The Distillery: Coin a phrase

Jotters are concerned about the Fed’s influence on the Australian dollar, though one sees an upside for retailers.

The Federal Reserve’s decision to delay the tapering of QE3 doesn’t just reveal some lingering shortcomings in the US economy, it also results in some big-time money printing pushing the US dollar down and the Aussie dollar up. Down Under, that’s a downer, according to our business commentators.

Fairfax’s Ross Gittins, like all business commentators, describes the Fed’s decision as a “surprise,” noting that the Australian dollar’s decline since mid-April has narrowed to 10 per cent.

“It’s always dangerous to assume some change of direction that’s just happened in financial markets will continue or even just not be reversed. But this week’s events do suggest that the further fall in the Aussie dollar we’ve been hoping for is now less likely because the phasing out of America’s quantitative easing is now further away. Our present problem is familiar to you: with the resources boom’s net contribution to growth now turning negative, we need the rest of the economy — particularly investment in new housing, and non-mining business investment — to take up the running. A decent fall in the dollar would do a lot to help stimulate the non-mining economy. The other hope is for a turnaround in business and consumer confidence following the change of government.”

The Herald Sun’s Terry McCrann is similarly concerned for the implications of even longer-term Fed printing.

“The longer the stimulus pumping goes on, the more likely we will all be trying to sort out a different kind of mess in its wake. At a simpler level, the longer we — and it really is the world — stay on the Fed’s cheap money drug, the harder it will be when we finally go cold turkey. All this started to filter into markets by week’s end, along with the realisation that the US economy remains patchy. The gold price rocketed back up on news of the non-taper, only to drop sharply again on the news it might still start soon. Apart from in our sharemarket, the biggest direct impact of this ‘will they or won’t they’ policy seesaw on us is on the value of the Australian dollar.”

The Australian’s Richard Gluyas says the upside to this is that retailers begging for an interest rate cut to stoke spending (who are currently reaping the benefits of international goods purchased in Australian dollars) will have more ammunition.

“Premier Investments honchos Solomon Lew and Mark McInnes stated the case for some interest rate shock therapy at the retail group’s annual result on Tuesday, before the Fed got up to no good. Retailers are known for their evocative turn of phrase when it comes to monetary stimulus. But former RBA director Lew’s comment about an economy in "serious decline", coupled with McInnes’s reference to a cardiac arrest ward, achieved the desired effect — a prominent headline. Both men called for dramatic RBA intervention to kick-start the economy, slashing the cash rate by 50 basis points to 2 per cent. In one hit. That’s from the current emergency levels to, presumably, emergency-plus.”

And Business Spectator’s Stephen Bartholomeusz says the other big global event that financial market minds should have been looking out for was the German elections.

“While the outcome appears uncertain, it is likely that Chancellor Angela Merkel will probably retain her position and that Germany will remain committed to the eurozone. With the election out of the way, there is an expectation that the effort to put the finances of the eurozone on a firmer footing — an effort that appears to have been largely on a backburner for the past year — will resume. That probably means another restructuring of Greece’s debts, another bailout for Cyprus, perhaps more interventions in Portugal, perhaps credit support for Ireland and maybe even some assistance for Spain. The sovereign debt crisis in southern Europe has been dormant, but has yet to be resolved. It also means that the shift towards a European Banking Union — and a belated ‘‘proper’’ recapitalisation of Europe’s banking systems — will gather pace.”

The Australian Financial Review’s Michael Smith says Echo Entertainment boss John Remond would simply love the NSW Independent Liquor and Gaming Authority to offer up its opinion on Genting’s request for permission to increase its stake beyond 10 per cent at its board meeting this week. Sadly, there are no guarantees as the board is under no compulsion to come to a decision.

The Australian Financial Review’s economics editor Alan Mitchell writes about the arguments for and against being concerned about a housing bubble in Australia.

The Australian’s John Durie says the level of ignorance in corporate Australia about Indonesia from companies that don’t already have a presence there is simply breathtaking.

Fairfax’s Adele Ferguson brings us emails from a key Gain Rinehart lieutenant where a rather perplexing comparison is made between the late Christopher Skase and Rinehart’s son John in the event that the younger Rinehart were to take control of the family trust.

The Australian Financial Review’s Chanticleer columnist Tony Boyd looks at the famous alumni of the Bankers Trust Australia.

And Fairfax’s Malcolm Maiden takes a look at Prime Minister Tony Abbott’s first few days in the job.