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Printed: 21 June 2024 12:28 PM


7 Jun 2024 - Hedge Clippings | 07 June 2024



Hedge Clippings | 07 June 2024

Anyone waiting for the RBA to cut interest rates to mirror the downward movements in Europe and Canada would be well advised to be patient, in spite of Australia's GDP growth slowing to a crawl in the March quarter. In fact, GDP growth of +0.1% for the March quarter only just qualified as growth, and the household saving to income ratio fell to 0.9% from 1.6%. While the RBA is adamant that reducing inflation to their preferred 2-3% range is the number one target, the only possible change will come when (or if) there's a consistent downward movement from the present 3.6% level. That's only likely to occur if GDP turns negative and/or unemployment kicks upwards from the current 4.1% level, both or either of which will make the RBA's decision easier.

As it is, they're walking a very fine line, with even the potential for a rate rise depending on the stimulatory effects from a combination of tax cuts, electricity bill relief, and wage increases announced, or just around the corner. More may be revealed following a speech by the RBA's newly minted Deputy Governor Andrew Hauser this afternoon, but we suspect he's going to stick to the script of inflation being the number one enemy, it's a narrow path, we know plenty of people are doing it tough, we're all in the same boat etc., etc., and sometime - possibly next year based on current forecasts - the Board will make a move - one way for the other. Hauser seems a revelation, fresh from the UK - a central banker with a sense of humour!

Meanwhile, as indicated above based on Canada's and Europe's easing this week, there are signs of a gradual reduction of inflation and economic activity, possibly to be confirmed by a slowdown in US payroll figures (due tonight) if a Bloomberg survey of economists is anything to go by. Even if the economic forecasters have got it right, that's still not a guarantee that the US Fed will fall in behind Canada and the EU, although it will increase expectations. Inflation remains the name of the game, and the real risk remains that, excluding a recession, it will remain sticky or elevated, while economic growth gradually declines.

On the political front India's election provided an unexpected result as PM Modi will only be able to form a coalition government. In the UK there seems to be a political shambles (nothing changes) but with the outcome a foregone conclusion and only the final numbers in doubt, while in the US there's increasing speculation (in the Murdoch press at least) that Joe Biden may not make it to the first presidential debate, let alone the poll on November 5th.

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