The biggest news this week in macro-land was the US Federal Reserve’s decision to keep interest rates on hold at 5.5%.
If this surprised anybody, I’m not too sure why. Messaging from Powell was mixed – and people care far more about what he says than what the numbers show, which is perhaps a testament to how bad some people are at coming to their own conclusions.
Pretentiousness aside, Powell both downplayed the chance of any future rate hikes (that’s good!,) but also indicated that we’re still a while away from cutting rates (that’s bad.) Don’t forget that at the start of 2024, much of the market genuinely believed we’d see interest rate cuts before June.
Then the market begrudgingly accepted that, okay, maybe that’s unrealistic, but we’ll definitely see the first cut in June. June, surely, right? Well, that’s not so sure anymore either – with US PCE inflation (and CPI) higher than ideal, and GDP growth much softer than expected, it’s looking like the Fed cut probably won’t be coming in June.
As for Australia, ANZ bank sees a rate cut in November (they could change that forecast soon, I have a spidey sense,) but ING bank has come out backing Powell by saying it doesn’t think we’ll see any Fed rate hikes either, so, that’s good. The world also continues to wait to find out if the ECB will cut rates in June.
Australians, however, may need to brace for a world in which we don’t see any rate cuts in 2024 at all – but that remains speculative, and we’ve all learned by now how surprise economic data can create entirely new narratives overnight.
With that said, the RBA has been saying it won’t hit the target band of 2-3% CPI inflation until late 2025 for a good while now. It hasn’t budged in that conviction, and heading into the middle of Q2CY24, it looks like that might be about right.
Unless a believer in modern monetary theory gets into Powell’s ear.
That theory, in the context of the current post-COVID inflation puzzle, posits interest rate hikes are actually causing inflation, given that higher interest rates give more money to older Americans who we already know are the driving force behind the economy right now, at least per one Wall Street Journal feature.
Interesting stuff. And don’t forget that US debt continues to climb to insane levels.
A final note: we’ve seen Brent Crude take a breather this week, falling back down to levels closer to US$80/bbl as opposed to US$90/bbl – the American benchmark, WTI, actually slipped below US$80/bbl into the high $70’s.
While replenishment of US inventories is part of the fallback, the real factor is geopolitics – reports indicate that Israel and Hamas are closer than ever to a truce agreement despite repeated claims from Israel there will be an invasion of Rafah.
In the meantime, the USA and Saudi Arabia are reportedly moving towards a new peace accord – sans Israel this time. The three were set to broker a peace deal right around October last year, which some analysts believe was why Hamas invaded Israel in the first place.
One to keep an eye on, of course. Oil likes to surprise.
Australian Economy
- Australia’s March trade surplus the lowest since November 2020: ABS
- CBA says Australia’s Q1 GDP growth will be hit by 3.5Y-low-surplus
- Australian housing approvals well below Canberra’s housing target: Oxford Econ
Australian Equities
- Rio Tinto CEO stays tight-lipped when asked about Anglo takeover at AGM
- Bapcor drops -35% on yet another guidance downgrade
- NAB’s 1H24 cash earnings down -12.8% YoY; UBS issues ‘Sell’ call
- Woolworths’ latest earnings missed analyst expectations: Jarden
International Economy
- US Fed keeps rates on hold – but Powell hints rate to cuts now longer
- USA and Saudi Arabia quickly nearing historic defence pact without Israel: Bloomberg
- US factory investment has soared since the end of 2022: PIIE
- ING says further Fed rate hikes “unlikely”
International Equities
- Institutional investors are increasingly active in foreign currency exchange markets
- Hedge Fund Elliott Management adds Anglo American stake to its portfolio
- Starbucks shares hit two year low on cloudy demand outlook in US & China
Commodities
- Uranium climbs above US$90/lb as US passes Russian uranium ban
- Brent Crude falls to US$83/bbl on US replenishment beliefs; MidEast truce talks
- Neodymium prices are up +13% MoM as YoY losses slowly pare away