Taxing times for trustees?

Christine St Anne: I'm at the SMSF Association's Annual Conference and this time I have managed to grab a quiet room, and today I'm joined by Graeme Colley to talk about some of the key legislative issues for trustees.  Graeme, welcome.

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Graeme Colley: Thank you, Christine.

St Anne: Now, Graeme, you had mentioned in your presentation some technical issues in particular the concession or contributions into superannuation and then the LRBAs. Can you give us a little bit of insight into those two initiatives?

Colley: With contributions we saw an increase last year around up to A$30,000 for people up to age 50 and then beyond age 50 it was A$35,000. We think that's a good thing, because people later in life probably need higher amounts to go into superannuation because of the adequacy there. So we're happy with that. We still don't think that's enough, but we continue to lobby the government in that regard.

Now with limited-recourse borrowing last year we saw the ATO issue some rulings, some determinations on certain non-commercial loans and they are trading those arrangements as being what we call non-arm's length income and they get taxed at 45 per cent rather than 15 per cent if you're in accumulation phase or zero if you're in pension phase. So, that's a pretty expensive exercise. We've also got legislation coming in fairly soon, which is going to look at what we call the look-through provisions about limited-recourse borrowing as well. So that will be interesting to see what that's got in.

St Anne: And the other topic that was brought up in the presentation was the recommendations in the Financial System Inquiry and specifically the tax white paper. Are there any issues of concern for trustees in that area?

Colley: Well we've seen a lot over the years on moving from accumulation to pension phase and that seems to be something that they'll certainly take into account, the taxing of the superannuation fund and we saw the Henry Review and what it had to say some years go. So we'll see what they come out with. I think they also mentioned franking credits and because we're quite unique in the world, actually unique in the world with a franking credit system that we've got. Then finally negative gearing and having a look at that. We think that was a good thing, because it seems to skew people's decisions away from superannuation where they really should be thinking about their retirement income.

St Anne: And there has been a lot of discussion of course about some of the generous concessions in superannuation and I know that the government has already – in the budget there won't be any changes, but do you expect any perhaps announcements to be made?

Colley: Not in the budget, there may be other announcements sort of relatively technical, but changes in the contribution levels, I think that they would leave that to the taxation white paper.

St Anne: Well, Graeme, thank you so much for your time today, and of course, we will be seeing you in a couple of weeks' time at our own conference in March. So thank you, Graham.

Colley: I look forward to this. Thank you, Christine.

St Anne: Thank you. Christine for Morningstar.

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US consumers increase January borrowing

US consumers increased their borrowing in January at the slowest pace in more than a year with borrowing on credit cards actually declining for the second time in three months.

THE Federal Reserve reported on Friday that consumer borrowing expanded $US11.6 billion ($A14.92 billion) in January following a $US17.9 billion gain in December.

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It was the smallest monthly increase since borrowing rose by $US8.3 billion in November 2013.Even though the January increase was more modest than the gains over the past year, it still pushed total borrowing to a fresh record of $US3.33 trillion, an increase of 6.9 per cent over the past year.Borrowing in the category that includes credit cards actually declined by $US1.16 billion in January following a $US6.2 billion increase in December and a decrease of $US537 million in November.Borrowing in the category that covers auto loans and student loans rose $US12.7 billion in January after a gain of $US11.7 billion in December.During the past year, borrowing in the category of auto and student loans has risen 8.3 per cent while borrowing in the credit card category has risen a much slower 3.2 per cent.

This news is reprinted from site  http://www.news.com.au/finance/business/us-consumers-increase-january-borrowing/story-e6frfkur-1227252288794

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GDP growth slows in December quarter

Australian economic growth slowed in the final three months of last year and remains firmly below trend, according to official figures.

The Bureau of Statistics says Australia's gross domestic product (GDP) increased by 0.5 per cent in the December quarter.

That took the annual rate GDP growth to 2.5 per cent, down from 2.7 per cent in the prior period.

The decline was in line with the consensus view of economists, as the Reserve Bank considers whether it should follow up on last month's cut to interest rates.

The RBA surprised by holding off on a second rate cut yesterday, but most economists expect the central bank will pull the trigger in the coming months.

"The good news is we've now completed 23 years of continuous growth, the bad news is we're still running below trend, which will keep upward pressure on the unemployment rate, and keeps the RBA on rate-cut watch," Commonwealth Bank chief economist Michael Blythe said immediately after the figures were released.

"These figures are pretty much in line with what the Reserve Bank was expecting to see, so it doesn't add to the case of a rate cut.

"But when you have a central bank with a strong easing bias, as they laid out pretty clearly yesterday, then you've got to think there's a good chance in the next couple of months we'll see another cut."

When the previous GDP figures were released a fall in real gross domestic income prompted headlines about an income recession, but that measure has rebounded modestly today with an increase of 0.2 per cent.

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Net exports and household consumption helped boost GDP, while a fall in business inventories dragged on the result.

By sector, construction and health care were strong points.

The mining sector was flat, despite continued expectations of a slowdown, with gains for iron ore and oil and gas offsetting weakness for coal miners.

Below trend growth a 'good outcome': Hockey

Treasurer Joe Hockey has described today's GDP numbers as a "good outcome" for the Australian economy.

"Australia is still performing well by international comparisons. Our economy over the past year has grown faster than the United States, Germany and obviously Japan," Mr Hockey said.

"With continuing low interest rates, low petrol prices and lower Australian dollar, we are in a good position to manage the transition in our economy and maintain our positive economic trajectory."

But Mr Hockey has admitted economic growth is currently not good enough to reduce unemployment from its current 12-year high of 6.4 per cent.

"No, and that's why we have to work harder," he said.

"We have faced the remarkable drop in iron ore prices... It's our single biggest export and that has a big impact on our economy and on our national income.

"Having said that there are good signs, unquestionably the housing construction sector is in remarkably positive shape. This is very important because it is a big employer."

But shadow treasurer Chris Bowen has accused the Government of making the transition away from a mining-led economy more difficult.

"Economic growth started to struggle right at the time of the Government's budget," Mr Bowen said.

"The Treasurer's rhetoric and his actions have had an impact on the Australian economy.

"What we are seeing is a result of a Treasurer and a Government misreading the Australian economy, misjudging the delicate transition underway in the economy from mining construction to a different type of investment, and making that transition harder by their actions."

 This News is reprinted from site http://www.abc.net.au/news/2015-03-04/gdp-growth-slows-in-december-quarter/6279428?section=business

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Australian workers overpaid, hard to fire, says US economist

Aussie workers are getting paid too much and take too much annual leave, US economist Bob Baur says. Source: News Limited

THE economy is struggling to grow because Australians get too much pay, too much annual leave and are too hard to fire, an American economist says.

Bob Baur, chief global economist at Principal Global Investors, said the local labour market was in need of reform if the economy was going to shift from its dependence on mining for growth.

Mining investment is dwindling and iron ore isn’t fetching the prices that it used to, but other sectors have yet to step up to fill the breach.

Do Aussie workers have it too good? Tell us below

Dr Baur said Australia needs to start making things again, and exporting its services, like education.

But, with the Australian dollar still too high and the labour market too restrictive, it’s hard to do business here, he said.

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“The best thing for Australia would be some significant economic reform in terms of maybe loosening up the labour market and making it easier for businesses to take on workers or let workers go in difficult times,” Dr Baur said.

“You’ve got tonnes of wonderful natural resources here but don’t export the resources — export them as a car, or a computer or a television set, or furniture.

“You need to put some labour into it and make something of it here, rather than let somebody make something of it across the world.”

Dr Baur said Australia needed to follow the footsteps of the US, where manufacturing was thriving again after having lost six million jobs through the
90s and noughties to the cheaper labour markets of China and India.

While rising wages in developing countries and increased transportation costs had made the US much more competitive, manufacturing continues to deteriorate in Australia.

“Wages are too high,” Dr Baur said.

“Either it’s the actual level of wages or it’s the fact that it’s very difficult for businesses to let somebody go for whatever reason — some combination of that.

“In the US, we get two weeks’ vacation, so three or four weeks at one time (as in Australia) is not something that’s natural, at least in the US — it is in Europe, but then, Europe is not growing terribly fast either.”

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Originally published as Aussie workers ‘overpaid, hard to fire’

This news is reprinted from site http://www.news.com.au/finance/work/australian-workers-overpaid-hard-to-fire-says-us-economist/story-e6frfm9r-1227246217211 

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Qantas Swings Back To H1 Profit

Qantas Airways has swung back to a first-half profit, delivering its best interim performance in four years, as its massive transformation program continues to reap results.

In the six months to December 31, Qantas posted a statutory net profit of $203 million, from a loss of $235m a year earlier.

On an underlying basis, the national carrier posted a net profit of $367m, a sharp improvement on the $252m loss it posted in the previous corresponding period, and beating its target for earnings of between $300m and $350m.

The national carrier flagged last year that it expected to return to an underlying profit in the first half, as it reaps the benefits of a wide-reaching transformation strategy as well as a drop in the Australian dollar and oil prices.

Revenue in the period rose to 2.1 per cent to $8.07 billion, from $7.9bn a year earlier.

Qantas declined to pay an interim dividend.

The airline said the repeal of the carbon tax was significant factor in the underlying profit result, adding $59m.

Qantas chief executive Alan Joyce pointed to the removal of the carbon tax as one of the “positive drivers” behind the result.

Lower fuel prices also improved the underlying profit by $33m.

“While fuel prices produced a modest benefit in the first half, we expect fuel costs for the full year to be no more than $4 billion at current prices – which will be a significant boost to the bottom line in the second half,” he said.

This news story is reprinted from www.theaustralian.com.au

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Spending Slowed To Crawl In January

Economy-wide spending has slowed to a crawl but cheap petrol and the recent interest rate cut should hopefully turn that around.

Spending rose just 0.2 per cent in January, marking the slowest spending growth since 2012, figures from the Commonwealth Bank on Monday show.

Sales growth has been slowing for the past five months, but CommSec chief economist Craig James said consumers should start splashing more cash this year.

“With household finances improving following the fall in petrol prices and recent interest rate cut, we can expect many consumers to slowly start opening their wallets and increasing their spending as we progress through 2015,” he said.

“Overall, the economy is in a relative stable position, so business owners should start planning for growth in 2015 and take advantage of the expected increase in household disposable income.”

The strongest performing sectors last month were hotels and motels and transportation, according to the Business Sales Indicator, which tracks credit and debit card transactions on CBA machines.

Spending rose in the ACT, Tasmania, Western Australia and Queensland, but had fallen in NSW, Victoria, South Australia and the Northern Territory.

This news story is reprinted from www.businessspectator.com.au

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Bowen Stumped On Tax-Free Threshold

Shadow Treasurer Chris Bowen is under fire for not being able to identify the cut-off point for the tax-free threshold.

Under repeated questioning during the interview on Sky News’ Richo and Jones program, Mr Bowen was not able to correctly nominate the figure of $18,200.

But Opposition Leader Bill Shorten is sticking by his shadow treasurer saying Mr Bowen ‘absolutely’ still has his confidence.

‘Chris knows what he got wrong last night. He also knows the tax free threshold,’ he told reporters in Melbourne.

‘The person I don’t have confidence in, and I think I speak for millions of Australians, is Joe Hockey.

‘Mr Bowen insists he knows Australia’s tax rates after being unable to identify the cut-off point for the tax-free threshold.

Liberal frontbencher Simon Birmingham said everybody made mistakes and had ‘slips of the mind’.

‘But you do expect that the shadow treasurer will at least in ball-park terms – if not in the precise dollars – be able to talk about the tax rates, the tax-free threshold,’ Senator Birmingham told Sky News.

Labor MP Ed Husic defended his colleague’s performance in Tuesday night’s interview, saying running the country was not about ‘getting a sash for the best rote learner’.

‘Does anyone seriously believe if later today Treasurer Joe Hockey is given a pop quiz on the tax scales and he passes that that means he’s going to be able to frame a good budget?’ Mr Husic asked.

Speaking after the interview, Mr Bowen said he thought Mr Jones was quizzing him about superannuation tax, rather than personal income tax rates.

Mr Bowen maintains his knowledge of the country’s personal tax rates is solid.

This news story is reprinted from www.skynews.com.au

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Cuts To Research And Development Tax Breaks May Lead To Job Losses

Australian companies will lose out against against foreign players and may have to lay off workers if the Abbott government succeeds in passing laws that would cut research and development tax breaks for big companies, experts say.
The federal government has struck a deal with the Palmer United Party in attempt to pass the laws, which were first introduced by the former Labor government.
The original proposal would have affected about 15 to 20 of Australia’s largest companies, such as Telstra, BHP and Rio Tinto. Tax experts say the changes will now impact another 50 companies including pharmaceutical giants such as CSL.
The government’s original proposal was to reduce tax offsets by 1.5 per cent and abolish R&D tax incentives to companies with a yearly turnover of $20 billion or more, a measure that would save a government desperate to reduce its budget deficit $1.1 billion over four years.
While the measures passed the lower house at the end of 2013, it struggled to pass through the Senate, opposed by both Labor and the Greens.
The government agreed to amendments from PUP which now change the conditions upon which the tax break can be claimed. Under the deal with the PUP, the amended legislation states that the laws will apply retrospectively – backdating to July 1 last year – and that there will now be a reduced tax offset rate for companies with expenditure above $100 million.
KPMG’s head of R&D, David Gelb, said the changes would not impact targeted revenue collection, but would bring pharmaceutical and manufacturing industries into the mix of companies now facing limited R&D tax concessions.
“While the number of companies might seem to be insignificant, companies in these industries are the ones that employ a lot of the people in research,” he said.
“It may unfortunately discriminate against Australian companies as there will be foreign companies that get their full entitlements for R&D tax concessions.”
An Australian company spending $150 million on R&D, whose claim is now limited to $100 million, of which the tax reduction is $10 million, is disadvantaged against a foreign company spending $80 million on R&D and getting the full $8 million tax reduction, he said.
“As they move into next year’s budget they will have no choice but to reduce next year’s headcount and take their R&D offshore where there are better incentives,” he said.
He said the decision to apply the laws retrospectively was “unprecedented globally”.
“Companies have already spent the money and done the R&D on basis they will have that entitlement there,” he said. “Each company will have to make their own decision as to whether they reduce headcount between now and end of the year.”
Mr Gelb said the Abbott government would have been better off examining these issues as part of its innovation review and tax white paper. “They should have put things on hold until there had been proper consultation,” he said. “There’s been no consultation and industry is entitled to feel hard done by.”
The changes come as other countries increase tax incentives aimed at drawing new investment including patent box regimes in Britain.
This news story is reprinted from www.smh.com.au
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Tax Office Knew About Australians Channelling Money Into Swiss Accounts

The Tax Office has revealed it has investigated hundreds of Australians with Swiss bank accounts as a massive international data leak named prominent Australians, including late media baron Kerry Packer, model Elle Macpherson and former ANZ chairman Charles Goode, as having held accounts in the famous haven.

An International Consortium of Investigative Journalists investigation found that the Swiss arm of HSBC had almost 500 clients linked to Australia, with 856 accounts, and total combined holdings of about $US959.2 million ($1.24 billion).

The Tax Office told Fairfax Media on Monday it was already aware of the ICIJ data and had initiated reviews and audits after an infomer in 2010 handed the agency a list of hundreds of Australians with Swiss bank accounts.

“The ATO received a disk from a tax treaty partner containing data on 261 HSBC Swiss bank accounts held by Australian taxpayers. We believe this to be the same data received by the ICIJ and reported today,” a Tax Office spokesman said.

“The reporting by the ICIJ of the HSBC Swiss data highlights that no taxpayer is safe from being uncovered.”

It said in some cases, it was found that taxpayers had correctly reported their accounts to the ATO. In others there were “a number where there were discrepancies” that resulted in reviews and audits.

The Tax Office said to date these audits had resulted in more than $30 million being recovered.

On top of that the Tax Office last year ran an amnesty for wealthy Australians with hidden income and assets in Swiss accounts and tax havens to come forward. The amnesty ended in December and led to 1750 Australians declaring a total of $240 million in income and $1.7 billion in assets. Another 800 expected were expected make voluntary disclosures.

The biggest individual disclosure by a taxpayer was $30 million in income and $120 million in assets that had been held in Liechtenstein and Switzerland.

The Tax Office said about 70 HSBC account holders came forward under the amnesty and disclosed previously unreported income and assets.

This news story is reprinted from www.smh.com.au

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Australian Bitcoin Exchange Claims Exemption from 10% Government Tax

Australian exchange Coin Loft has received an official ruling exempting it from having to charge Goods and Services Tax (GST) on local bitcoin sales, according to the company.

The exchange claims the private ruling from the Australian Taxation Office (ATO) means that it need not apply the GST to its bitcoin exchange price. As a result, the firm ceased charging the tax on 26th January and says it is the first Australia-based exchange to do so.

The tax must still be charged on the commission component of the order, however, and a Coin Loft blog post also stated that commission fees would increase from 3 to 5% as a result of the process, though the overall price would remain competitive with its GST-charging competitors.

This news story is reprinted from www.coindesk.com

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Business Council Of Australia Seeks Tax Answers From Liberal Pollster

One of Australia’s most influential lobby groups, the Business Council of Australia, has commissioned Liberal Party pollsters Crosby Textor to conduct private research on changes to the tax system, including the GST.

In a clear sign the BCA has heeded Prime Minister Tony Abbott’s call for help last year to make the case for tax reform in Australia, Crosby Textor will conduct qualitative and quantitative polling for the organisation.

The research comes as the Abbott government prepares to launch a sweeping review of Australia’s tax system in the first quarter of this year.

Last October, Mr Abbott told a BCA dinner that “the last time Australia had big tax reform the BCA was leading the charge. There is a lesson for these times. We will only get change if the people who do believe in it are prepared to fight for it”.

The research also comes as Liberal MPs including Trade Minister Andrew Robb and backbench MPs Dan Tehan, Dean Smith and Ian Macdonald have stepped up calls for changes to the GST in recent weeks.

The BCA decision to conduct both quantitative and qualitative polling on the tax system – which carries a price tag that runs to the tens of thousands of dollars – signals its willingness to play a more prominent role in advocating for reform of the tax system in 2015.

The BCA represents the chief executives of Australia’s top 100 companies and is politically close to the Abbott government, with former president Tony Shepherd heading up the last year’s Commission of Audit.

And in 2013 the organisation’s “Action Plan for Enduring Prosperity” report urged “consideration should be given to raising the rate of GST as well as broadening its base”.

Other issues being examined in the polling include Australia’s workplace relations system as well as the health and education systems. The Abbott government launched a sweeping review of the industrial relations system by the Productivity Commission late last year.

That review is due to report back by November 30 this year and is expected to guide the Coalition’s second term industrial relations agenda.

BCA director of media and public affairs Scott Thompson played down the significance of the Council’s examination of the tax system.

“The BCA, as many organisations do, regularly conducts research in the community to stay up to date about views across a range of issues affecting the economy and society,” he said.

“This helps ensure the BCA’s advocacy is conducted in a way which focused on achieving benefits for reform in the interest of the broad community, not just business.”

“Our research is not focused mainly on one or two issues, it is very broad based and focused on a wide range of issues across the spectrum of the BCA’s policy interests.”

Any rise in the rate or breadth of the GST would potentially raise billions of dollars in extra revenue. Applying the GST to private health insurance and education, for example, would raise an estimated $2.3 billion a year, and would not be regressive in the same way that applying the indirect tax to fresh food.

That revenue would be expected to be passed on to the states to help cover the growing cost of health and education.

But all states and territories have to agree to any changes to the indirect tax and the Labor states of South Australia and Victoria have indicated their unwillingness.

Crosby Textor managing director Mark Textor declined to comment on the polling when contacted by Fairfax Media.

This news story is reprinted from www.smh.com.au

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Australias Record Jobs Growth Is A Game Changer

The December jobs number was a fairly pivotal report. It’s a game-changer, as it shows the nation enjoyed the strongest jobs growth on record in three months to December. In fact, 188,000 jobs were created over that period (original terms), which compares to more ‘normal’ jobs growth of about 90,000 (10-year trend over that period).

That’s a fantastic outcome, yet somehow the Australian Bureau of Statistics reckons this equates to jobs growth of about 100,000 when you adjust for seasonality. That’s still strong — the best result in about a decade — but it’s not that much above ‘normal’. That’s a problem given the unadjusted numbers suggest jobs growth was well and truly above normal. It looks like the ABS is still working to soften the numbers to make them more palatable, when the seasonal adjustments should in fact be working the other way.

On a more positive note, this latest labour force print does correct in part, for obvious seasonal adjustment errors, on the unemployment rate. There is still some way to go.

For instance, the decline in the unemployment rate from an unbelievably high 6.3 per cent, now looks a little more realistic at 6.1 per cent. Yet that is still above what the unadjusted numbers tell us at 5.9 per cent.

On the unadjusted figures, the unemployment rate has been broadly steady at around 5.9 per cent since April 2014. So we can’t say the difference between the original figures and the adjusted figures is seasonality. The nine months it’s been steady shows that it clearly isn’t. It is more likely a measurement error. In any case, in unadjusted terms, this is the first December we haven’t seen a spike in the unemployment rate since 2010. Prior to that you have to go back to 1998.

So realistically (and if you want to talk seasonality) the unemployment rate must be closer 5.7 per cent, or even lower when you plug in the correct seasonal factors for employment growth.

The reputation of the ABS was dealt a mortal blow last year following problems with the labour force survey. Investors need to keep that in mind when we interpret these latest results. The truth is, the numbers confirm the underlying economy is growing at a solid clip.

This news story is reprinted from www.businessspectator.com.au

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Australia Launches Online Visa Pilot Programme For Indians

A pilot programme was today launched to make it easier for Indian business and tourism visitors to apply online for travel to Australia.

The pilot programme, which has been kicked off on a trial basis, covers online lodgement of subclass 600 visas for Indian business and tourism visitors. It will be rolled out through selected travel agents across India.

“India is one of the world’s fastest growing outbound travel markets. This trial will make it easier for Indian visitors to apply for visas to travel to Australia,” Australia Trade and Investment Minister Andrew Robb, who also has the responsibility for Tourism, said at the launch.

“Under the Australian Government’s national tourism strategy, Tourism 2020, India has the potential to contribute between $ 1.9 billion and $ 2.3 billion annually to our tourism industry by 2020. That’s why in the first half on 2015, the Australian Government is rolling out a trial of online visa applications to capitalise on this rapidly growing visitor market and create jobs,” Robb said.

Robb is leading Australia’s largest ever trade mission to India, made up of 450 delegates, for Australia Business Week in India from January 9-16.

“The trade mission and this visa trial are putting runs on the board under the Australia-India Memorandum of Understanding on Tourism signed during Prime Minister Modi’s visit to Australia in November last year,” Robb said.

Under the MoU, Australia and India will work together to encourage cooperation between tourism stakeholders in Australia and India.

This news story is reprinted from economictimes.indiatimes.com

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Tax Office Targets Rental Property

Owners of rental properties may need to exercise greater prudence when it comes to assessment of rental incomes and tax expense claims in 2015.

The Australian Tax Office (ATO) has indicated that it will expand the scope of its investigations of the rental incomes and expense claims of owners of residential properties this year as part of efforts to ensure that taxpayers pay the appropriate amounts.

According to the ATO, it still faces an ongoing problem with taxpayers making errors with respect to either assessment rental revenues or deductions for rent – an issue that has become more salient following the recent surge in sales of residential investment properties.

While many rental property expenses are legitimately tax deductible, such as council and water rates, real estate management fees, advertising costs and travel costs for property inspections, the ATO has found that property owners are making incorrect deductions in a multitude of other areas.

Errors made by rental property owners while lodging expense claims frequently relate to stamp duties on the transfer of property, legal costs arising from family divorce proceedings, borrowing expenses confined to a single year (as opposed to those spread over five years as required by law,) the inclusion of renovation costs as repairs and maintenance instead of as part of the capital cost of the property, and solicitors fees for property purchases.

Another common problem relates to empty rental properties that are left idle. According to the ATO, expenses arising in relation to rental properties that are vacant are only considered deductible if such property is both available for rent and owners are actively searching for tenants.

The ATO says it will expand its investigations to include issues such as the improper apportionment of income and expenses based on ownership holdings, the apportionment of expenses for holiday homes, the claiming of expenses for vacant land, as well as the claiming of interest expenses for private borrowings.

The ATO will also send what it refers to as “re-designed” letters to taxpayers containing information on rental, legal and/or borrowing expense claims that the department is currently reviewing, including proposed adjustments and how to handle disagreements over claims.

This news story is reprinted from sourceable.net

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Australian Equities Market

In Australia, the Performance of Services index is released. In the US, trade data is expected together with the ADP employment report and the minutes of the last Federal Reserve meeting.

OVERNIGHT MARKETS

US Equities

US sharemarkets fell again on Tuesday. Economic data was weaker-than- expected, lower oil prices weighed on energy stocks and investors continued to fret about the European economy. At the close of trade, the Dow Jones was lower by 130 points or 0.8%, after earlier being down 239 points. The S&P 500 index was down by0.9% and the Nasdaq was down by 60 points or 1.3%.

US longer-term treasuries rose sharply again on Tuesday (yields lower). Another fall in the oil price and weaker-than-expected economic data prompted buying of Treasuries, especially given further weakness in equities. US 2 year yields fell by 4 points to 0.629% while US 10 year yields fell by 9pts to 1.947%.

Major currencies were again mixed against the greenback in European and US trade on Tuesday. The Euro fell from highs near US$1.1970 to lows near US$1.1885, and was around US$1.1895 in afternoon US trade. The Aussie dollar fell from highs near US81.55c to lows around US81.00c and was trading near US81.00c in afternoon US trade. And the Japanese yen lifted from 119.38 yen per US dollar to JPY118.06 before settling near JPY118.52 in afternoon US trade.

World oil prices fell for a fourth straight day on Tuesday. Saudi Arabia has given no signs of cutting production with King Abdullah saying that the country will meet the challenge of low oil prices “with a firm will”. Saudi Arabia has also announced oil price discounts for European and US buyers. Brent crude fell by US$2.01 or 3.8% to US$51.10 a barrel while the US Nymex crude price fell by US$2.11 or 4.2% to US$47.93 a barrel.

Base metal prices were generally little-changed on the London Metal Exchange on Tuesday. The exceptions were aluminium (down 1.8%) and tin (up 1.4%). Gold rose on Tuesday as investors continued to embrace safe-haven assets. The Comex gold futures price was up by US$15.40 an ounce or 1.3% to US$1,219.40 per ounce. Iron ore rose by US30c to US$71.10 a tonne on Tuesday.

YESTERDAY’S MARKET

Local Markets Update.

This news story is reprinted from www.businessspectator.com.au

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