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Hedge Clippings | 20 September 2024 The US Federal Reserve eased rates by 50 bps earlier this week, ending months of speculation - not over the fact that they were going to cut, but by how much. Now the speculation will be on the size and timing of the next cut, or cuts, with J.P. Morgan predicting two more totalling 1.25% this year, and more in 2025. In reality, they cut not only because US inflation is coming down and under control, but because the underlying economy is slowing more than the numbers suggest. Next Tuesday it will be Australia's turn, but there are not many, if any, economists expecting a cut based on the messages that have been coming out of the RBA. As evidenced by an article outlining 9 insights on the Australian economy for the June quarter published by the ABS, Australia is stuck - and the RBA with it - between a rock and a hard place. Sticky inflation at 3.8% has the RBA's hands tied. Growth of 0.2% for the June quarter was "modest" and only positive thanks to government spending adding 0.2%. GDP per capita fell 1% over the year to June. Household spending fell 0.2%, yet wages grew 4.1%. Household saving was at its lowest rate since 2007. Capital investment dipped (again). The labour market remained tight, with unemployment at 4.1% (now 4.2%). Admittedly, the article reflects the 3 months to June. Since then, wages have increased, stage 3 tax cuts have kicked in, and state and federal government energy support has been introduced, all of which may assist household spending or saving, but won't improve inflationary pressures. No wonder the government is wanting to blame the RBA, particularly with an election around the corner, the result of which is looking increasingly uncertain. Hence our very own political version of Flanders and Swann* have been pressuring the RBA to cut rates, and blaming them for smashing the economy. In fact, if the RBA were to cut next week it would immediately lead to cries of government interference into what should be an independent reserve bank. *By an extraordinary coincidence, given a couple of glasses of pinot noir over a Friday lunch, Chalmers and Swan sounds a little like the legendary Flanders and Swann. of the 1950's era musical comedy act, "At the drop of a hat" and its sequel, "At the drop of another hat" which wowed audiences in the days before YouTube. The real Flanders and Swann wrote numbers such as "The Reluctant Cannibal", which by today's standards would be considered politically incorrect, while the current Chalmers and Swann are being politically clumsy. News & Insights New Funds on FundMonitors.com Investment Perspectives: Is the US headed for recession? | Quay Global Investors Market Commentary - August | Glenmore Asset Management August 2024 Performance News Skerryvore Global Emerging Markets All-Cap Equity Fund Bennelong Concentrated Australian Equities Fund Bennelong Emerging Companies Fund |
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