Interview: The reserve bank will raise rates1:57:21.000 1:57:21.000
>> news out of south korea. consumer prices rose .6% in february following january’s .7% gain. economists we surveyed expected inflation to accelerate .5% from january. consumer prices rose 3.3% year on year, in line with expectations. higher consumer spending is enabling retailers to raise prices. the rising won is lifting costs, making imports more expensive. for a look at news outside the business world, ron madison is in tokyo.
>> u.k. prime minister tony blair and u.s. secretary of state condoleezza rice urge palestinians and israelis to comply with commitments under the roadmap peace plan. blair opened a london conference on palestinian reform tuesday. delegates included rice and the new palestinian president mahmoud abbas and u.n. secretary general kofi annan. about the promise to make judicial and electoral changes to his administration, prime minister blair said more concrete changes were needed to bring about peace and a palestinian state.
>> everybody can talk about the possibility of an independent, viable palestinian state. we can all make speeches about it, we can make declarations in favor of it. what we have today is an agreement, not just on behalf of the palestinian authority that has to usher in such a state, but also on behalf of the whole of the international community as to the practical steps, the foundation stones, necessary to create that viable state in the future.
>> israel was not represented at the conference. iran refuses to let united nations inspectors on to a military base that the united states says is being used in nuclear weapons research. international atomic energy agency officials say it was told by iran that there was no justification for any additional visit to the base. iaea officials toured the base in january. officials had also asked last month to tour another part of the complex. iranian officials insist its nuclear efforts are designed to generate energy and not build arms. the u.s. says iran does not need nuclear power since it has the world’s second largest oil reserves. the top u.s. general in the middle east says withdrawal of syrian troops from lebanon is inevitable. general john abizaid told the senate armed services committee says the mass protests in lebanon are unheard of in the arab world and the demonstrations are a clear indication that the lebanese people feel they’re ready to move forward without syrian troops. the syrian government will reassess their role in the region and abizaid says they will leave. syrian troops entered the country nearly 30 years ago. that’s the latest look at world news. back to you.
>> thank you, ron. and back to business, u.s. stocks rebound after a survey suggests the economy will sustain growth. analysts upgrades of intel and johnson & johnson also helped the market . looking at the benchmarks, the s&p 500 and dow jones closed up more than .5% and the nasdaq gained nearly 1%. deborah kostroun reports from the new york stock exchange.
>> the market rebounded in tuesday’s session and surprisingly, energy stocks did not lead the way. that’s because over the past month, energy stocks had been the high flyers but in today’s session, they were the biggest drags on the s&p 500. exxon-mobil, which has been performing well, that was the biggest laggard in the dow jones industrial average. over the past couple of weeks, financials have actually not been performing all that well but we did see a rebound in many of the financial stocks, actually performing very well in today’s session. helping to lead the market , along with semiconductors. auto stocks in the spotlight as we did see february vehicle sales at least for general motors down 13%. ford down 2.9% and daimlerchrysler sales up 5.5%. the winners were asian automakers―toyota, nissan, hyundai, all reporting promising sales and in fact one of the things that the asian carmakers have been performing quite well with doing, they’re introducing a lot of new vehicles, especially light trucks, helping surpass u.s. automakers. looking at johnson & johnson, one of the biggest gainers in the dow jones industrial average on the day. it was upgraded to buy at merrill lynch. johnson & johnson, of course, makes products ranging from tylenol to hip implants and merrill lynch said that stock may reach $stiff in the -- $75 in the next 12 month. merrill lynch speaking of their acquisition of guidant. looking at steel stocks, slapped on comments from an industry conference. that conference said that u.s. steel prices that reached a record high in 2004 may fall this year because distributors of steel bought more than they needed from producers like nucor and u.s. steel corp. so the price of steel seems to be coming down a little bit but caterpillar saying they will raise their machinery prices mainly because of higher steel prices. i’m deborah kostroun at the new york stock exchange.
>> next, shares of japanese automakers toyota and nissan rise in u.s. trading after reporting higher february u.s. sales. mike firn looks at how asian carmakers manage to keep taking market share from north american rivals.
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Listen Interview: The reserve bank will raise rates
>> welcome back, this is in hong kong. breaking news from australia, the reserve bank of australia lifts its benchmark interest rate by a quarter point to 5.5%. this is the first rate increase in 15 months. australia later today may report its slowest economic growth in more than three years. that suggests today’s rate increase may be the last in this year. let’s go straight to our guest in sydney for the reserve bank’s decision raising the cash rate today to 5.5%. justin smirk joins us from sydney with reaction, a senior economist with westpac banking corporation. you expected a quarter-point increase?
>> yes, we have been. we were expecting an increase since last year, we thought it would happen some time this year. it was brought forward quicker than expected. the r.b.a. clearly heralded it would raise rates and the key issue is lack of capacity in the labor markets . we’ve had 13 years of solid growth in australia, unemployment rate hit generational lows and in the economy you see signs of the tight labor market pushing in wage pressures. it’s not broad spread but the r.b.a. is raising rates at this point to prevent it from spreading.
>> but do you think this is the only increase that will happen this year? what are your reasons?
>> the main reasons we’re thinking there will only be one rate hike this year is we’re very late in a growth cycle here in australia. rates are very close to neutral. as the governor himself pointed out, we have a high level of household debt in australia at the moment, making monetary policy much more effective so as he himself highlighted in the last parliamentary segment, at this point in the cycle, you have to use monetary policy carefully and sparingly. we think they’ll raise rates just this once and sit back for the data in particular, watch what happens with housing and the consumer sentiment numbers as well as what happens with the employment numbers and housing finance numbers. we’re getting a softer business survey and they’ll be watched closely in the months following.
>> reports last tuesday showed company profits rose less than expected in january, inventories fell along with home sales as well as exports declining. what will today’s rate increase mean for the pace of growth in corporate earnings, the housing market and exporters?
>> breaking it into two components, you’ll have two flows, the domestic slowdown in domestic demand coming through here. we see signs of housing already having peaked, housing activity has fallen, easing back a little bit. as the highly leveraged sector of the australian economy, the housing sector, will find restraint around earnings. on the other hand, those who are more the resource, export side, they’ll be boosted by commodity prices, underpinning that side of the economy. for ourselves, we think we’ll be close to seeing the best for the aussie dollar. the export side will be getting an effect from the weaker aussie dollar.
>> the nation’s g.d.p. report comes out in less than two hours and westpac expects growth of .4% growth, lower than our median estimate. what are your reasons for that?
>> there are two factors at play here. the big one will be the net export drag, that is, we’re importing a lot more than we’re exporting. that will shave about .6 or more off g.d.p. floating on top of that we’ve seen softer consumption numbers coming through so the retail side is softer. housing activity numbers are coming off the boil, as well. so we see softer consumption here, reflecting a shift of households from consumption to savings, so that’s that late cycle tightness coming through there but the other factors coming through, as well, a hole between strong public numbers and government spending so overall it’s really a message from today’s g.d.p. numbers, the export side of the australian economy, is the lagging side at this point in time, holding back growth.
>> what is your economic growth outlook over the next 12 months?
>> for the next 12 months, we have one where we think the domestic demand cycle here will continue to slow so we think, like the r.b.a., growth of australia will probably head into the vicinity of a two handle and pick back up to 3% pace by the end of the year. what’s important here is that we are expecting a recovery on the export side, seeing promising signs from the resources, mining and minerals, the exports for q-4 looking positive and growing again. we think that will accelerate through the year, countering the domestic slowdown so we’re really seeing a switch between a domestic demand story to an export-driven story.
>> what about for bond deals, given your growth expectations? what is your outlook?
>> in terms of bond yields, well, we still have a profile where we think interest rates in australia, inflation in australia has upside risk given the buildup in upstream price pressures so you’ll have inflation rising. you’ll still have the impact of rising bond yields around the world being a driver there, as well. so we expect the australian bond yield to continue to rise, that is, the bond market to rally. but the real message here is that we think the short end in terms of interest rates of australia, will remain pegged around 5.5%.
>> the australian dollar now trades 78.69 cents. what will the trend mean for the local dollar?
>> i think you probably hit on one of the key factors being lurking in the background, the current account deficit. a lot of the focus has been on the strong interest rate, the strong growth and in terms of the strong commodity prices and those are the benefits to our resource sector, attracting capital flow into australia, supporting the australian dollar. in the short run, commodity prices probably have upside risk given limited supply response and the strong demand from china, remaining supportive for the aussie but longer term, rates around the world, we think, will rise faster than they are here in australia. we also see that trade position, the current account, weigh on australia and we think the slow domestic demand will also weigh on rates so by the end of this year we think the australian dollar will trade closer to 70 cents than where it is now.
>> thank you, justin, justin smirk from westpac banking in sydney. after the break, gains in caterpillar, i.b.m. and johnson & johnson lifted the dow jones industrial average for the fourth day in five. our reporter at the new york stock exchange looks at the gains.
