Kochie’s Market Update: Coronavirus, no interest rate cut and property markets in bushfire regions

market-update-jan31

Hey gang, get up to speed on this week’s financial trends with my market updates.

It’s been an absolute rollercoaster week on financial markets trying to cope with the nervousness surrounding the Coronavirus pandemic, the arrival of Brexit and the profit reporting season in the United States.

Share Markets would fall when the focus was on the Coronavirus but then rebound on a strong profit from companies like Apple and Tesla. That volatility is likely to continue for a while as the world comes to grips with the economic and financial fallout from the pandemic.

On my Facebook Live “Ask Kochie” session (which I do every Tuesday at 1.30pm Eastern Daylight Time), I was peppered with a lot of questions about the Coronavirus.

A couple of points I want to make because there are a lot of myths circulating which are creating unwarranted hysteria.

  • Firstly let me say it is serious. The fact there is no vaccine for it makes it serious on its own and is the reason why the World Health Organisation has declared a global health emergency.
  • The swift and strict actions of health authorities in Australia is to be applauded and, as the WHO acknowledges, the transparency and actions from China.
  • Caronavirus is spreading quicker than the last SARS pandemic but is not nearly as deadly. With SARS the mortality rate was 12 per cent, Ebola was 30 per cent, Caronavirus at this stage is around 2 percent.
  • Coronavirus deaths have been largely restricted to the elderly with respiratory preconditions.
  • There have been no Coronavirus deaths overseas, at this stage, and those cases identified have recovered and been released from hospital.
  • Total Coronavirus deaths in China is currently under 200 (but expected to grow). To put this into perspective, 350 Australians died from influenza last winter. In China more people have died from influenza in the last month than from the Caronavirus.

I want to reinforce the situation is serious, authorities must be vigilant and we need to come down hard on it to stop it spreading out of control.

But we also need to keep it in perspective.

No interest rate cut anytime soon

The latest December quarter inflation figure tends to indicate the Reserve Bank will not need to cut interest rates when it meets on Tuesday.

The Consumer Price Index came in at 0.7 per cent for the quarter and 1.8 per cent for the year. That is still below the RBA target range of  2-3 per cent a year.

The detail of what prices are going up or down is interesting.

Domestic holiday travel accommodation (+7.3 per cent), tobacco (+8.4 per cent), petrol (+4.4 per cent) and fruit (+6.8 per cent) recorded the most significant price gains. The most significant offsetting price falls this quarter are international holiday travel accommodation (-2.0 per cent), women’s clothing (-2.5 per cent), and wine (-1.6 per cent).

And there are some real bargains out there. Audio-visual equipment prices are at 39-year lows; personal care products (24½-year lows); telecom equipment (35-year low); glassware & tableware (30-year lows); games, toys (record 21-year low).

Big business backs down on slow payments

I’m glad to see some of Australia’s big businesses have backed down on the outrageous decision to pay their suppliers more slowly.

Under the scheme, these big companies wouldn’t pay their bills for 60 days or more. If their supplier wanted quicker payments the big company had organised for a factoring business to pay… but for a 7 percent fee.

The reason? So the big business could use their suppliers as their bank, keep the money for longer and boost profits.

Absolutely pathetic… and too smart by half.

The Small Business Ombudsman, Kate Carnell, quite rightly went into bat for small business and threatened to name and shame any big business for adopting this tactic.

Small suppliers would have been held hostage by the power of their big customers who they couldn’t afford to lose.

“It’s clearly not OK for big businesses to use their dominant position and access to technology to further squeeze small business margins,” said Kate Carnell.

“Unfortunately the only way to level the playing field is through further regulation and legislation, which means more red tape.  

“It is imperative small businesses are paid on time. We know that late payments equate to a $7 billion drag on the economy.”

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