Ian Reynolds
Australia is at a key point in it's history, both in it's status as a possible republic, and it's place in the global economy.
No comment about the first point, but there is an ongoing flux in the (too many) levels of government in Australia. There are some very key questions Australians need to address.
- What defines an independent central bank ?
- Do we have the right people running the central bank ?
- Is the new Labour Government using fiscal policy to support monetary policy?
- Are we moving economically in right direction currently ?
Let's take a look at point 4
Great article by Christopher Joye in AFR. Nice footnote. This author pulled may all-nighters in The City back in the day. Wasn't connected to work though !
For a long time I have been saying Australian interest rates are too low. And they still are. By a long way. I think the cash rate could almost double to 7%.
Think back to the Liz Truss saga in the UK. Markets had been deeply sceptical of the abilities of Andrew Bailey and in fact of the Bank of England's ability to manage current monetary policy. 5th biggest economy in the world. G7 member. Home of global capital markets. The UK can weather a lot of storms.
BOE had been hiking rates to rein in inflation but the new Prime Minister wanted to borrow more money and reverse tax hikes and more, all of which were contrary to what the BOE was trying to achieve.
The markets said NO. Sterling fell out of bed and Liz had to leave office after only 44 days. Not to mention the Treasurer that got thrown under the bus.
The point is that with fiscal and monetary policy moving in different directions the market lost confidence.
Sterling traded lower with higher rates, not higher. Like an emerging market currency.
Back to the point. RBA, having been thrown under the bus by the Treasurer is back hiking rates. The Treasurer just delivered a budget that was inflationary.
Are we going down the Truss route ?
Ongoing trade setup below
In Case You Missed It
US CPI slightly lower but still elevated
Bank of England Hikes
German manufacturing orders skid 10.7% in March, far worse than forecast
Australia
Federal Budget 2023 was rather lame after all the rhetoric. Inflationary for choice.
Budget surplus expected: A $4.2 billion surplus is predicted for the 2022-2023 financial year.
Small business asset write-off: One-year small business instant asset write-off for assets up to $20k.
Small Business Energy Incentive: One-year Small Business Energy Incentive to switch to efficient energy sources.
Household Energy Upgrade Fund: $1.3 billion Household Energy Upgrade Fund for home upgrades that save energy.
Boost to cyber skills:$23.4 million “Cyber Wardens” program to boost cyber skills in small businesses.
Minimum tax for multinationals: 15 per cent global minimum tax and a domestic minimum tax from 1 January 2024 for multinational groups with global turnover of $1.2 billion or more.
Superannuation tax: Future earnings on super balances over $3 million will be taxed at an additional 15 per cent from 1 July 2025.
Change to super guarantee contributions: Employers will be required to pay compulsory super guarantee contributions on payday rather than quarterly (from 1 July 2026).
Thanks to CPA Australia for the breakdown
AUD / USD Trade Update
Short 0.7000
Short 0.7100
Short 0.6775
Stop 0.6825
Positive carry
Sold final amount, Now limit up. Triple top ?
See. I said last week it would only go down when I stopped saying it would.
On that basis I won't say any more.
This Week's Economic Indicators [London time]
