It looks as though the Reserve Bank of Australia (RBA) is at it again. By now you should be familiar with them deciding that fuel and food can be discounted from the CPI rate due to the volatility of those items – and the fact that they have been among the largest risers – but now they have thrown another item into the mix.
Yesterday the RBA released the minutes from its August 5th meeting – too late for us to deliver it to you in yesterday’s Money Morning – leaving the market with the unequivocal impression that interest rates would be cut at the September meeting.
The minutes told us that “the high quarterly outcome of 1.5 per cent had lifted the year-ended inflation rate to 4.5 per cent. A significant contribution to the CPI had come from the financial services component, which accounted for around 8 per cent of the CPI.”
So, there you have it, inflation has kicked up to 4.5%. So what is the RBA going to do about it? All was revealed in the next paragraph of the minutes: “Using an internationally comparable definition of core inflation supply excluding food, energy and financial services, the pick-up in Australia’s inflation rate was less pronounced than the CPI suggested.”
It’s bound to be “less pronounced” if you strip out three of the major factors affecting the CPI. Anyway, the RBA has managed to convince the market that the inflation threat is under control, and that interest rates will be slashed in September.
We look forward to the next release of CPI data in October to see if anything else will be “excluded.”
The Biggest Losers
If you take a look at the “Five Biggest Losers” and the “52-Week Lows” over to the right it has the fatal appearance of the impending death of a species of financial product. We mentioned yesterday how Babcock & Brown [ASX:BNB] was looking a bit yellow around the gills, today it has turned green and its funds don’t look too far off a state of rigor mortis.
Management have at least taken the one sure fire step to avoid a further fall in the BNB share price, they have requested a trading halt of the company’s shares. It’s unclear when the trading halt will be lifted, however it has advised that a board meeting will be held tomorrow to discuss “corporate governance issues… and management changes.” Not exactly a ringing endorsement of the current management team.
CEO Phil Green should probably remember to take a cardboard box with him when he goes into the office on Thursday.
Yes Cardno
It isn’t quite on the same scale as BHP Billiton’s $18 billion annual profit, but engineering company Cardno [ASX:CDD] released an excellent full year report themselves. The company specializes in civil, structural and environmental engineering.
In some ways the results were more interesting, it increased revenues by 50% to $399 million, and net profit by 48% to $27 million.
The company doesn’t even claim to have a large direct exposure to the resources and mining industry either. Although their exposure to coastal, marine and environment industries does necessarily create an indirect link.
ASI
On the subject of small cap companies, Gabriel is crunching the numbers and studying the charts this morning for us. So tomorrow we should be looking at a small cap stock chart that makes interesting reading.
Cheers.
Kris Sayce