Aurelia Butler

(Reuters) – Australia’s biggest banks are likely to report narrower profit margins in the June quarter as an unprecedented pace of interest rate hikes to curb inflation starts to weigh on the economy, while investors will be watching for signs of rising bad debt.Commonwealth Bank of Australia (OTC:CMWAY), National Australia Bank (OTC:NABZY), Westpac and ANZ Group, which benefited over the past year from policy tightening, now face headwinds from rising costs and unemployment, which could result in fewer new loans and more bad debt.The Reserve Bank of Australia last week held rates steady for a second straight month at 4.1%, having raised rates by a whopping 400 basis points since May last year in the most aggressive tightening campaign in the country’s modern history.”The big thing we’re watching for is any sign that rates of bad and doubtful debt are rising,” Macquarie analysts said. Banks in the country had been facing headwinds over mortgage competition in the market which has lately eased suggesting risk to earnings has diminished, Macquarie added. Analysts at Morgan Stanley (NYSE:MS) said in a note that even though competition had eased since March, the banks were expected to report a mid-single-digit margin decline in the June quarter.CBA, the country’s largest lender, will announce its full-year results on Wednesday, where it is forecast to report an 18% jump in net interest income to A$23.0 billion ($15.10 billion) and a 5.5% jump in cash profit to A$10.12 billion, according to Morgan Stanley.Analysts at Citi expect cash profit to rise 3.5% to A$9.93 billion, while a Visible Alpha consensus estimate stands at A$10.11 billion. “CBA may see a slowdown in profit growth in second half after a record first half-year performance, but full-year result could remain strong,” said CMC Markets analyst Tina Teng. “Most banks may maintain buy-backs and lift dividends as they are still healthy on capital ratios.”NAB, Westpac and ANZ will update the market with their third-quarter reports over the course of the month. Analysts at Morgan Stanley expect margins to decline over fiscals 2024 and 2025. Shares of CBA have fallen 0.7% this year. NAB and WBC shares are down 7% and 6.5%, respectively, while those of ANZ have gained 6.9%. The heavyweight banking index, the S&P/ASX 200 Financials, has gained 0.4% so far this year, as of last close.($1 = 1.5230 Australian dollars) More

WELLINGTON (Reuters) – Public debt in most Pacific countries is expected to fall in the next 12 months as countries move towards the gradual unwinding of COVID-19 stimulus and the fiscal situation improves, according to a World Bank report released on Tuesday.“In line with fiscal consolidation efforts, public debt is projected to decline during 2023- 2024 across the Pacific (except in Solomon Islands and Federated States of Micronesia),” the Pacific Economic Update said on Tuesday.Debt has surged in the region since 2019 as the tourism-dependent economies were hit by COVID border closures, trade was hurt by logistical challenges and weather events caused damage. Countries took on more debt to implement support and stimulus packages. This was particularly notable in tourist- dependent countries such as Fiji, Palau and Vanuatu. The World Bank has previously said six Pacific countries – Kiribati, Republic of the Marshall Islands, Federated States of Micronesia, Samoa, Tonga and Tuvalu – are at a high risk of debt distress.However, Tuesday’s report added that as the fiscal deficit widens in Solomon Islands and FSM, the governments are expected to increase borrowing to meet the financing gap — increasing the public debt.It added that in terms of economic output, most Pacific countries – except Palau, Samoa and Solomon Islands – are projected to hit pre-pandemic gross domestic product levels by 2024. “In contrast, some countries where fishing license revenue is a dominant contributor to income, such as Kiribati and Republic of the Marshall Islands (RMI), surpassed pre-pandemic levels in 2021 because the fishing sector was less impacted by border closures,” it noted.The report added that risks remained including uncertainty in global commodity price movements and geopolitical tensions serve as downside risks to the Pacific’s economic recovery.“Given the region’s vulnerability to disasters, climate change is a persistent major underlying risk,” it added. More

UK consumer spending slowed in July as wet weather damped demand for summer clothing, leaving overall retail sales growth well below the rate of inflation, according to data published on Tuesday.The value of retail sales rose at an annual rate of 1.5 per cent in July, a weaker reading than the average of 3.3 per cent in the three months to July, and the 12-month average of 3.9 per cent, figures from the British Retail Consortium trade body and the advisory firm KPMG showed.The figures are not adjusted for inflation and these growth rates were lower than the rate of increase in consumer prices, which stood at 7.9 per cent in June, indicating that sales fell in volume terms.Helen Dickinson, chief executive of the BRC, said the slowdown was partly a reflection of inflation starting to slacken, but she added that the damp weather “did no favours to sales of clothing”, while online spending fell year on year as a post-pandemic return to bricks and mortar stores continued.Paul Martin, UK head of retail at KPMG, said that while UK consumers had proved resilient in the face of cost of living pressures, “stubbornly high inflation coupled with rapidly rising interest rates will test their ability and willingness to keep on spending for the rest of this year”.The BRC and KPMG data paints a similar picture to separate figures released on Tuesday by the payments company Barclays, which monitors almost half of UK credit and debit card transactions.They showed annual growth in consumer card spending had slowed from 5.4 per cent in June to 4 per cent in July, again well below the rate of consumer price inflation.But while Barclays also said the month had been a washout for clothing retailers, it found consumers were turning to wet weather alternatives, with spending on takeaways and digital content rising by 9.2 per cent and 9.9 per cent, respectively. Meanwhile, live events, including the start of pre-booking for the singer Taylor Swift’s “The Eras” tour, boosted spending on entertainment. This, along with strong travel bookings, meant spending on non-essentials grew faster — at an annual rate of 5.6 per cent — than it did in supermarkets, where price rises were finally slowing.Abbas Khan, UK economist at Barclays, said the headwinds of high inflation were abating, but this would be offset by rising mortgage costs as homeowners reached the end of fixed-rate deals.“Accordingly, while we do not expect a consumer recession in the coming quarters, growth is likely to be meagre,” he said. More

The move comes weeks after Lordstown Motors filed for bankruptcy protection and put itself up for sale after failing to resolve a dispute over a promised investment from Foxconn. Proterra, whose shares nearly halved in value after the bell, listed its assets and liabilities in the range of $500 million to $1 billion. The company had a market value of $362 million as of last close. In January 2021, Proterra was valued at $1.6 billion, including debt, in a merger deal with a blank-check firm.”We have faced various market and macroeconomic headwinds that have impacted our ability to efficiently scale,” CEO Gareth Joyce said in a statement. Proterra, which makes electric buses as well as battery packs, said it intends to continue to operate in the ordinary course of business. It plans to file the customary motions with the bankruptcy court to use existing capital to fund operations.The company earlier this year announced plans for more job cuts and said it will combine electric bus and battery production in South Carolina as it looks to trim costs. More

WELLINGTON (Reuters) – Reserve Bank of New Zealand said on Tuesday that its first life insurance industry stress test showed large insurers are well placed to withstand severe economic and insurance shocks, while continuing to pay out on policy claims.”Participating insurers were able to pay out substantial claims from policy holders and remain solvent during a hypothetical three-year scenario which included long COVID, a new pandemic and a period of severe economic stress,” RBNZ Deputy Governor Christian Hawkesby said in a statement. He added that stress tests play an important role in helping build understanding of how particular risks may impact financial stability as well as building capability across industry to manage these risks. The RBNZ noted that under the tests all the insurers were able to remain solvent but that the combined effects of the scenario caused the solvency margin of some insurers own risk appetite and trigger mitigating actions.The RBNZ will now undertake stress tests on the life insurance industry annually. More