THE DISTILLERY: Bias banter

Jotters consider the implications of the latest jobs figures for the Reserve Bank, while others presage more challenges ahead in the eurozone.

While it’s strongly suspected that the latest employment numbers are a bit too positive, the figures leave less room for the Reserve Bank of Australia to cut interest rates. Could this be an important moment in the journey towards higher interest rates? Two business commentators investigate. Also in this morning’s edition of The Distillery, two experienced business writers cast an eye over the rumblings in Europe – something that wouldn’t have escaped the attention of our central bankers either.

But first, The Herald Sun’s Terry McCrann says last week’s dour Victorian spending figures and encouraging employment numbers are a case of “dodgy set of numbers competing with an even dodgier lot”.

It’s those employment numbers, however, that have got two writers contemplating the moment from which the Reserve Bank shifts from a cutting bias to a hiking bias. The Australian’s economics editor David Uren says that’s some way away.

“The bank would want to see a decisive lift in non-mining private business investment before it began to conjure with the possibility that its next rate move would be an increase. But if the procession of encouraging economic reports continues, the Reserve is likely to drop its warnings that it stands ready to cut rates should conditions weaken. A central bank cannot express a bias or inclination to shift rates in a particular direction without acting on it for too long or it will lose credibility.”

The Australian Financial Review’s Christopher Joye agrees that any swift move from the Reserve Bank is unlikely, but adds that this isn’t just speculation in the media. The market is responding to these positive economic signals.

“Importantly, three-year yields are above the Reserve Bank's current cash rate for the first time since July 2011. This tells us pessimistic bond market bandits are starting to countenance the Reserve Bank normalising ultra-loose policy. But don’t expect any swift moves from Martin Place. The Reserve Bank is already behind the eight ball, and it is likely to remain sluggish. There will be tremendous community and political resistance to any rises before the election. The low-rate lobby is loud, and over-represented on the Reserve Bank's growth-seeking board.”

Meanwhile, The Australian Financial Review’s Karen Maley shines a light on the growing tensions in Brussels between the southern bloc nations of France, Italy, Spain, Portugal and Greece with major power Germany, thanks to the German-backed austerity policies that the southerners are increasingly hostile towards.

“The stakes are high, given the political stalemate in Italy and Germany’s reluctance to discuss any big change to austerity programs before its September elections. With an eye to German voters, German Chancellor Angela Merkel is insisting that debt-laden countries must embrace savage budget and salary cuts to restore their finances and rebuild their competitiveness. But France is pushing back. On Tuesday French President Francois Hollande declared France would fail to meet its target of reducing its budget deficit to 3 per cent of GDP this year. Instead, he said the deficit would ‘probably stand at 3.7 per cent in 2013, even though we will try to make it lower’.”

Fairfax’s Malcolm Maiden writes that it’s becoming increasingly clear that European Central Bank boss Mario Draghi only addressed a market driven crisis when he said the central bank would do whatever it takes. Europe still needs to stabilise its finances, restore financial stability, lower unemployment and introduce competitive reforms.

The bottom line is there might be less reason domestically to cut interest rates, but don’t let the global equities surge on the back of central bank money printing hide the reality that Europe still has a lot of work to do.

Fairfax’s Ross Gittins says it depends on your motivations whether you want ‘nominal’ GDP or ‘real’ GDP to be higher.

“If your interest is in how fast the economy's growing (or not growing), the answer is real GDP – GDP after allowing for the effect of inflation. But if your interest is in how fast the federal government's tax receipts are growing the answer is nominal GDP – GDP before allowing for inflation.”

In a separate piece, Gittins destroys the myth that Labor is a big taxing party and the Liberals are a low taxing party.

Meanwhile, Fairfax’s Peter Cai looks at the ability of former military figures to transfer their skills from the rigours of serving their country to the world of business.

The Australian’s John Durie looks at the potential legal action against the Future Fund by Perth airport shareholder AustralianSuper.

And finally, The Australian Financial Review’s Chanticleer columnist Tony Boyd notes the interesting juxtaposition of Nathan Tinkler’s grilling in the New South Wales courts and the launch of a $30 million fund for digital entrepreneurs. The former typifies the end of the debt-fuelled resource super-cycle entrepreneur and the latter ushers in the next generation of business thinkers.