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Hedge Clippings | 08 November 2024 It's been a big week for markets, central banks, mainly due of course to the clear-cut US election result, which seemed to surprise everyone it seems, except Trump and his die-hard supporters. While we know there's never a dull moment, this week might take the cake--or at least a sizable slice of it. Trump's Victory: What It Means for Australia Well, it's official. While Donald Trump won't actually be back in the White House until January, the ripples are being felt globally. As expected, the initial market reaction was a mix of higher US Treasury yields, a stronger dollar, and a predictably unpredictable response from equities. For Australia, the implications are numerous and, unfortunately, somewhat clouded by uncertainty. There's been plenty of chatter, not least from our friends at the RBA, on what a Trump presidency could mean for us. What does this mean for investors here? Perhaps the biggest takeaway is uncertainty. Tariffs could impact Australian exports indirectly via China, US policy changes might affect currency markets, and there's a general sense that volatility could remain a dominant theme for a while yet. Shane Oliver at AMP summed it up neatly: Trump's policies may give a short-term productivity boost in the US, but at the risk of stoking inflation and leading to a global flow-on effect. Expect more of the same - and a nervous RBA. Cash Rates: RBA Holds Steady as the Fed eases 0.25%. If all the election noise wasn't enough, this week also saw major central bank decisions on both sides of the Pacific. The RBA held its cash rate at 4.35%, as most expected, while the US Fed opted to lower its rate by 0.25 basis points--a more dovish move aimed at balancing a "generally eased" labour market and still-high inflation. RBA Governor Michele Bullock, speaking at the Senate budget estimates, noted that there's plenty of speculation, but no one really knows for sure. The combination of potentially higher tariffs, larger budget deficits, and fiscal changes in the US could lead to higher global interest rates and, ultimately, increased inflationary pressures here at home. If that sounds familiar, it's because we've seen this movie before--last time Trump was in office, his tariffs hit global trade and pushed costs up across the board. The RBA is right to be cautious. The RBA Governor was clear that, while she acknowledged inflation has eased, the RBA is not ready to take its foot off the brake just yet. The message remains consistent: inflation is still the main game, and the RBA wants to see clearer signs of it being under control before even contemplating rate cuts. Bullock was equally clear in her warning to Albanese and Treasurer Chalmers - higher government spending, and further pre-election cash-splash promises, are inflationary. So, what's the upshot for Australia? In the immediate term, not much--but with the US easing and Australia staying put, we could see increased pressure on the Aussie dollar. And with markets now contemplating the chances of no RBA cut until mid-2025, the gap between US and Australian rates could widen further. But then again, if there's one thing we know for sure, it's that predictions can easily be thrown out the window--particularly when Trump's involved. No Time to Be Predictably Predictable As always, uncertainty is the only certainty. We've got an unpredictable US President, an RBA sticking to its inflation-first mantra, and markets that are trying to make sense of it all. For investors this is a time to stay vigilant, diversify where possible, and, as always, keep one eye firmly on the bigger picture. The RBA might be on hold, but the world around us certainly isn't. Until then, keep your powder dry--and perhaps a glass of pinot handy. We'll all need it. News & Insights Quarterly State of Trend report - Q3 2024 | East Coast Capital Management Anticipating the Future of Luxury | Insync Fund Managers October 2024 Performance News |
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