Oil shock forces Qantas to cut flights, Westpac to lift buffers

Oil shock forces Qantas to cut flights, Westpac to lift buffers

News in brief

The Westpac-Melbourne Institute Consumer Sentiment index fell a huge 12.5 per cent in April, the biggest monthly fall since the onset of COVID-19. The only other time sentiment fell to a similar level was during the global financial crisis. The alternative ANZ/Roy Morgan survey has followed a similar trajectory lately and is at an historical low.

 

National Australia Bank’s monthly business survey shows Australian corporate confidence plunged in March to -29 points, its lowest level since April 2020. It was one of the largest monthly declines on record.

 

Reserve Bank deputy governor Andrew Hauser has hinted to a New York audience that Australian interest rates are likely to go higher, and the combination of rising prices and weak activity, as is predicted for many major economies, would be a nightmare scenario for central banks.

 

Opposition leader Angus Taylor has made his first major policy announcement as leader of the federal Liberal party, presenting a hardline immigration approach, which would end many non-discriminatory practices.

 

More than 1,400 actors, directors and filmmakers - including many Hollywood stars - have signed an open letter opposing the proposed merger of film studios Paramount and Warner Bros Discovery.

Fear-o-meter

Westpac economist Matthew Hassan on the big fall in consumer sentiment last month.

 

“Australian consumers are being hit by another ‘cost of living’ shock. The spike in fuel prices following the US–Israel war on Iran and a further 25bp interest rate increase are again putting finances under intense pressure.

 

“A sharp deterioration in expectations suggests consumers are bracing for a return to the extended period of weakness seen during the 2022–24 inflation fight.

 

“The April sentiment drop is the biggest monthly decline since the onset of the COVID pandemic. At 80, the Index is back near historical lows, albeit above the extremes seen at the onset of the pandemic and during the recessions of the early 1990s and 1980s.

 

“The biggest falls were across components tracking assessments of ‘current conditions’. Surging fuel costs are weighing particularly heavily on the ‘family finances vs a year ago’ sub-index which plunged 16.7% to 66.8. This is an extremely low read, albeit a touch above the 65 average recorded between September 2022 and June 2024.”

Fear & Greed Q+A today

On what the latest Business Risk Index reveals about the pressure on Australian business, and how the RBA might steer the economy through the impact of the Middle East oil shock:

 

“At the moment, the rise in fuel prices is much larger and much more significant — that’s the shock right here, right now. That’s what’s going to show up in the data most quickly.

Interest rates, as we know, take time to feed through — six to nine months. And the recent increases are really only reversing part of last year’s cuts.

 

In an energy shock, central banks typically look through that first-round effect. The Reserve Bank can’t reopen the Strait of Hormuz with interest rates, so it’s not the right tool for that problem.

 

The real question is what this does to medium-term inflation and expectations — and that’s what will ultimately drive policy decisions.”

Australian businesses are feeling the heat from higher oil and energy prices and are starting to outline plans to mitigate increased costs flowing from the Middle East conflict. Qantas yesterday announced it will cut domestic flights as it tightens its belt to deal with a fuel bill that could be $800 million higher thanks to the spike in oil prices. The national carrier is still seeing strong demand for flights into Europe and has redeployed aircraft flying domestically and into the US to increase flights to Paris and Rome. At Westpac, the bank said earnings in its markets division had been hit by interest rate volatility caused by the Middle East war, and it said it expected higher inflation and interest rates, and a slower economy, which will create a challenging environment for some customers. The customers hardest hit are likely to be those using diesel, including the farming, logistics and transport sectors.

Greed-o-meter

	Company	Increase in holders QoQ
1	Micron Technology	39%
2	Lockheed Martin	26%
3	Rocket Lab	20%
4	Take Two Interactive	14%
5	BHP	12%
6	ASML Holding	10%
7	Oracle	10%
8	Sofi Technologies	9%
9	Microsoft	8%
10	Salesforce	8%

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What were Aussie investors buying and selling in the last quarter? AI and defence stocks were popular with investors using the eToro platform.

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	Company	Decrease in holders QoQ
1	Costco Wholesale	-11%
2	Intel	-8%
3	Airbnb	-6%
4	Block	-6%
5	Aurora Cannabis	-6%
6	Alibaba	-6%
7	Commonwealth Bank	-6%
8	Boeing	-6%
9	Coca-Cola	-5%
10	UnitedHealth	-5%

Source: eToro