Transcript of Finance News Network Interview with Macquarie Group Limited (ASX:MQG) Global Head of Economics, Richard Gibbs Lelde Smits: Hello, I’m Lelde Smits for the Finance News Network and joining me from Macquarie Group Limited
(ASX:MQG) is its Global Head of Economics, Richard Gibbs. Richard, welcome to FNN.
Richard Gibbs: Thank you.
Lelde Smits: The Australian share market has continued to follow global markets higher this year, side-stepping either side of the 5,000 barrier. But, do you see the appetite for risk increasing or fading as the year ticks on?
Richard Gibbs: I suspect the appetite for risk will fade somewhat because it began the year of course with a very high appetite for risk and risk taking. I’d say, a level of exuberance in terms of what can be delivered and I think as we move through the year you’re going to see that tested – in terms of what can actually be delivered in relation to those expectations.
Lelde Smits: Where do you see the S&P/ASX 200 index by year’s end?
Richard Gibbs: I suspect it will finish around the 4,800 mark. Now that’s down from where we are currently of course so it does suggest some consolidation and some retreat to some extent. That’s because I simply don’t think companies will be able to deliver on the expectations that are there in relation to their earnings growth.
Lelde Smits: And as the reporting season winds up now what were your high or low lights?
Richard Gibbs: I think the capacity for a number of companies to already display that capacity and willingness to engineer their costs down, which has enhanced their earnings of course. The other thing that’s noticeable is that fact that where we have duopoly in key markets engaging in price wars - that is having a detrimental on earnings.
Lelde Smits: Macquarie Group Limited
(ASX:MQG) has recently forecast an annual 10 per cent profit jump, but warned against subdued client activity in capital markets. What other factors do you believe threaten to chip into company earnings this year?
Richard Gibbs: I think certainly the policy environment generally, or political environment if you like. Don’t forget we do have an election cycle that’s has already been declared – in terms of the 14
th of September polling date. That doesn’t take away any of the angst or the uncertainty that goes with an election cycle. Typically what we see in Australia, is that we see consumer and business confidence ebbing as we move closer to the polling day.
Lelde Smits: Finally Richard, offshore factors such as moderating Chinese growth, the US averting its fiscal cliff and indications Europe is attempting to tackle its debt crisis have been supporting market gains - but which of these regions do you believe poses the biggest risk to destabilising our rally?
Richard Gibbs: I’ve never bought the line that the Euro area is out of the woods and nor that the fat tail risk has significantly diminished there. So I think that is a key risk. I think the Italian political imbroglio that we are now seeing is the tip of the iceberg. We have to be mindful of the fact that we have German elections later this year. They are even more critical for the future of the Euro.
If we continue to see through the Euro area a rise in anti-austerity parties and political platforms, anti structural reform political platforms and movements, then that will not auger well for [German Chancellor] Angela Merkel and her championing if you like of burden-sharing initiatives throughout the Euro area - And that does suggest of course that if we were to see the Merkel government unseated in Germany that there would be enormous uncertainty about the future of the Euro.
Lelde Smits: Richard Gibbs, thank you for your outlook today.
Richard Gibbs: My pleasure, thank you.
Ends
