Hedge Clippings | 25 October 2024

It's going down to the wire, and seemingly too close to call. The US election is now less than two weeks away, and with it will come all the drama, speculation, and, of course, the potential for significant economic consequences across the globe, and potentially social upheaval in the US itself. Here in Australia we're no strangers to feeling the ripple effects of US political shifts. If Donald Trump regains the presidency, we may be looking at a return to the good (or not so good) old days of trade tensions and tariffs, particularly with China. This could spell trouble for our commodities sector and create turbulence for market confidence - after all, the last thing our economy needs is another round of "trade war" antics.

On the flip side, a Kamala Harris presidency might mean more of the same - in a good way. Harris would likely continue the diplomatic ties and trade relationships built during the Biden era, with a stronger focus on renewable energy collaborations. This would align nicely with Australia's own moves towards sustainable energy. Either way, we're along for the ride, and what happens in the US inevitably makes its way across the Pacific - while the ability of the USA to counter aggression from Russia, China, and Korea will be critical to the global geo-political landscape over the next four years.

As far as election tactics go, the race for the last few votes in the crucial swing states is throwing up more claims and counter claims, with both sides bringing out the "big gun" supporters, including Obama and Springsteen for Harris, and Musk for Trump. Given Donald's support for big oil, and Elon's for renewables, it's an interesting alliance.

Meanwhile, back at home, the Reserve Bank of Australia and Treasurer Jim Chalmers are not exactly on the same page about inflation. Chalmers has been cautiously optimistic, pointing to the halving of inflation since Labor took office. But the RBA, led by Deputy Governor Andrew Hauser, isn't ready to declare victory just yet. The RBA remains wary, maintaining that inflation is still proving to be a persistent thorn, and it'll take a while before we can truly say it's tamed. The cash rate, held at 4.35% for eleven months now, is staying put - the RBA wants more evidence before even considering an ease in rates.

And it's no wonder they're being cautious. Global uncertainties, including the turmoil in the Middle East, are pushing investors into safe-haven assets like gold, which has reached record highs. The financial world might be feeling "spectacularly optimistic," but Hauser has made it clear that the RBA isn't buying into the hype just yet. Inflation forecasts from the RBA and the IMF are now closely aligned, underscoring the complexity of the current situation. Chalmers might be waving the flag of optimism, but the RBA is sticking to a message of patience - steady does it, until they're sure the inflation beast is fully under control. One thing's for sure: there's no shortage of interesting times ahead for the world, and with it, the Australian economy.

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