20 Dec 2024 - Hedge Clippings | 20 December 2024

By: FundMonitors.com

Hedge Clippings | 20 December 2024

As we in Australia end the year as it started - with the RBA's cash rate stuck at 4.35% - in the US the FOMC cut rates 0.25% to 4.25 to 4.50%, leaving markets unimpressed - not so much because they were hoping for more, but because Jerome Powell flagged a slow down in the rate of cuts in 2025.

As a result equity markets took the hint - not really surprising given the recent "Trump Effect" rally, and leading into the Christmas break, year end, and question marks over the effect of next year's policy changes on tariffs, deportations and foreign policy. Markets simply don't like uncertainty, and no one is quite sure of their outcome on inflation and trade.

Back in Australia, and looking forward to 2025, speculation - or expectation - is increasing that the RBA will finally start the easing process, possibly as early as the next Board meeting scheduled for 17/18th of February. Jim Chalmers will be hoping for that - or at least that it occurs before the upcoming election. Policy wise the PM and Treasurer are doing everything they can to shore up votes by softening the cost of living crisis and thereby claim credit for easing the burden on consumers' pockets, as well as take the credit for a rate cut - if it eventuates. Meanwhile, Chalmers is also claiming credit for keeping the economy out of a recession thanks to the government's increased hiring and spending, while at the same time their spending is one of the main drivers of the inflation which has been keeping rates higher for longer.

Chalmers' hopes will be bolstered by the changes both to the structure and composition of the RBA board which are due to take effect on March 1st, but depending on when the election is held, it's going to be a close run thing.

The first meeting under the new board doesn't take place until March 31st, with the result announced on April Fools' day - although the tricks are supposed to finish by midday. Meanwhile the election has to be held by May 17th, just two days before the following RBA meeting.

So a rate cut in February may be on the cards. The outgoing Board will want to show it was their decision, and not one forced on them by the new appointees as soon as their bums hit their seats. And the incoming board won't want to imply criticism of the old one by moving at the first opportunity.

So 2025 is shaping up to be interesting times both in the US and locally, particularly given the current closeness of the polls. Post the election one of the worst outcomes is likely to be a hung parliament, with the potential for a "coalition" between Labor and the Greens/Independents.

Interesting times indeed!

In the meantime, Hedge Clippings will be taking a break for a few weeks over Christmas and New Year to re-charge the batteries. We'd like to take the opportunity of wishing all our readers a safe holiday, and a healthy, prosperous and happy New Year.