The Distillery: Call of duty

Elsewhere, inflation data was on tap yesterday, with two jotters confident the higher-than-expected numbers rule out rate cuts from the RBA until at least next year. The consequent movement in the Aussie dollar suggests most investors agree.

First to Telstra. The Australian Financial Review’s Chanticleer columnist Tony Boyd insists yesterday’s management changes are a sign Thodey is now grooming his successor. According to Boyd, the list of candidates runs four deep, with Kate McKenzie, Brendon Riley, Gordon Ballantyne and Andy Penn in the running. After yesterday, however, there is a clear frontrunner.

“Riley, who ran IBM’s operations in Europe before joining Telstra, is the big winner from the changes as he … has been handed all of Telstra’s growth businesses. The critical aspect to (his) portfolio is that the businesses benefit from the restructuring and cost-cutting by Telstra’s largest customers. Riley enhanced his reputation with Thodey this year with his compassionate, pragmatic handling of the asbestos crisis…”

Fairfax’s Elizabeth Knight, who labels yesterday’s presentation “frustratingly shy on detail”, takes a different viewpoint, arguing the switch in roles between McKenzie and Riley is a boost for the former. Riley, now, has the task ahead of him.

“To the extent it is a pointer to the future, Kate McKenzie was elevated to chief operations officer, which puts her in the biggest job inside Telstra, after Thodey. It would be a big call to suggest that she is next in line for the job (particularly as he is not expected to be leaving any time soon). But she has definitely taken a meaningful step up the rung of the management ladder ahead of Brendon Riley...”

The Australian’s Mitchell Bingemann is a little more circumspect in his analysis and finds reasons for both McKenzie and Riley to be happy with their role switch. In Bingemann’s opinion, the fact there are four worthy candidates provides reason to praise the current boss.

“To Thodey's credit, one of his biggest achievements at Telstra has been to remake the Telstra executive team. And with the stellar cast he's assembled, when he does decide to call it a day, there will be no shortage of internal candidates for the board to consider.”

Meanwhile, news of rising inflation has the AFR’s David Bassanese and Alan Mitchell convinced rate cuts are behind us for this year. Bassanese notes that the key stat remains low enough to promote easing next year should the economy falter.

“Indeed, with annual underlying inflation likely to remain in the lower to middle part of the RBA’s 2 per cent to 3 per cent target band over the coming year, the bank will still be under pressure to cut interest rates if the unemployment rate pushes through 6 per cent – especially if the $A holds around current levels near parity to the US dollar.”

Mitchell agrees, adding the almost booming housing market will require special attention should rate cuts be needed to further stimulate the economy.

“If the hoped-for pick-up in non-mining economic activity doesn’t start to materialise, the RBA will cut rates again while the prudential regulators lean on the banks to keep a lid on the housing boom. Money will be cheaper but harder to get.”

The RBA also made news for the receipt of an $8.8 billion payment from the government. According to Fairfax’s Michael Pascoe, there are two sides to the story of Treasurer Joe Hockey’s generosity. Indeed, yesterday’s move was a nice clearing of the decks before the Coalition takes full ownership of the budget next year.

Elsewhere, The Australian’s John Durie explores Mark Carnegie and Perpetual’s move to break the cross-shareholding between Brickworks and Washington Soul Pattinson, while colleague Rowan Callick discusses how politicians have lost their way in justifying the need for free trade agreements. And it’s not just the government that needs a refresher course, with Australian businesses at risk of missing out on the fruits of Asia’s boom.

Finally, the AFR’s Karen Maley offers cause for surging markets to hit the pause button as we await the latest stress test results of Europe’s banks.