Aurelia Butler

SYDNEY (Reuters) -When Michele Bullock takes over as the first woman to head Australia’s central bank on Monday, she inherits an economy with inflation moderating, employment strong and growth still afloat.The Reserve Bank of Australia (RBA) has been on hold for three months after raising interest rates aggressively for more than a year. Markets are wagering Bullock will keep them steady in her first meeting as governor next month, and some economists say that her eventual first policy change might be a rate cut.But Bullock, deputy governor since April 2022, has said rates may need to rise again.”Inflation is still too high in Australia,” she said in late August. “It is coming down… but it’s still too high, so the first priority is still to maintain a focus on bringing inflation back down to target.”The RBA raised rates by 400 basis points in the 13 months through June to an 11-year high 4.1%, and consumer price inflation has slowed to 4.9% in July from 8.4% in December. The bank forecasts it will return to the RBA’s 2%-3% target band in late 2025.The tightening has slowed Australia’s growth, but analysts think the economy could still achieve a soft landing.”Based on the facts of today, it looks like they have done enough and they will get inflation back into the target with what they’ve done so far,” said Cherelle Murphy, chief economist at EY Oceania.The risks of a price-wage spiral and an upward shift in inflation expectations remain, “but it looks like everything is going pretty much to the plan, and we have got to be pretty happy about that,” she said.By contrast, aggressive rate hikes in neighbouring New Zealand have tipped its economy into recession, Canada’s economy unexpectedly shrank in the second quarter and Germany, Europe’s biggest economy, is forecast to slip into recession this year. If Australia avoids recession and delivers a soft landing, history may judge outgoing Governor Philip Lowe more kindly. Lowe was subjected to unprecedented media scrutiny and public criticism for saying during COVID-19 that the RBA’s central case was that rates were unlikely to rise until 2024 – only to reverse course in May 2022 as inflation surged.Lowe’s (NYSE:LOW) forward guidance was seen as a key reason the government did not extend his term. Treasurer Jim Chalmers thanked Lowe on Friday for his service and said he was looking forward to continuing to work with Bullock. In the search to replace Bullock as deputy, Chalmers has indicated the government is looking at candidates inside and outside the central bank.Bullock also takes on the job of implementing the recommendations of a wide-ranging review into the RBA, including speeches by the previously low-key board members and regular press conferences by the governor after policy decisions. “It is going to be a bit of a challenge, I think, for markets to digest this change of structure,” said Stephen Halmarick, chief economist at Commonwealth Bank of Australia (OTC:CMWAY). “I think if people are expecting changes in the (policy) outcomes, it’s probably not going to happen, but it would be a different way of doing things.” More

LONDON (Reuters) – Britain’s main manufacturing trade body on Monday cut its forecast for the sector’s growth for this year and next, citing a sharp fall in factory output and economic uncertainty.Trade body Make UK expects output to fall 0.5% in 2023, down from its June forecast for a 0.3% drop, and grow just 0.5% in 2024.”Manufacturers are seeing a very sharp slowdown in activity as the potent cocktail of rising interest rates, cost of living and slowing overseas markets bites hard,” Verity Davidge, policy director at Make UK said.The sluggish factory outlook was in line with the wider picture for Britain’s economy, which has so far this year avoided a recession and which Make UK expects will grow 0.5% this year and 0.4% in 2024.Official figures last week showed the country’s economy shrank by a sharper-than-expected 0.5% in July after public sector strikes and unusually rainy weather weighed on output.The Bank of England is expected to raise interest rates for the 15th time in a row on Thursday, while consumer price inflation data due on Wednesday is likely to show a rise to 7.1% in August from July’s 6.8%, according to a Reuters poll of economists.”There’s an argument here that says the Bank of England’s plan to raise interest rates and stamp out inflation is working,” Richard Austin, national head of manufacturing at BDO, which sponsors the survey, said. “But it is the scale of the fall in the indicators this quarter that comes as a surprise and highlights the extent of the slowdown on UK manufacturing.”Make UK’s quarterly survey said the balance for manufacturing output was the weakest performance for production since the last quarter in 2020, during the COVID-19 pandemic.Manufacturers reported the steepest fall in hiring plans since the EU referendum in 2016, and the lowest order growth since Q4 in 2020. More

Rightmove said average asking prices for homes increased by 0.4% from the sharp 1.9% drop in the month before, but below the ten-year average of a 0.6% rise in September. Britain’s housing market has slowed in recent months after booming during the COVID-19 pandemic as the Bank of England attempts to tame high inflation with a run of interest rate raises.A closely-watched Royal Institution of Chartered Surveyors report last week showed a sharp contraction in the market was underway.Tim Bannister, director of property science at Rightmove said the Bank of England’s 14 consecutive interest rate rises contributed to unusually slow activity in August. Bannister expects a bounce in activity in the autumn as market conditions improve. Two-year mortgage rates, which hit a 15-year high earlier this year, have started to cool but are still elevated in historical standards.Mortgage lenders Halifax and Nationwide both reported falls in selling prices in August.Rightmove said the number of home sales was down 7% compared with 2019, before the pandemic distorted the market.However, it said there were signs activity was starting to pick up, as the number of homes on the market rose 12% in the first week of September compared with the unusually low weekly average in August.It said the rate of reduction in asking prices and the number of homes reduced in price hit the highest since January 2011. More

TOKYO (Reuters) -The roaring success of Arm Holdings’ stock market debut makes it much easier for owner SoftBank (TYO:9984) Group to revert to its natural state – acquisition-hungry.Shares in the British chip designer jumped almost 25% on its first day of trade – propelling its value to more than double the $32 billion SoftBank paid to acquire it in 2016. The tech investment behemoth raised nearly $5 billion from Arm’s offering while retaining 90.6% of the firm. Known for debt-fuelled acquisition sprees, SoftBank founder and CEO Masayoshi Son flagged in June that the company was shifting back into “offence mode” as he highlighted the potential of artificial intelligence. That’s after a year of “defence mode” when tech valuations crashed amid higher interest rates and global banking jitters. His chief financial officer, Yoshimitsu Goto, has been more circumspect in tone, however, saying last month that the company was timidly embarking on selected new investments.Whether or not Son resumes a feverish pace of acquisitions, having shares in Arm publicly listed will allow SoftBank to more easily use the stock as collateral, will likely improve its credit rating for better borrowing terms and help it take out the margin loans Son favours, analysts say.SoftBank declined to comment on its acquisition strategy.Boosting the proportion of SoftBank’s net asset value (NAV) held in listed shares is an important prerequisite for lifting its flagging credit standing, analysts at SemiAnalysis said.”Their hope is that Arm’s share price will be higher so they can mark up their NAV and help repair their credit rating,” they wrote in a note to subscribers.SoftBank’s reputation was dented when S&P Global Ratings downgraded its long-term rating deeper into junk territory in May.The agency cited SoftBank’s growing exposure to unlisted companies – which are less easily valued – as it has sold down assets in public companies, principally Chinese e-commerce giant Alibaba (NYSE:BABA), to stabilise its balance sheet. SoftBank’s last spending spree coincided with the 2021 tech bubble, the collapse of which has knocked down the value of its Vision Fund 2 to $33.2 billion compared to the assets’ combined purchase price of $51.8 billion.Vision Fund 1 has fared a bit better with gains of 14% over acquisition costs.GOOD TIMING?If Son were to indulge his acquisitive leanings now, his timing could be fortuitous given depressed valuations and a relative lack of funding for the early-stage startups that he typically targets, some analysts say.SoftBank also benefits from being one of the largest funds in the market. “They have some firepower behind them that a lot of funds in venture capital don’t,” said PitchBook venture capital analyst Kyle Stanford.”If they’re investing in early stage they will have a little bit of price elasticity to get into the deals they believe they need to be in,” he said.That said, analysts question whether Son, also known for picks that flopped like flexible workspace provider WeWork, can replicate the success he saw with Alibaba. Fervour over AI has already surged to impressive peaks and chip firm Nvidia (NASDAQ:NVDA) aside, it is hard to identify firms that will be big beneficiaries of AI adoption. Few companies in SoftBank’s investment portfolio have demonstrated commercial utility in AI, analysts said.There’s also no guarantee that Arm’s shares will stay high, with some analysts warning that tech firms may now be due for a correction given valuations fuelled by AI enthusiasm may have run their course.”There are signs that tech is getting tired and overvalued,” said Amir Anvarzadeh, a strategist at Asymmetric Advisors.Higher interest rates – U.S. benchmark interest rates are at 5.5% – also mean that target companies need to grow that much more to justify acquisition costs, forcing investors to take a more considered approach. “This should also apply to SoftBank. But they run their own playbook,” said PitchBook’s Stanford. More