Overnight, we saw the US Business Index and Small Business Sentiment both sink lower. Already being at GFC levels. Mortgage firms in the US started laying off workers. Sounds familiar?
US equities remained heavy as interest rates look set to continue a rather relentless march higher. No matter how much economic pain this causes.
Bizarrely, in Australia, we now have the Reserve Bank Governor doing media appearances to win over public opinion. With misdirection on several questions in last night’s ABC interview, he sought to paint the RBA as “understandably” wrong.
RBA vows to chase inflation no matter what
What was particularly worrying is that he has now latched onto the idea of chasing inflation with higher rates no matter what. Saying families will be OK because only some will find they stretched too far when purchasing a home in the past couple of years.
Yes, encouraged by his words. Governor Lowe, for low performance, even went so far as to say he never promised no rate hikes until 2024? Talk about re-write history for yourself?
For markets, it is just the final nail in the coffin of any bull market believers. Rates will be going up even if they hurt the economy. Governor Lowe has always been a simple man and now he has a simplistic target of fighting inflation no matter what. This is after saying all last year that inflation was nothing to worry about. Lowe is set on yet another path to conduct terrible policy.
Australia – China trade
Meanwhile, the Albanese government has demanded China remove all restrictions on trade.
Why? The reason they were put in place was Australia became the diplomatically most aggressive nation in the world against China.
The Americans took full advantage and took over some of our export contracts.
Now, suddenly, Australia still thinks it is all China’s fault and they should remove the restrictions. China is probably wondering where the apology is first.
As I said at the time, Morrison was unravelling decades of previous Prime Ministers building a fabulous relationship with China. That backfired badly and it will take nearer a decade to repair the relationship.
China will always listen to criticism behind closed doors. It was the Grandstanding of the previous PM, especially using his United Nations address over two years to attack China that has done severe long-term harm to the relationship. Including trade. To expect an immediate turnaround without a behind closed doors apology is naive.
You may not agree, but it is what it is. Can Australia try some real diplomacy for a change instead of grandstanding for the domestic vote?
Overall, with a slowing global economy, and the risk of recession in Europe, USA and China simultaneously, the external sector does not look good. Domestically, Governor Lowe will do everything he can to cause a recession. Does he still think the economy will continue to be strong?
The outlook for Australian equities and the Australian dollar remains bearish.
Expect some volatility around the Fed rate hike which may only be 50 points, though 75 is possible. After a few days of stock market consolidation, then expect the bear market in the US and Australia to resume.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
