RBA lays it on the table

IT has been spoken of for almost two years but predictions of a slump in economic activity from economists, the business sector and academics are becoming more real.

In its November Statement of Monetary Policy released this week, the Reserve Bank of Australia repeated the message, but with more urgency, that the economic growth of Australia was under question, chiefly as a result of the stagnant US economy.

The RBA has indicated that its interest rate stance had changed from a bias towards a higher cash rate to a neutral stance.

BankWest senior economist Alan Langford believes the RBA statement supports the growing view that the cash rate is on hold, at least until the second quarter of next year, but most probably until the second half of 2003.

These are sentiments shared by ANZ economist Melanie Hay. She believes that, against the global backdrop domestically, the housing cycle also appears to have matured and is heading toward the pavement, while the drought across rural Australia could slice 1 per cent off the Gross Domestic Product during the current financial year.

The only positive among all of this negativity is that the unemployment rate at 6 per cent is the lowest in 13 months.

Amongst the doom the resilience of the business sector is also showing signs of strain. The Dun & Bradstreet Business Expectations Survey released earlier this week reflected an increasingly pessimistic business community.

Wesfarmers’ clever man

WESFARMERS CEO Michael Chaney is a clever man … that is if you read between the lines of recent comments he made in relation to AlintaGas, according to stockbroker DJ Carmichael.

“With speculation increasing that Wesfarmers will have a crack at AlintaGas should a certain 45 per cent stake come to market, we were interested in Chaney’s comments last week,” DJ Carmichael says in its weekly market brief.

Wesfarmers is reportedly starting to make noises that its contract to buy gas from AlintaGas may not proceed past its expiry date in 2005.

A major perceived weakness in AlintaGas is its heavy reliance on Wesfarmers – its single largest contract customer, generating a substantial amount of income.

“Why the need for Wesfarmers to start talking about it now?” the broker asks.

“We believe Chaney has effectively sent a signal to the market and other potential predators [Origin Energy and Australian Gas Light], warning them that Alinta is inextricably linked to Wesfarmers.

“Now Wesfarmers will just sit back and wait.

“The effect of this is likely to lead the AlintaGas market lower, with our target price being near $4 per share. This would represent a price-to-earnings ratio of below 12 times calendar year 2003 earnings, which is where we are comfortable to invest,” the broker says.

Caution on banks

STATEONE Stockbroking analyst Kamlesh Chand has warned investors of the volatility of bank stocks in recent weeks via his technical analysis of share prices using charts and price patterns.

“What we are seeing is some short-term correction. A long-term bear scenario will be valid only if more bank stocks fall below their October lows,” Mr Chand said.

He expects Westpac to “drift lower”, NAB to remain flat, CBA to “trend down and St George to “lose momentum”.

DJ Carmichael also was reserved in its short-term outlook for the banking sector.

“On a general note we feel the market is decidedly cautious on the banking sector outlook, with most institutional holdings now neutral,” the broker says.

“We do not expect any major upwards moves in the sector over the next few months, and believe it is quite likely that the market will get nervous ahead of the AGM season for the banks, where outlook statements will be critical.”

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