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21 Jul 2023 - Hedge Clippings | 21 July 2023



Hedge Clippings | 21 July 2023

Following last week's widely anticipated news that RBA Governor Philip Lowe would be replaced by Michele Bullock, the flurry of media coverage has died down as it quickly became apparent that the governor's baton would pass pretty seamlessly.  Dr. Bullock has worked with or alongside her predecessor for close to 40 years, including most recently as his deputy. One would assume their thoughts and opinions on the economy, inflation, and the bank's role in fulfilling its task are or have been pretty similar.

In spite of all the criticism leveled at Lowe for his now famous "slip" of making a forecast on future interest rates, he was more committed to a less aggressive hiking regime than his overseas counterparts when achieving his "narrow path" objective, as opposed to Jerome Powell's "whatever it takes" approach in the US. If anything, Bullock's speech in late June, focusing on the RBA's other mandate, that of maintaining full employment, suggested she might take a more aggressive approach if needed, but which we doubt will be necessary.

This week's surprisingly strong May employment numbers, which added 33,000 people to the workforce, and saw unemployment remain at an almost unprecedented level of 3.5%, and 64.5% of the population employed, led various economists to revise their expectations and suggest another rate rise in August. Next week's CPI numbers, (due on Wednesday), Labour Force (Thursday), and June PPI, along with June Retail Trade, (both due on Friday), should hopefully clarify their arguments one way or another. Inflation appears to be easing in the US, with June's number of just 3% the lowest since March 2001, while even in the UK inflation has shown signs of abating, albeit from higher levels.

Lowe has only two more RBA board meetings to chair, and he'd love to leave Martin Place with rates paused, and his narrow path maintained, prior to handing over to Bullock to complete the task he started.

Not that there aren't still inflationary risks over and above the strong labour market. Russia's renewed ban on Ukranian grain exports, and the effects on food prices of the record heat across much of the northern hemisphere, are yet to play out.

(If there's one ironic outcome of this week's record temperature of 45C + degrees in Spain, while in England it struggled to reach 21C, it must be the reverse migration of thousands of Brits fleeing the Spanish heat, to bask in the cool and damp of a typical English summer!)

Of course, they may not be quite so happy if the rain spreads north to Manchester, and saves the Australian cricket team from a serious baz-balling defeat. While on the subject of sport, congratulations and good luck to the Matildas, as the women's game has raised awareness of and interest in, the game of soccer (sorry "football") in a way that the men's equivalent has ever managed to achieve.

And while off on a tangent, yesterday marked the 54th anniversary of Neil Armstrong's historic landing on the moon and his now famous "one giant leap for mankind" quote. Some of you/us can remember the day clearly, while for many it's ancient history. That's life!

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