Category: Economics and Banking

Dollar Taking No Prisoners As Fed’s Hawkish Cut Spooked Markets!

There was always going to be a question about the Fed’s December decision, would they react to the latest data, or position ahead of the Trump 2.0 policy set coming in 2025? Well, it looks like both were in the minds of the Monetary Policy committee, as Federal Reserve officials lowered their benchmark interest rate for a third consecutive time, but reined in the number of cuts they expect in 2025, signaling greater caution over how quickly they can continue reducing borrowing costs.

The Federal Open Market Committee voted 11-1 on Wednesday to cut the federal funds rate to a range of 4.25%-4.5%. Cleveland Fed President Beth Hammack voted against the action, preferring to hold rates steady.

Markets fell heavily in the US, and Asia, with the DOW and SP500 down more than 2.5% and the NASDAQ more than 3.5% lower. This was the largest post FED market move in 4 years. Falls were widespread. The ASX 200 slid 1.7%.

Bonds were stronger, . The US two-year note’s yield, more sensitive than longer maturities to Fed policy shifts, led the move in Treasuries, rising as much as eight basis points to 4.33%, the highest level since Nov. 25. and the US dollar rose, with the DXY up to 108.10.

The moves have reignited questions about how far central banks across Asia are willing to go to defend their currencies — and how much impact their moves will have. Indonesia’s central bank said on Thursday that it was intervening to push back against a selloff in the rupiah, while the People’s Bank of China used its daily reference rate to support the yuan.

Weaker currencies tend to raise the price of imports to a country, fueling domestic inflation. Further rate cuts could also put more pressure on currencies as investors look elsewhere for returns, exacerbating the impact of dollar strength.

Not good for chances of an RBA rate cut in 2025.

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DFA Live HD Replay: The Great Housing Bust, And What Can Be Done About It: With Leith van Onselen

This is an edit of a live discussion with Economist Leith van Onselen, Co-founder of MacroBusiness, and Chief Economist at Nucleus Wealth. We will pick apart the latest housing disasters, and why things have gone so pear shaped, but also what could be done (with political will) to sort this mess out! It is NOT rocket science…

You can ask a question live!

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https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ for our One to One Service.

Markets: Are You Confused Yet? You Should Be!

This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia, covering commodities and crypto along the way. MSCI’s global equity gauge fell on Friday while bond yields climbed as investors waited for clues about the future path for interest rates and Europe’s STOXX 600 index closed down 0.53% earlier, breaking a three-week winning streak, as investors sought clarity on Europe’s rate policy amid concerns about economic growth and a potential trade war.

As we run down to the end of the year, a flurry of Central Bank rate announcements signalled a confusing picture, with the RBA holding, the ECB cutting as expected, alongside Denmark at 25 basis points, and Swiss Bank cutting unexpectedly as it sought to head off gains in its currency along with Canada both doing a bigger 50 basis point cut. Next week, we have more Central Bank action, with the Federal Reserve, Bank of England and Japan all joining the party. While investors are betting on a quarter point rate cut at next week’s Federal Reserve policy meeting, expectations are rising that the pace of rate cuts is poised to slow, with an 80% probability of a hold in January, while cuts in the UK and Japan are not expected. So, you can see monetary policy is all over the shop.

The shadow of president-elect Trump’s pledge to impose hefty tariffs on imports from around the globe, especially China, as well as his promise for massive corporate tax cuts haunts the markets. These policies are seen as fueling inflation, which has been proving sticky even before Trump’s plans are enacted.

Finally, Bitcoin was once again touching $100,000 US, as Bitcoin proponent Michael Saylor tweeted: “We are all competing for $45m in #Bitcoin mined daily.”

Curiously, earlier this week, another big Bitcoin supporter and maximalist, the chief executive at JAN3, Samson Mow, shared that he expects miners to stop selling the BTC they mint in the near future. He urged the market to be prepared for that and plan their Bitcoin accumulation accordingly. Earlier this week, Saylor commented on a Bitcoin warning tweet published by Binance founder CZ. Changpeng Zhao issued a major reminder that more than 19 million Bitcoin from 21 million have been mined already. Saylor tweeted that the crypto space is running out of Bitcoin. It was last at 101,300, and will likely wobble around this level for some time.

Given significant uncertainty ahead, markets are generally overvalued, and prone to volatility and potential falls, so cash returning 4 or 5 percent relatively risk free might look a good option for now!!!

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The RBA’s “Wild Ride”, While Rates Remain On Hold…

The Reserve Bank left its cash rate at 4.35% on Tuesday in a widely anticipated decision, marking more than a year at that level. The rate-setting board said “some of the upside risks to inflation appear to have eased” and scrapped a longstanding line that it wasn’t ruling anything in or out on policy.
Australia’s central bank said it’s “gaining some confidence” that inflation is moving sustainably toward target, prompting traders to boost bets on interest-rate cuts starting as early as February.

That said, with the CPI up 16% over 3-years and the real costs much higher to households, this will be seen as a further dampener on household spending and confidence. Other reports recently have been highlighting the pressures on households as I discussed yesterday.

Asked what she had made of the new arrangements in her first full year of press conferences, the governor said it’s been “a bit of a wild ride for me.” Households could rightly say the same!

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The RBA Faces Mixed Signals, But Will Likely Stand Firm On Rates…

The RBA meets Tuesday, with economists and markets predicting no change to rates. Indeed, not til later next year will rates likely come down, barring some external shock. Governor Michele Bullock said last month that inflation remains too high to consider a cut in the near term.

At the heart of the problem is the Governments spending a greater share of the economy, and stoking jobs in the public and related sector, like healthcare. States are also spending like drunken sailors, and the federal government is throwing more money at households via the electricity subsides. This is all inflationary.

On the other hand, the RBA did not take the cash rate as high as many other central banks did. As a result we have a shallower path, dodging a recession by the rate water torture will continue for longer. The upshot has been a cautious central bank that has kept the cash rate at 4.35% for the past year. By comparison, the Federal Reserve may cut for a third straight meeting this month.

So we will muddle through into 2025, and possibly face an election with rates at 4.35%. This could well become a cat fight with the RBA caught in the muddle, sorry middle.

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Kiwis See Another Rate Cut As The RBNZ Takes A Different Path!

The New Zealand Reserve Bank’s Monetary Policy Committee lowered the Official Cash Rate to 4.25% from 4.75%.

The bank’s updated projections are consistent with another 50-point reduction at its next decision on Feb. 19, Governor Adrian Orr told reporters at a press conference. “But it’s also conditional on economic projections panning out,” he said.

“Economic growth is expected to recover during 2025, as lower interest rates encourage investment and other spending,” the bank said. “Employment growth is expected to remain weak until mid-2025 and, for some, financial stress will take time to ease.”

This is a very different path compared with the RBA’s 4.35% well into 2025.

Sometimes a short sharp shock is better!

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Its Edwin’s Monday Evening Property Rant!

In this weeks show Edwin, our property insider and I look at the latest designs for higher density housing and highlight some important questions for prospective purchasers and governments. It won’t end well.

And we look at the relative performance of markets, comparing Sydney and Melbourne. What is the media pushing, and what is the reality?

And of course we look at the latest numbers and our tips for the week.

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Today’s post is brought to you by Ribbon Property Consultants.

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Is The Bitcoin Rocket Shooting For The Moon?

I caught up with Troy Harris a Crypto Advocate and Author of “CRYPTO NEW RICH” in the week Bitcoin rose above US$80,000 after the recent Trump victory.

We explored what is going on here, and what factors could drive the price of Bitcoin even higher.

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Albo: It’s the Economy Stupid!

The early results from the US election indicates a strong Trump win. It is clear that households have reacted to the significant rises in costs of living, and put the economy and migration ahead of other issues such as rowe v wade related issues.

It’s the economy stupid, a phrase coined by James Carville in 1992, when he was advising Bill Clinton in his successful run for the White House.

Forget that, and you get ejected as Rishi Sunak in the UK and Biden in the US can attest. And the focus is not stock market performance, but whether people feel better off or worse off than previously. There are of course always excuses, such COVID and wars, but at the end of the day personal finances lead. This is important given the upcoming Australian election and to that end, its worth underscoring that while the first wave of inflation was global and pandemic-related. But later waves were home grown. Albo made Australian inflation much worse than it needed to be, drove interest rates higher than they needed to be, and gutted households much more than they needed to be!

All up, the real costs of living are still significantly elevated compared with the start of Albo’s Government, so they risk becoming a one term Government, with poles neck and neck at the moment.

This helps to explain the move announced over the weekend to reduce HEC debt and offer more TAFE places, in an attempt to paper over the damage. But Albo, just remember it’s the economy stupid!

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DFA Live Q&A HD Replay: Investing Now With Damien Klassen

This is an edited version of a live discussion with Head of Investments at Nucleus Wealth and Walk The World Funds, Damien Klassen. As the US election closes out, and the RBA releases the latest decision, how are markets shaping up, which segments are risk exposed, and what strategies need to be considered given the international cross currents and economic uncertainties.

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