Business Now | 2 October

0:00If Edward Boyd. Hi, and welcome to Business Now. Thanks for your company today. I'm Edward Boyd. Coming up on the program, Aussie Data Centre developer firm as technology is preparing the list on the stock market in a few weeks' time, giving it a valuation of almost $44 billion. That would be Australia's second largest listing ever. We'll cover the big market news with Karl Roder from capital.com in just a second. The Reserve Bank's ban on card surcharges started yesterday and already were seeing anecdotal evidence that cafes and restaurants are simply increasing prices. Australian Banking Association Chief Executive Simon Birmingham will explain the details. Plus, who should we blame for high inflation? The Reserve Bank, the government, or the war in Iran? John Humphries in the Australian Tax Pays Alliance will give us his take on that. That's all coming up on today's show. Let's see how the stock market finished up from the day. Local market opened higher this morning

1:00after a decent night of trading on Wall Street. Most sectors were in the green led by tech stocks and energy companies, property reats and health care dropped. ASX 200 finished the day up.8%. Tech sector was led by the networking group Megaport Logistics Software Maker Wise Tech, family tracking app Life360 Defense Stock Drone Shield and Zero, which makes accounting software. Titanium producer Iperine X up as well, along with Treasury Wines, White Haven Coal, and two more tech stocks, technology one and ZIP. And special mention today to ANZ Bank, which announced it was ending its 57-year relationship with KPMG after the auditing scandal, a contract is worth about $24 million a year. There will be a tender process, the new auditor's expected to commence in 2029. Property reats, lend lease and goodman will lower today, grain corp down as well, along with a medical tech firm, ProMedicus, and the airline quanters off by basically 2%.

2:01Well, data developer, Firmus Technologies, is preparing a list on the stock market in the next few weeks with evaluation of about $44 billion it's set to be, the second largest float since Telstra in the 1990s, so to chat Firmus and wrap up the big markets news this week. I'm joined by Kyle Rodder from Capital.com. Kyle, thanks for your time. There's been a lot of hype about Firmus. Do you think it can live up to it and deliver? Well, I suppose hype is what the company and its bankers want to manufacture, because it gets the highest possible valuation, and in the long run, there's reason to be hopeful that this is business that will deliver returns to investors, but as always in these situations, there will be the risk that the valuation is a little bit too rich that the business may not deliver the return on investment. Investors are looking for perhaps in the time frames that they're looking for. They're a risk to evolve obviously, because it's a very significant investment timeline with long investment lead times that might take a little while to pay off. But the hype, again, could well be justified,

3:04but it always pays to go in with the so-they're headed with these sorts of investments, because inherently they are quite risky, quite speculative, and often priced right at the top of fair value. Yeah, I mean, just looking at some of its competitors, for example, data center operator, the next DC's market caps about 8 billion, Goodman Group, about 26 billion. I mean, firmest is going to be worth more than both of them. So it seems very highly valued, really. Yeah, so I mean, you could probably draw parallels to SpaceX, and then you could also talk about the open AI and the anthropic IPOs in the United States too, where, because there's such a powerful narrative and a story at the moment, not entirely unjustified as a kernel of truth, obviously, because AI is going to be a huge technology, there's a lot of upside risks to future profits with these companies. But it does tend to come with very strong sentiment, and of course, companies try and list at times when sentiment is very strong, because they can get the best valuation, and try and effectively sell the stock and raise capital at the highest possible share price.

4:04So inherently, these things come with a lot of excitement, again, a lot of hype, maybe too high expectations. And as you've just noted, if you just look at some of the compropables, maybe you could argue that the listing price might be a little bit rich, but it may not often necessarily the best value for investors buying in at those levels. Yeah, you mentioned anthropic. I think it's expecting to potentially join the market at the end of November. So clearly, there is still a lot of demand out there, though, from investors for the AI-related businesses like them. Certainly, and this isn't entirely unjustified. We are certainly, I would call it a bit of a hype cycle, where everyone's getting very excited about this technology, we're in some kind of a boom, that's with that agdad. But there are some fundamental to justify this. And if you look at the all-beat-very strong, all-beat-very concentrated, but strong, earnings growth that you're seeing, especially in the United States and the tech plays there, it's filling investors with a lot of hope that we are seeing returns on investment with a lot of these companies, and that the investment boom will continue

5:04for a little while longer here and deliver strong profits for investors for a longer time yet. Obviously, the problem is that, you know, boom's often lead to a bust at some point in time, it's very difficult to know when that is. But for now, you know, a lot of capital is still going into these companies. There's seemingly delivering on some of those promises that they've made in terms of investor returns. And there remains just a lot of optimism out there in the market about what AI can yield for the economy, but of course, investors as well. What about the ASX200 today, bit of a bounce back, but it's had a pretty tough four weeks. I mean, what's really been putting it under pressure really during September? If you want a quick answer, it's basically bond market volatility. Everything's trading as a derivative of the market at the moment, it swings and yields. And a lot of that is coming down to the inflation that we're seeing in Australia, as well as the rest of the world. And that's being compounded by some of these geopolitical risks in the Middle East, putting up a pressure on a real price. So the big sell-off that we saw yesterday of 2% was very much catalyzed by a sharp move higher and yield.

6:07That put down with pressure on valuations of stocks. We saw a bit of a reversal in that moving yield state. And as you would imagine, stock to recover it a little bit. So it's a lot of that volatility happening in the all-important bond market, tie back to again inflation risks across the world. It's really swinging a very cyclical market like the ASX200 at the moment. Yeah, and on Wednesday, when the inflation numbers came out, the stock market actually really took off. Do you think that was a bit surprising? Not necessarily, it's a function of volatility. So again, if you look at the way markets have reprised things domestically and across the world in the last three or four days, you get these expectations that maybe the central banks or the RBA in this specific instance won't like interest rate so aggressively as previously thought to the markets rally. Then we see some increases in oil prices and potential further data suggesting that inflation might be persistent or fears that maybe policies aren't going to be tight enough. And then we see another move from the bond market, the stock market moves in the other directions. So this is just a function of a slightly volatile market

7:10at the moment. And the thing is with volatile markets is that you get big sell-offs, but you also get big rallies in those environments as well. Carl Roder, thanks so much for your time. Really appreciate it. Thank you. After the break, we'll recap Australia's soaring inflation numbers with John Humphries from the Australian Tax Players Alliance and try to understand who's most at fault for the rising costs in our economy. Welcome back. Trimmed-mean inflation this week remains steady at 3.6% in August. That's 1.1% higher than what the Reserve Bank is targeting for our economy. So who deserves to shoulder the blame for this inflation challenge? Is it the RBA, the government with its high-spending agenda or the conflict in the Middle East? Let's bring in here, John Humphries, the Chief Economist at the Australian Tax Players Alliance. John Great just said that the Australian Tax Players Alliance, John Great just see you. Let's start with the federal government spending. I mean, how much responsibility should they be taking here and the Treasurer, Jim Sharmers, when it comes to inflation?

8:11They should be taking their share and look to... To answer the question, you asked at the introduction of this, who is to blame the government, the RBA or the Iran War? The answer to that question is yes. Yes, they are all to blame. There is enough blame to go around all three, but the government can't really get off the hook here. They sometimes like to fall back on blaming geopolitical events around the world, such as the Iran War. And that is one element to the story. But our inflation was running it above the 3% maximum target long before the Iran War started. So that's excuse isn't going to hold water completely. Now, the government's partly correct. The Iran War is putting upward pressure on inflation because of the supply shock. But the government clearly has their share of the blame as well. Yeah, turning to the Reserve Bank, I mean, in hindsight, last year's three rate cuts look misguided now. But how much pressure do you think they would have been under from the government to cut rates early last year? I'm sure they were under pressure, but I don't consider that a good enough excuse.

9:13I mean, the political debate about inflation is the government blaming the Iran War and the opposition blaming the government both are partly true. But I've got to say, I think the real culprit is the RBA. It is literally their job to keep inflation below 3% and they have failed at their job. Of course, they're under pressure, but they're big boys and girls. They should be able to stand up to that pressure. And of course, both the government and war, foreign wars, are making the situation worse. But it's the job of the RBA to make adjustments, to factor in those sort of changes. And I think they have dropped the ball on this occasion. So what do you think they need to do here? Do they need to continue to raise interest rates to really bring inflation back down? Or what's the strategy? Yeah, unfortunately, it's not great news. I have a home load myself, and people aren't going to enjoy hearing this conclusion. But I think the rates have been kept too low for too long. They cut them too quickly last year, kind of inexplicably cutting them, despite the fact that inflation wasn't running below the 2% target

10:14that would justify a cut. And they're going to have to unwind their lack's behavior to keep inflation under control. And I know people don't want to hear higher interest rates, but you're going to have to fix inflation eventually, and that's the way we're going to fix inflation. And once we can get inflation down, then we can... Really, the people worried about the real economy, the issue there, and I'm sure you've discussed this plenty in your time, the issue there to get the real economy running is a productivity agenda. And by that, I don't mean raising capital gains tax. I mean, a real productivity agenda. That's how you get the economy running. But to get inflation under control, the RBA needs to do their job. That probably means rates need to go up to 5% at least. Yeah, you mentioned productivity. The intergenerational report was released about a week ago, and it really hinges on an assumption that productivity is going to average 1.2% over 40 years. I mean, do you think that's possible to get to that level? I look at... The big unknown here is AI, and none of us really know how AI is going to impact the productivity stats. So we're all just guessing.

11:15But I note that the RBA says that a realistic guesstimate for the future would be 0.8. And the New South Wales government, run by a Labour government, recently put out their own IGR, and they did what I consider the responsible thing, and they also assume productivity would be 0.8. And then inexplicably, the federal government has decided to just say, oh, look, we'd like 50% more productivity. So we'll just assume higher productivity. It's a very cheeky game they've played, and it fundamentally changed all of the results of the IGR, of the intergenerational report. So it was disappointing to see that degree, I think, of political interference in the IGR. But I just note that even with those dodgy numbers, the IGR still predicts an unbroken string of budget deficits forever. Yeah. And you mentioned budget deficits. The final budget outcome was released earlier this week. It revealed government isn't just spending more. It's taxing a lot more as well. I mean, does the government need to seriously try and fix bracket creep at the moment? Well, absolutely. Look, the FBO, the final budget outcome was slightly better than what they'd assumed previously.

12:16But you've got to note that the reason for that is basically bracket creep. The government is stinging us. High inflation is bad for us. It's bad for you and me. It's good for the government because they're able to sneakly put up our income taxes without telling us and sort of whack us with more tax, bring that in. And even though they're bringing in record levels of high tax into the government, they still can't balance the budget. Unemployment below 5% record high taxes, and they can't balance the budget now. If they can't balance it now, they're never going to be able to balance it. So they really do need to... Firstly, taxes are too high. They need to come down if we want to kickstart productivity, which we desperately need to do. And then to be responsible, the government needs to just stop spending so much money. Yep, John Humphrey. Thanks so much for coming on the show. Thank you. The Reserve Bank's ban on cards surcharging started yesterday. And I've already noticed a local cafe here in Sydney, which has increased its prices to cover some additional costs. Even the ATO says it won't accept payments from credit cards from the end of November, which has infuriated business lobby groups.

13:18So to discuss the end of surcharges and the fallout, I'm joined by Simon Birmingham, the chief executive of the Australian Banking Association. Simon, thank you for your time. This ban has obviously been in the works for a long period of time. I mean, has the implementation gone as smoothly as the sector was hoping for? Hiya. The ban indeed has been in the works for a while. The government foreshadowed it a number of years ago. The Reserve Bank went through a long process in terms of looking at implementing it and how they would implement it, including the significant cuts to bank fees that they chose to apply at the same time as the surcharge ban coming in. And that's taking around $660 million out of the system, just in domestic card-related fees, another couple of hundred million or so in relation to international card fees to come out of the system too. So the change we had been foreshadowing for some time was always going to present some challenges and people always needed to acknowledge the fact that there would be businesses

14:21who would at this point in time reconsider what payment methods they were willing to accept. And that's the legitimate choice for businesses. There would be businesses who would use this as a juncture to think about the rest of their cost pressures and with the high inflation environment we're in, done surprising that some would look at those cost pressures and say, well, this is a juncture at which to adjust their prices. And so it was never going to deliver some panacea of lower costs for everybody. But it does, I think, remove an irritant for many consumers and mean that people get charged, the price they see rather than having an annoying shop when they look at their credit card statement later. Yeah, I know it's really early days, but has there been any feedback so far from small businesses to the banking sector after this span was introduced yesterday? We'd really worked hard to make sure that banks communicated messaging out to small businesses in advance about what was happening, how it would happen, that for the banks who have quite automated systems

15:24with small business customers that they would be taking the steps to switch off, surcharging functions, where small business customers had less automated systems to make sure they're understood the steps they had to take to switch off those functions. And of course, many are using non-bank systems in terms of some of the hardware at the point of sale. And so they've needed to make sure that they are taking those steps themselves. Overwhelmingly, I think small businesses are complying. They'll note out the few outliers, and of course, as I said, for people making payments, they will have to adjust to their businesses or government agencies have made a decision to change what they are accepting for those payments, whether that is cash, transfers, card, it may well force some changes and we're seeing some of those. You also mentioned that reduction in interchange fees, which is reducing costs. What impact do you think that's going to start having on rewards programs from the banks and then on consumers?

16:25So the Reserve Bank was pretty clear that they wanted these changes. They were intentionally structuring them to see banks take steps where the cost of rewards programs fell more directly on the card holder rather than being spread across the system of payments. And that was explicit from the RBA on the way through. And that is indeed how many banks have chosen to change their practices and restructure some of those programs, the nature of the rewards. The Reserve Bank also said some may choose to adjust their annual fees, their interest free periods, all of those different components that relate specific to the card holder. What's the message, therefore, for card holders? Well, it is to shop around because whilst there are changes, there's also an awful lot of competition that is playing out as different banks seek to get an advantage on the other. So it's a highly competitive marketplace for cards as it is for small business banking. And so whether you are a card holder looking for the best deal

17:27or a small business looking for the best deal, does pay to shop around and you'll find that there are different options between the different banks. I mentioned this in the intro, but there is evidence some small businesses have immediately raised their prices on the 1st of October. Is there a bit of a fear this could be a bit of an inflationary blip for the month of October and just add to those pressures we've already got in the economy? I don't know that it'll be so widespread as to be a blip that really flows through into the CPI. I'll leave the economists to try to forecast and predict that more accurately. But I don't find it surprising that small businesses who like anybody else in Australia at present are feeling the pressures of the inflationary environment have decided that the 1st of October, knowing this change was coming, was an opportunity to adjust their prices. Now, of course, there's a very small percentage. You know, you're $6 cup of coffee where you had 18 cents potentially added for a card surcharge.

18:29If it's gone to $6.50, well, it's not all due to the change in surcharging arrangements and that business should actually be seeing some reduction in some of their bank fees due to that $600 million plus cut to the interchange fees that banks get. But they're probably chosen to put their price up anyway because it's timely and because they're facing a lot of other pressures in terms of input costs, wages costs, rental costs, all of the other things that everybody knows are going up. Simon Birmingham, Chief Executive of the Australian Banking Association. Thanks for coming on the show. Thanks, Edmmer pleasure. After break, we've got our weekly property segment where we show you the top properties going to auction this weekend and a special lux listing in South Australia. Welcome back. We're at about 1600 auctions scheduled to take place this week. Sydney will hold about 350 Melbourne, about 650 at Brisbane, about 130, Adelaide, about 80 and Canberra, 26.

19:31Take a look at the most viewed properties going to auction this weekend in New South Wales. Top property is 23, Miranda Avenue, Borkham Hills, asking price 1.4 million. Top property in Victoria is 6, Nalen Street, Yaraville. This cute three-bedroom weather board cottage has a revamp kitchen and asking price 1 to 1.1 million. Top property in Queensland is 64 Donington Street, Carendale. This large four-bedroom has three-barts, two parking spots, and a massive driveway. Top property in South Australia is 15 Magdalena Crescent Parallawi. This looks like an abandoned hortic house. It's being sold cheap as is asking price 499,000. The top property in Western Australia is 64B Axford Street Combo. This modern three-bedroom has a large kitchen and outdoor patio area plus pool. And the most viewed property on the RIA Group website this week is on the North Coast of New South Wales in a small community called Mini Water. That's roughly halfway between Coffs Harbour and Yamba. This lovely home has been designed to capture uninterrupted views of the ocean.

20:33It's got four beds, two bathrooms, this framed by Norfolk Pines. Homes filled with natural Aussie timber, solar powered with an electric vehicle charger. It's currently being used as an Airbnb agent to take expressions of interest for this one. OK, it's time for our special Lux listing segment. Address for this one is 40A Winchester Street, Malvin, in South Australia. Let's bring in here the agent selling the property, Zach Watts from Noakes, Nicholas. Zach, thanks for your time. Just talk us through some of the features. Yeah, thanks for having me. That's a beautiful house this one. Like, it's very unique because it's one of those ones. That's a custom 10-year-old home. Sit on 628 square metres, which is a really unique parcel of land in Adelaide. There's a lot of small blocks between about 300-400 square metres and a larger parcels at 900 square metres plus. So it's very rare to get a custom home on that mid-sized range. And that's typically what we find a lot of downsides as young families are after. So it's been a really popular property. Yeah, what's the local area like in that part of Adelaide?

21:36This is probably one of the most sought-after positions in Adelaide. Did you have very cosmopolitan? You're really close to Unly Road, King William Road, which is where your beautiful restaurants, cafes, your shopping precinct is. And you've got some amazing schools, you know, just up the road. It's one of your most popular private schools and other public schools close by. So it's always been a destination, whether it's downsides, as I mentioned, who might be helping with grandkids picking up from school or young families just for their ease of lifestyle. It's certainly one of those positions that people are very drawn to. Really quickly asking price? This one's on for 2.48 to 2.72 million. So there's been a lot of interest in the mid-toes upward for this house. Zach Watts from Knickles. Thanks so much for coming on the show. Thanks for having me. Cheers. And that's all for today's program. Thanks so much for your company today. Now it's time for the Bond Report.