Well, it finally happened – the US Fed cut interest rates this week, and we got a double dose: a whole -50bps knocked off. But therein laid, perhaps, a puzzle: markets went down. Why? Because that -50bps cut everybody was waiting for became interpreted as a panic signal of an economy that needs to drastically turn the ship around.
This probably isn’t the case as supported by the world’s leading economy’s latest jobs figures, and on the second Wall Street day post-cut, markets reacted more like how you’d expect. Cue a record high for gold, cue a jump for copper, cue a fresh all time high for the ASX200.
So what about the RBA?
Probably unsurprisingly, the Fed cut momentum more or less instantly had traders down under feeling better. Bets that the RBA will cut rates in Q1 of CY2024 have picked up compared to Monday this week and there’ll be a lot more of this talk. Only thing is, Aus unemployment came in this week at 4.2% for August; unchanged from July, and what’s more, unemployed persons fell 10,000.
Implies a tight labour market, implies people walking around with money to spend, implies inflation stays higher for longer. It’s going to do that anyway, given our entire housing sector is, to put it politely, fucked. It’s the biggest driver of inflation; those who own seven digit valued properties don’t really have anywhere to move, either.
Also, the RBA has been repeatedly saying it won’t cut until late next year. As ever: who knows.
Let’s talk mining. A fresh report from McKinsey has found, globally, coal and steel remain by far the biggest drivers for mining activity wholemeal. Battery and energy transition metals are, compared to the entire planetary-wide mining sector snapshot, more or less negligible. Of all the ESG-linked metals, copper remains the big fish in that pond.
But a mix of interest rates and lower commodity prices this year have also hit explorers from the smalls to the bigs of MiningLand which is palpable for anyone who watches the ASX announcement boards daily – just look at how many companies are hinging entire exploration campaigns on rock chips, the cheapest way to explore – and my own personal anecdata suggests there’s sure as hell less people drilling than they were four years ago.
That’s backed up by the latest update from mining assay lab service provider giant ALS, which highlighted wobbly earnings in its minerals division and an uncertain outlook. Mining is expensive, and it’s interesting we’re not hearing more about that. Now you are.
And despite the fact this will probably anger the HotCopper community, I’m going to mention climate change – but only for a sentence! How’s this for a value proposition?: new US research shows 10,000 older Americans die sub-natural-age each year due to bushfire smoke pollution.
(But that wouldn’t matter for Australians, right?)
See you next week.
Australian Economy
- Beware irrational US contagion excitement: Oxford Econ says RBA rate cuts late 2025
- Australia inks trade deal with the UAE
- Australian unemployment remains at 4.2%; unchanged MoM; unemployed down 10K
International Equities
- The premium companies get for mentioning ‘AI’ in earnings is fading: FactSet
- Skechers falls nearly -10% as it flags tough times in Chinese retail
- US markets rally on day 2 of -50bps rate cut firstly seen as a panic signal
International Economies
- Fed cuts rates by 50bps
- China unlikely to hit EOY 5% GDP target: Societe Generale
- Canada’s central bank may be planning for faster rate cut cycle: FT
Australian Equities
- Citi tells ASX-facing clients to beware rising mortgage arrears on Big 4’s books
- Assay lab giant ALS flags headwinds in minerals division as explorers feel the bite
- Arcadium Lithium eyes Australia exit
Commodities
- Citi call US$38/oz forecast for silver prices per ounce; bullish an understatement
- Gold hits yet another all time high
- Steel and coal remain largest global drivers for mining: report
- Copper prices hit 2mth high after US Fed rate cut