welcome to Business Now on this Wednesday. Thanks for your company. I'm Ross Greenwood. Coming up on the program today. A Reserve bank rate cup in three weeks time is all but locked in as inflation comes in lower than expected and as prices a key household goods fell in the December quarter.
Now, the soft landing that we have been planning for and preparing for is now looking more and more likely.
But de Lloyd says it will take until twenty thirty before Australian families purchasing power will return to pre COVID levels. We'll speak with Deloitte Access Economics Stephen Smith. And the stock market recovers ground a day after the Chinese AI at Deep Seek spooped American tech stocks, and the worst effected Nvidia, recovered half of its fall. So all that and plenty more coming up on today's program. Now, other stories we think you should know about today. Look, let's start with Nvideo. Yesterday we told you about the biggest single day loss in shareholder value in history. More than a trillion US dollars wiped out as investors were spooked by the cheaper Chinese AI alternative deep Seek.
Well.
Last night, around half that value was returned as the Invidia share price rebounded by eight percent, but it also treated a rebound in other tech stocks, the so called Big Seven, which includes Apple, Google owner Alphabet, Meta, Microsoft and Tesla. But the shakiness from deep Seek's entry will not abate as more AI alternatives will seek to replicate its performance. A viewing of using fewer e N videos breakthrough gr youtips, which drive the artificial intelligence software's ability to make independent decisions. More of that short lived and the cash strapped casino operator of the Star will sell its Keith Theater, an event center and as Sydney home for around sixty million dollars. The buyer is Foundation Theaters, which already runs the Lyric Theater in inside the Star at Sydney. It also owns Sydney's Capital Theater. The Star is consultant rather appointed. FTI Consulting is a safe harbor advisor to protect it from its creditors. For the Stars also seeking the second half of a two hundred million dollar debt facility. For the problem be is that it's missed key covenants covering the first half of that loan. Now, the Star shares did tick up just a little today you can see they close where it's well thirteen cents up to thirteen percent, but look, it's still close to an all time low. The business valued around three hundred and fifty million dollars, but at June thirty last year, had liabilities of more than one billion dollars. Let's go straight to the markets where ed would boyd add the market three covered from the deep Seak AI scare. But if there are more stock market collapses, because I did ask chat GPT about this, where there'd be more collapses in the future, and this is what it told me. Given these developments, it's challenging to predict with certainty there will be more stock market collapses related to Deep Seek. So to me, that seems pretty inconclusive. It says the market's responsible depend on how companies adapt to these changes. So it kind of told me nothing at all.
Ross told you nothing at all, And we actually asked Deep Seek exactly the same question. This is what Deep Seek said. Investor concerns about AI disrupting industries or creating competitive pressures could lead to volatility in certain stocks, particularly in the tech sector. Look take a look at the overall stock market. It did lift this morning, then surged after the inflation numbers were released. All sectors were in the green ASX two hundred finished the day up zero.
Point six percent.
Top stocks included the employment website Seek, the logistics software maker wise Tech, Lift your Mind of Pilbrim Minerals jumped aufter better than expected quarter, data intelligence company new it s bounce back remember it lost twenty percent yesterday, and the African focus gold miner Percy Is It had a decent quarter and greenlit and underground gold mine on the Ivory Coast. So we finished the day up almost four percent. Now the companies dropped today. It was a great day for the market, but litigation funder Omnibridgeway slumped. Diversified minus South thirty two was down as well, along with the fuel refiner and retailer viv Energy, plus the takeover target Insignia and the minor rio Tinto. And today are caught up with fund manager Jin Bailou who's launching her new hedge fund called ten Cap next week, and we spoke about the opportunity Deep Seek has presented for Australian equity investors.
Look here in Australia, we see huge amount of opportunities. All these companies are related to, whether it's data center, whether it's a EI related technology, all being sold off significantly here in Australia. We think it's buying opportunity because what's deep Sea is showing that, you know, simply the demand is real and you still need a lot of data for those of models to be trained data centers. That represents some of the biggest baying opportunities at the moment.
Yeah, next, DC, Goodman Group, Megaport all sold off very sharply yesterday. Out of those three, which one do you favor the moster has the most upside?
Absolutely a Goodman Group, by far is the biggest opportunity that we see. Not only this company has an excellent track recort in delivering industrial property return, it now converts some of its best property around the world into data centers and still at a very reasonable earnings multiple training at just over twenty five times. That is very reasonable for double digit growth.
Yeah, what does the emergency of deep seek mean for the Magnificent seven stocks in the United States?
What that really essentially showing is that they need to really stay ahead of the game. You know, the technological advancement is so fast that whether it's real or not, they need to stay ahead of it. They need to pow more money into it, they need to get better model and they need to continue to reinvest and finding those opportunities. So you know, they need to stay ahead.
Of the game.
And if anything, I think it probably represents more opportunity for everyone else.
More businesses use AI. Do you actually use AI at work in an average workday?
Absolutely? I think it's going to become integral parts of every business from here on because it's not only the you know, the cost efficiency everyone talk about, it's the opportunity of finding revenue. So I do think that you know in very near term future that every business will be talking about for every product line.
Now you've got a long and a short fund. Are you longer or shorter at times like this when markets are where they're sitting.
Oh, we actually see a lot of opportunities in the longside at this stage because we do believe that with the easing rate cycle, interest rates are coming down very very soon. So here in Australia we see a lot of opportunities of companies so that only has been depressed by higher interest rate and we can benefit from that. And to combine this with the or the you know, the cell of because of Deep Seak and others, so we see a lot more buying opportunities.
We've got some positive inflation numbers today. Is a rate cut locked in for this February?
Absolutely, it's coming.
And what sectors do you think will do well in this coming profit season?
Yeah, we do think the companies that has earnings leverage to a lower rate cut, a lower interest rate would do better. So these other consumer companies, these other material businesses, you know, whether your home builders and others, and some of the you know, property sectors, companies businesses as well. So we do see these businesses do well. They're earnings my trough, but we do think the outlook is going to be pretty positive for these companies.
Jim Beilu from Tencap thanks much for your time.
Thank you very much.
Do you see I asked chat GBT and asked deep Seek. We went to Jimbeilu. She actually told us, anyway, let's go to today's inflation rate. The headline rate of two point four percent is now at the low end of the reserve Bank's preferred band of inflation between two and three percent. But that's not the full story. The Reserve Bank, of course looks at the underlying rate, the trimmed mean, but even that's encouraging, down from revised three point six percent in the September quarter to three point two percent today, and prices are falling in key areas, housing and transport both down point seven percent for the December quarter, healthcare and furnishings down point two and education costs were flat.
Headline inflation is now in the bottom half of the Reserve Bank's target band, underlying inflation in the low threes. Both of those outcomes are better than expected and lower than the official forecasts. The Reserve Bank will weigh up all of those considerations, they'll come to a decision independently. But I think what we're seeing here is a reminder that the soft landing that we have been planning for and preparing for is looking more and more likely.
Well, only the Treasurer thinks that the prices of everything are under control. Only the Treasurer thinks that Australians don't think that, because they've seen a cumulative increase in the prices of things. They buy every day of over ten percent, almost eighteen percent. For working families, they're paying an additional or they've paid an additional fifty thousand dollars on their mortgages. They're paying a record level of personal income tax under this government. They're seeing record levels of business insolvencies. But for the Treasurer, that's mission accomplished.
But the markets do think the inflation rates low enough for the RBA to cut rates in February. So you can see here that before the actual inflation rate came out, it was sixty six point one percent before it dropped right now as we sit here, seventy eight point two percent chance of a rate cut in just three weeks time. You can see it elsewhere. The Australian dollar fell from around sixty two and a half US cents right now sitting sixty two point four US cents. It was lower. The yield on one year government bonds fell from four point zero three percent to below four percent three point nine to six as that number drops. So let's bring in here the independent economist Warren Hogan, who has questioned the speed of inflation's for Warren good, the chat to you as always so in other words, you've said for a long time. Either rates needed the rise further, the Reserve Bank would hold off for a long long time, give this inflation rate. Do you change your view as many other economists a change near view today?
No, No, I don't think the case the economic case is overly strengthened or a trigger for a rate cut in February. There may be broader considerations that are going to influence the RBA board. But putting that aside, thinking about the economics, one thing that we cannot lose sight of is these government subsidies, state, federal, a whole raft of them, affecting public transport, electricity, rents, childcare. They're suppressing this measured inflation. So the headline inflation isn't two point four percent, it's probably more like three or three point one, and core inflation is not three point two, it's probably more like three point three.
Okay, in the government spending actually doing the job of bringing inflation down. Even though you say without it, you know it would be higher, the reality is it's there. So why would not the Reserve Bank react to what's happening even if the government is helping that inflation rate to be lower.
Well, they're helping measured inflation CPI to come down. They're not actually helping inflation. The electricity generator is still getting the price, it's just the government's picking up some of the bill. The rent to person renting out their flat is still getting the full rent, so inflation is not low up. And the other thing is when these subsidies stop, and they will stop at some stage, maybe on one July we won't have the subsidies, inflation is going to search higher.
But Codie Gallo, who the Finance Minister today, is indicated that maybe there is going to be ongoing support. But the question is whether that is good money spent by taxpayers helping to bring down inflation maybe bring down interest rates, or whether that is wasted money by the government.
Well, we only have to look at the update on the Queen's Land budget to see what the effect of excessive subsidies and short term spending and so forth does. So look, it's not sustainable. The reality is the RBA has got to take a view on what's in the best interest of our economy over the medium to long term, not the short term. That's when central banks get themselves into trouble. So look I think the Reserve Bank doesn't have a strong economic case to cut. Inflation is coming down, and it's good news it has ease back. I was worried at the start of last year that it had stopped falling, but it's still above target. And of course the thing that matters for the outlook is the trajectory for the economy. Consumer spending is picking up, sentiment is up, jobs growth is strong, and of course the EBA numbers from the Thairred Work Commission are showing wages growth picks.
So the Treasurer today had a bit of a whack at people such as you who have basically said, well, you don't believe that inflation is coming down, so quickly have listened to what he had to say.
Now, the economic and often the political orthodoxy, and what we've seen play out in other countries is that you have to pay for much lower inflation with much higher unemployment. Australia has shown that there is a better way to go about it, and we're seeing the fruits of some of those efforts in the inflation numbers today.
He's specifically talked about lecsandras who basically said, you know, they didn't believe in this strategy of trying to be able to maintain employment while trying to bring down inflation. So is that now been proven in the government's favor that they have been able to achieve this?
Oh, not at all. Well, inflation is not a back at target for a US start, and this is going to take another year or two to play out. I mean, we saw in the seventies that inflation came all the way back down in the middle of the decade and then surged again. So no, we cannot decisively say the strategies worked. And I think they have got the policy mix wrong. Either rates are too low or there's too much government spending. You can't have both. I think that's what we're going to find out in twenty twenty five.
Okay, So then you sit there and think about the Reserve Bank itself. The one thing it does not want to do from its own credibility point of view is to cut interest rates to then only have to raise interst rates subsequently, because that could have ruinous effect on the Australian economy. That's one argument about whether they will be conservative in February or even into the coming months.
Well, I think that's precisely right. Their credibility is under question because of some of the missteps of the pandemic and the cut rates in a highly politicized environment ahead of a general election, when inflation's above target and employment growth is strong, and then for that to be reversed six months later with a rate hike would be a desig asked. So I think they will be conscious of that, but that's not the main thing.
You can even see there. There's a rate decision in the US this week. You can still see it's below the rate is the United States and the UK.
Yeah, and the United States. I mean, for all intentsive purposes, inflation has stopped falling and employment's picking up, so the question of whether they need to cut again, So I don't think the economic case is there, but it's going to be a very interesting month ahead.
It is, certainly, no doubt. Many things for your time, as always, Warren Hogan, and we'll talk to you shortly.
Thanks for us.
W're on Hogan there. We're coming up on business now. Despite the slowing inflation, Delloyd says it will still take until twenty thirty for Ossie families to get their spending power back to pre COVID levels. It's great to have your company here on business now. We've spent time explaining the implication of the low and expected inflation rate today, but as we pointed out, it doesn't quickly take pressure off households, who's spending makes up around half of about total economy. Even more its THELLO Access Economics says it could take until twenty thirty for households to get back to their pre COVID purchasing power. To Lute's partner, Stephen Smith, joins, free me from our CANbus studio. Stephen always going to chat to you. Just go to that very point about the fact that things might improve with this inflation number. The Reserve Bank will ultimately cut interest rates at some point, but it doesn't mean that households family spending confidence that that rebounds anytime soon. That I think is the point you try to make here.
That's exactly right Ross. We know when inflation goes up, everybody feels it, every family feels it. But when inflation decelerates again, households don't necessarily feel it because the price level doesn't fall back down. We know households have done it tough through the pandemic over the last three years on our estimates, real wages, so that's wages after taking account of inflation, have fallen by about ten percent. Real wages are growing again now, but we think it'll be five years or so about time twenty thirty before real wages will be back to those pre pandemic levels. So it's still going to feel pretty tough for households for a long while still to come.
Well, it's interesting even your forecasts there one point two percent economic growth. That's anemic in historic terms for Australia. The average growth in Australia is generally round about three percent. Also, that's just pretty much average over the long term. So that says that even the things get a little better and they're not in a recession, things are certainly not flourishing.
That's right in fact, and that's with us saying ross that we think we're past the low point of growth. We think that the second half of twenty twenty four was the low. We estimate that growth of one percent occurred in twenty twenty four, so one point six is a pickup on that, but by no means is that a rapid pace of economic growth. We're not talking about a fast rebound here for the economy, but rather it's a really slow grind back up. Things like consumer spending which you talked about, will be benefited from interest rate cuts this year, but the housing construy ruction sector still under pressure through twenty twenty five. So this is not an economy that's booming.
So it's then one thing that we'll hear from the government is hey, we're doing more to try and help you with your cost of living. We're giving energy subsidies, We're giving out rental subsidies, whole range of subsidies out there. Is that a good use of government money or not?
Well, Look, in some respects, you would expect governments to support households during difficult time. As I just explained, Real Way have gone back ten percent of the past three years. Very difficult for governments to ignore that and not provide that support. But you know, the government has been I think pretty smart from a political perspective of the way they've gone about this support. It's directly getting measured inflation as well, so helping to get the measure of inflation back down in the economy. So look from that perspective, it's smart politically. I think many households needed that help as well. There's a question of whether there's too much government spending now in the economy though, which may be contributing to some of this delay in recovering the private sect.
Okay, but I forgetting to the point. The real answer is productivity gains. If you get productivity gains, you get a gain in the wealth effect in Australia that you're not going to get through government handouts. And so if the government were to do more to address the rapidly declining productivity in Australia, that would actually improve the wealth effect over the very long term.
Cross productivity growth is the closest thing to a silver bullet for the Australian economy or any economy, and we just have not had the economic reform of the last couple of decades that would really see a productivity growth increase. We really need tax reform, we need broader competition reform across the economy. We've got an election coming up, would be terrific to see some policies from both sides that tackle these really important economic challenges. That's where future prosperity is from.
Okay, but then politically that's tough and government's quite really want to be re elected. Oppositions want to be elected themselves. I don't want to frighten a horse. So the tough measures to either address budget spending or indeed to address addressed productivity issues, it seemed to be counterproductive to that process of trying to get re elected.
Well, it's going to take a fair bit of courage, and more courage than we've seen across the political class I think for the last couple of decades, in order to get some of this over the line. That's absolutely true. Not suggesting that it's easy, it's really really difficult, and a bit of bipartisnership I think would go a long way in these sorts of areas. It would be terrific, as I said, to see some policies from both sides heading into this election which kind of go to the broader national interest. But you're right, I think the reality is politically very difficult, and we may well just continue to see this inertia that we've seen for the last couple of decades.
Great stuff, Steven Smith. Good to have you on the program today. Many thanks for your time. Or just to finish up, despite Donald Trump's best efforts to bring man of fact during back to America. There's a big question whether even he can prevent aircraft manufacturer Boeing from falling into backrupt sea. Boeing's been struck by a series of disasters, the worst of course being the crashes and proven failure of design of its seven three seven Maax aircraft, but it's also years behind in its order book for the Triple seven aircraft at a time when rival Airbus has grabbed a big market share with its A three fifty long haul planes. Well, last year, Boeing CEO Kelly Aldberg said he'd cut seventeen thousand jobs also raised twenty one billion dollars for investors. But the latest quarterly accounts out last night show the airline lost four billion dollars in the last quarter, but also burnt through around six billion dollars. That's in just twelve weeks. Well, this week, the Business Weekend, I speak with the most senior airline boss in the world. That's Emirates Airlines President Sir Tim Mclark. Emirates has more than two hundred Boeing Triple sevens on order, the years behind schedule.
Already, Boeing restores itself to being the largest exporter of American products in the American economy. And it and it restores itself to the quality control issues that they currently face. So they get back to quality produced aircraft, well designed aircraft which which have a great durability in the fleets of the companies that buy them.
That full interview this Sunday olive and AM Eastern time. And that's it for the program, meaning thanks for your company. We'll do it again tomorrow.