Friday 1st March 2024

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This week Kate Griffiths from the Grattan Institute warns that the recent budget surplus is hiding the fact that the long-term balance between Australia’s tax intake and the expectations for government spending don’t stack up. As the population ages and the ratio of those in work reduces, the tax base will narrow whilst demand for aged services will expand. Kate argues the case for a roader tax system, less reliant on income tax as the main source of government revenue. Phil asks hat tax reform should set out to address. Is it just about increasing revenue, or is wealth redistribution just as important? And what about the tax efficiency. How many tax loopholes need to disappear. Then there’s taxes with unintended detrimental consequences. There’s a lot to consider.

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Friday 1st March 2024

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Markets were relieved that the US PCE deflators came in in-line with expectations. But, as JBWere’s Sally Auld points out, the six-month annualised rate is ticking up a little, hence the desire by th Fed to see more data before committing to rate cuts. Ion a busy episode today we look at European inflation, Australian retail sales, house prices, Canada’s GDP and words from one BoJ governor suggesting the time is right to lift rates.

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Thursday 29th February 2024

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Markets responded sharply to the RBNZ hold decision yesterday, even though it was largely expected. The tone from the press conference that followed left most assuming there would be no more hikes, even if it’ll take a while for rates to come down. NaAB's Ken Crompton talks through how the markets reacted. He also suggests an above-consensus bounce back in Australian retail numbers today. US core PCE – the Fed’s preferred inflation measure – is also expected to lift a little, whilst US GDP was revised down ever so slightly. And happy leap day! 

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Wednesday 28th February 2024

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Japan’s inflation is down, but not quite as much as expected. That’s raised expectation from some that the BoJ will use this as a reason to lift rates. Phil asks NAB’s Taylor Nugent whether they need to. Japanese exports seem to be benefiting from a lower Yen right now. Meanwhile US equities have plateaued. Warren Buffet described it as a casino, suggesting investors focused on stocks that it would be hard to imagine doing without. Like coca cola. Vested interest perhaps? Today the focus is on what the RBNZ does. NAB and BNZ are not expecting a rate rise, but the language at the press conference should be interesting. Inflation is proving troublesome.

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Tuesday 27th February 2024

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Tomorrow is looking a lot more interesting than today, with Australian CPI and the RBNZ. Overnight though, we had more talk from the ECB, including a curious comment from the Bank of Greece Governor, seemingly reinforcing the suggestion that June is the month for cutting. Today we see CPI numbers for Japan, but it’s unlikely to influence the timing of any moves by the BoJ, should they ever move. NAB’s Ray Attrill talks through all of that, plus the outcome of bond auctions in the US overnight, with yields pushing a little higher.

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Friday 23rd February 2024

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Central bankers are being very elusive when it comes to the timeframe for cutting rates. The Fed’s John Williams said on Friday that he believes rates will come down this year, even though markets are expecting a move in June. The ECB’s Christine Lagarde says she wants more persistent evidence that inflationary pressures have dissipated, even though the German economy shank by 0.2 percent last year. And there’s the outside chance that he RBNZ will lift rates this week, although that seems unlikely. Meanwhile Australian CPI and retail sales this week will be waited for with anticipation by the RBA. So, when it comes to rate cuts, it won’t happen overnight, but it will happen. Trivia question: who said that?

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Friday 23rd February 2024

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The US has been enjoying healthy share prices and a market preparing for lower interest rates, with the much-vaunted soft landing. But how much of this good will could disappear if Donald Trump returns to the White House next year? The FT’s Katie Martin says markets haven’t been preparing much just yet because, well, it may not happen. But there’s also the question of how big the gap is between what Trump says he’ll do and what eventuates. Katie suggests corporate America will advise him of the consequences if he were to push ahead with a 55% tariff on all Chinese imports. We can assume he will be far less supportive of green initiatives. We also know he tends to measure economic success by share market performance. The unknown element is his approach to foreign policy. That might mean it'll be time to derisk.

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Friday 23rd February 2024

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The caution we’ve been seeing in the US share market has dissolved completely since the release of NVIDIA earnings yesterday. NAB’s Ken Crompton says the euphoria has even spread as far as Japan. But is too much good news taken by the Fed as another reason to delay rate cuts? You could also question whether the ECB will delay longer than June. The minutes of their last meeting note the risk of cutting too early if greater than the risk of a delay. Today the diary is light, with retail sales for New Zealand the focus. A weak result would surely remove the chance of a hike by the RBNZ next week?

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Thursday 22nd February 2024

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The FOMC minutes this morning didn’t provide many surprises, except warning that inflation could pick up and more evidence was needed. All reasons to delay cuts until, possibly June. Meanwhile, as NAB’s Gavin Friend points out, the ECB has almost committed verbally to a June cut. Now we’re seeing louder voices inside the BoE warning that delaying cuts will have harmful impacts on the economy, which has the potential to also move to a June cut. No such luck with the RBA though. Yesterday’s wage inflation data, even though it came in almost as expected, it’s still too high for the policy makers to feel comfortable. 

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Wednesday 21st February 2024

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Canada’s latest inflation rate came in lower than expected overnight, prompting the inevitable speculation about an earlier cut from the Bank of Canada. April perhaps? Phil asks NAB’s Skye Masters whether this means they’ll be the first major central bank to move lower, as others seem to be pushing expectations back a little. Although UK gilt yields dropped after the BoE’s Andrw Bailey said to a government hearing that market expectations for a rate cut this year are not unreasonable. Today Australia’s wage rice index is released. NAB expects it to come in line with RBA forecasts, but we’ll see.

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