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29 Sep 2023 - Hedge Clippings | 29 September 2023



Hedge Clippings | 29 September 2023

Although some sections of the media attempted to make a big deal of it, Wednesday's headline annual inflation rate for August, which came in at 5.2%, up from 4.9% the previous month, was both widely expected, and no cause for the RBA to reverse their recent "pause" approach.  That will come as a relief for Michele Bullock, who would hardly have wanted to kick her tenure off with a rate rise after three straight months of them holding steady.  

The RBA board will be more interested in the core inflation level, which excludes volatile items such as fruit and vegetables, fuel, and holiday travel, and which fell to 5.5% from the previous month's level of 5.8%. The pain points in the numbers were bread and cereals, and dairy, both of which recorded a 12 month rise of just over 10%, offset by fruit and vegetables which fell by 8.3%. We assume anyone on a diet of bread and potatoes therefore (apart from a growing girth) would have come out about even!

On a more serious note, gas and electricity rose over 12%, and fuel costs were up almost 14%, as anyone who has filled up recently would know. While inflationary, both these are in part doing the RBA's job of dampening consumer demand, as evidenced by the insipid retail sales figures for August, which came in at 0.2% for the month, and 1.5% for the year.

While a few economists are still predicting the possibility of one more rate rise down the track from the RBA, on current data that's unlikely. However, the "stronger for longer" inflationary and interest rate outlook is far more likely, with our view that the 2-3% band is at best a long way off, and quite possibly a thing of the past.

Ditto in the US, although the potential for one more rate rise is possibly a little higher than here. However Jerome Powell is shooting for 2%, as opposed to the RBA's 2-3% band, and that's going to be even harder to achieve without more consumer and economic pain.

Ditto, or at least "deja vu" seems to be the best way to describe a number of goings on in the US at present: The recurring potential for a government funding shutdown is on again, although as yet markets don't seem too concerned. Maybe they're getting used to it, having seen previous negotiations always end up the same way - with an increased debt ceiling. Sooner or later one would think the ceiling's going to crack, or ...?

And finally, in the US everything to do with Donald Trump also seems to be a recurring theme, with yet another court appearance (and loss), and yet another non-appearance at a Republican presidential debate. Neither avoidance, nor appearance seem to dent Trump's self belief, or for that matter, his supporters' commitment to his cause. Only in America!

Moving on: We could try to intertwine commitment into any discussion regarding the Wallabies performance in the RWC last week, but that might be a cheap shot. If you take a youthful squad, many of whom should only have been playing at the 2027 event, and leave your most experienced players behind, what do you expect? As far as commitment goes, or the perception of it, Eddie's discussions with the Japanese RU will hopefully result in him accepting their job offer. If it comes, it can't come soon enough!

We hope the Wallabies can overcome Portugal on Monday morning, but even that might not be a foregone conclusion based on last week's performance. However, this week-end should see a tighter contest at both the AFL and ARL Grand Finals. Sit back and enjoy, and may the best teams win.

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