A weaker domestic and global economic outlook weighed on Australian CFO sentiment in the final half of 2018. The US-China trade war and broader sharemarket declines have emerged as major drivers of weaker confidence, and this is limiting risk appetite. This shift means CFOs are now looking to government to provide further economic support through investment activities.
The CFO outlook for the Australian economy has also become more subdued, with expectations of further house price declines. There are still some positives, with expectations of a stable dollar and share market recovery.
Given these challenges, CFOs continue to look to leverage the benefits of digital transformation to improve efficiency. They are also actively changing their talent acquisition processes to access people who can manage this transformation going forward.
The February Exchange Newsletter is out now! The newsletter covers International Women’s Day events, liquidity insights from JP Morgan Asset Management, funding opportunities for women in finance and more.
The Reserve Bank of Australia’s (RBA’s) overnight cash rate has been unchanged at a record low of 1.50% for a record 28-months (Exhibit 1A). Throughout 2018, the central bank’s meeting minutes and speeches suggested that rates remained appropriate — implying a broadly neutral policy stance — while hinting that the next rate movement would be higher, albeit with “no strong case for a near- term adjustment in monetary policy”(1) .
For most of 2018, forwards markets agreed with the central bank and were firmly pricing in future RBA rate hikes — but this has abruptly changed (Exhibit 1B) with the market now indicating a 50/50 chance of a rate cut in 2019. This rapid reversal could exert substantial influence on the central banks thinking with significant implications for money market and fixed income investors.
Stuttering growth engines
Historically, Australia’s twin engine economy has been a source of strength, with the combination of commodity exports and domestic demand helping the country avoid recession for a record-breaking 27-years. In the past half-decade, as mining infrastructure investment waned, a booming housing market — with prices jumping by 45% between 2012 and 2017 – replaced it as the key driver of economic growth.
However, the factors that triggered the housing surge — low interest rates, easy bank financing, limited supply and strong foreign demand have recently faded due to a combination of new macro prudential measures, higher commercial bank mortgage rates and tighter restrictions on foreign buyers. House prices (Exhibit 2A), building permits and new home sales have all fallen sharply, with negative repercussions for retail sales and consumer confidence.
Meanwhile, the well-publicized slowdown in Chinese economic growth and rising global trade tensions have raised the specter of lower demand for key Australian commodity exports including coal, gas and iron ore.
Consequences and conundrums
Throughout 2018, solid business sentiment, an improvement in capital expenditure intentions and a tight labor market — with strong hiring momentum and an up-tick in wage price pressures – encouraged the central bank’s belief that inflation would move higher — implying the need for future rate hikes. But weaker housing, sharply lower business sentiment and softer domestic demand are already impacting growth and are challenging the viability of the RBA’s optimistic 3.5% 2019 GDP forecast(2). The hawkish bias is also being questioned as the RBA has never hiked interest rates during a housing market downturn (Exhibit 2B).
The path of least resistance
Economic growth will likely slow in 2019, albeit from a previously robust level. However, fears of a property price crash are likely overdone: Low unemployment and low-interest rates suggest mortgage payments remain affordable and most homeowners still enjoy positive equity. Little mortgage borrowing was completed at the peak which was perceived by many as unsustainable.
Finally, even if the economy slowed faster than expected, the RBA has capacity to cut base rates if necessary and the government’s improved fiscal position has given it the ability to cut taxes or boost spending if required.
Given this backdrop, the RBA is likely to strike a more neutral tone in meeting minutes and revise down its 2019 GDP forecast while keeping base rates unchanged for the foreseeable future — further extending its record-breaking period of inertia.
For cash investors, this suggests that money market yield curves could flatten further, although the recent tight liquidity conditions represent an excellent opportunity to extend duration and lock in attractive longer tenor yields.
This annual survey seeks to evaluate the current and projected impact of fraud on the finance and treasury environment. Practitioners from all industries are polled on their experiences with fraud and on the range of controls, safeguards, and security practices employed to protect their financial assets and information.
Data related to bank account management and reconciliation practices is also gathered for a more comprehensive view of how various treasury operations impact security. This data is compiled annually and used to educate the industry as to how the fraud landscape is evolving, and how practitioners can better protect themselves and their organizations against attacks.
In this survey, treasury and finance professionals were asked questions on topics such as fraud experience, cyber risk management, bank account management and more.
The landscape for initial public offerings (IPOs) continues to evolve as legislation changes and market volatility and policy issues affect IPO activity. This report by PwC looks at the trends to help you be as prepared as possible when stepping into the public arena. In this updated version of PwC’s Costs of an IPO publication, it focusses on a full range of costs associated with an IPO. While these costs can vary based on complexity of the structure, size of the company, and dollar value of the offering, there are many costs that apply across the board.
Insight into the costs of an IPO can help a company outline an IPO to the board of directors, its employees and other stakeholders. Having a realistic expectation of the costs can help improve the budgeting process, limit surprises, and reflect a well-structured IPO timeline.
This publication can help you understand the typical costs of going and being public for companies within a range of proceeds raised in the IPO, as well as for a range of the last 12 months revenues.
https://financetreasury.com.au/wp-content/uploads/2019/02/Website-pic-PwC.png800800Sandra Perretthttps://financetreasury.com.au/wp-content/uploads/2016/09/FTA_Logo_new-blue-web.pngSandra Perrett2019-02-05 14:32:032019-02-05 14:36:05Considering an IPO to fuel your company's future?