Share rise on positive US data, banks defend margins, alcopop tax to rise again: Economy roundup

The Australian sharemarket has opened higher today after positive leads from Wall Street, where investors appear to be warming to the idea that the recession is reaching a trough.

The Dow Jones Industrial Average gained 1.38% as US President Barack Obama continued to cautiously talk up the economy, and data from American Express has revealed more customers are now able to pay their debts.

The Federal Reserve also hinted at a distant economic recovery, saying the recession may be nearing its end.

“Five of the 12 districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilising at a low level,” the Reserve’s Beige Book summary noted.

In Australia, the benchmark S&P/ASX200 index was up 38.4 points or 1.02% to 3785.9 at 12.15 AEST. The dollar has also gained ground to US72 cents.

Commonwealth Bank shares have gained 2.3% to $37.09, while NAB has jumped 1.1% to $22.01. AMP has gained 2.3% to $5.42 while Westpac dipped 0.1% to $20.69.

Rio Tinto shares have risen 1.9% to $58.44 despite the company’s chairman Paul Skinner admitting that he has regrets about purchasing aluminium producer Alcan, a deal which burdened the company with large amounts of debt.

Rio bought Alcan two years ago, increasing its debt levels to $US39 billion. The company has since sold off assets worth $US2.5 billion to help pay off the debt.

“There are some regrets,” says Skinner, who will step down as chairman on Monday. “But first, we have no regrets at all about the assets we have acquired and the quality of those assets.

“There are aspects, perhaps, of our reading of the future trajectory of aluminium prices which we may have not got entirely right, and certainly perhaps our biggest regret is that we didn’t move faster than we might have done to dispose of those parts of the Alcan portfolio which we had no intention of holding.”

Printing group PMP has cut its earnings expectation for the second half of the financial year and has shed 67 jobs. The company says these jobs will be shed on a voluntary basis.

Meanwhile, the banking industry has defended itself against criticisms it is holding back on interest rate cuts to increase profits.

“The current debate over bank interest margins and bank funding costs is missing much needed balance and accuracy,” the Australian Bankers’ Association said in a statement. 

“[An] issue that needs to be publicly debated is whether bank interest margins are currently too low and, if so, how high should they go?” the ABA said. “In other words, by strengthening a bank’s balance sheet, a bank is effectively taking out insurance so they can continue to operate normally in tough times.” 

In Parliament, the Coalition has said it will negotiate with the Government to help reduce binge drinking but will not support the new tax increases on alcopops.

“If the Government has something substantive to put on the table, we will look at it and negotiate and we will support sensible legislation,” Opposition health spokesman Peter Dutton told ABC television on Thursday.

“But we are not going to support what has just been a terrible grab for tax by a Government desperate for revenue to try and shore up the other side of their ledger.”