Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
Journalist Tarric Brooker and I look at the US election results, and consider the implications for us all. Things have just changed profoundly.
See the slides here: https://www.burnouteconomics.com/p/dfa-chart-pack-us-election-special
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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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To the surprise of no one the Federal Reserve cut its benchmark interest rate on Wednesday as signalled in my earlier post, and they went for the more aggressive half percentage point. The Federal Open Market Committee voted 11 to 1 to lower the federal funds rate to a range of 4.75% to 5%, after holding it for more than a year at its highest level in two decades. It was the Fed’s first rate cut in more than four years. Governor Michelle Bowman dissented in favor of a smaller, quarter-point cut — the first dissent by a governor since 2005 and the first dissent from any member of the FOMC since 2022.
The impact of the first cut from the FED echoed through global markets. But remember that the FED shift lower to 4.75% to 5% probably won’t impact the Bank of England’s latest rate decision, which will most likely be a hold, following last month’s cuts.
So far as Australia is concerned, the new FED rates are still significantly higher than the RBA’s weak 4.35%, and inflation in Australia is running much hotter as a result. The data flows in Australia also suggests no reason for the RBA to cut anytime soon, as for example the the unemployment rate was steady at 4.2 per cent in August, according to seasonally adjusted data released today by the Australian Bureau of Statistics.
And another data point from the ABS showed that Australia’s population grew by 2.3 per cent to 27.1 million people in March 2024. Our population at 31 March 2024 was 27.1 million people, having grown by 615,300 people over the previous year. Net overseas migration drove 83 per cent of this population growth, while births and deaths, known as natural increase, made up the other 17 per cent.
I don’t thing the FED’s move based on inflation at 2.2% there has much relevance in the short term in Australia. Were it not for the massive flood of migrants and the job creation programmes funded by state and federal government, we would probably be in a recession, and rate cuts would already be in play. But the brutal truth is Government policy is keeping rates higher for longer.
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Wednesday was it turned out, a game in two halves, with a slightly better than expected CPI read in the morning, before the Fed’s no change decision later, but impacted by a more hawkish stance in the subsequent press conference. Risk-on assets had rallied after the CPI report showed the US core consumer price index fell to the lowest in more than three years. But later, the Federal Reserve penciled in just one quarter point interest-rate cut this year, down from three seen in March.
The CPI core goods inflation was in negative territory, but the news was not all as good. Remember that to account for the ongoing questions over measuring shelter prices, Chair Jerome Powell and his colleagues chose to focus on the so-called supercore of services excluding housing, a measure particularly influenced by wages. The good news is that both indexes fell last month — a bit. The bad news is that they’re still far too high for comfort and continue to make it hard to cut rates.
And The FED decided to hold rates, but played the data dependent, higher for longer card, again.
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Higher for longer is back baby, following the latest CPI data from the Bureau of Labor Statistics which came out today, for March. It was significantly up on expectations, the third month in a row this has occurred. This signals a fresh wave of price pressures that will likely delay any Federal Reserve interest-rate cuts until later in the year, or even later into next year.
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This year’s $6.5 trillion rally in stocks hit a wall, following hot labor-market data and a ramp-up in Treasury issuance just a day after a US credit downgrade by Fitch Ratings.
As a result, Wall Street finished lower on Wednesday, with the S&P 500 and Nasdaq Composite down for a second straight day as investors took profits on five months of gains a day after rating agency Fitch cut the U.S. government’s credit rating.
Fitch downgraded the United States to AA+ from AAA late on Tuesday, citing expected fiscal deterioration over the next three years as well as growing government debt. Fitch was the second major agency to cut the country’s rating. In 2011 Standard & Poor’s stripped the country of its triple-A grade.
Pushing back hours before her department is set to ramp up its borrowing to plug a ballooning budget deficit, Treasury Secretary Janet Yellen called the downgrade “arbitrary” and “outdated.” The economy has recently shown signs of resilience and the debt limit was ultimately lifted, she noted.
The US budget deficit surged to record levels when the government spent heavily to support households and businesses as Covid shut down the economy. It shrank last year, but now it’s widening again. The federal deficit hit $1.4 trillion for the first nine months of the current fiscal year, almost triple the year-earlier figure. The US Treasury this week boosted its borrowing forecast for the current quarter to $1 trillion, well above the $733 billion it had predicted in May.
Fitch’s downgrade is a signal that the US needs to get its budgetary process in order ahead of what looks like another political fight this fall, and possibly another government shutdown.
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Today’s post is brought to you by Ribbon Property Consultants.
The latest US data on CPI, jobless claims, inventory and producer prices are all signaling potentially lower inflation. Yet the markets still hold to their view of a hike this month in July, as signaled by the FED, and possibly another later.
So what’s going on?
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The bare bones of an agreement was announced late Saturday night in the US, and assuming its passed on the hill , the debt ceiling crisis looks like it has been postponed until 2025. As the US markets are closed on Monday for Memorial Day, we can expect Asian markets to react first! It is also a Bank Holiday in the UK!
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
The bare bones of an agreement was announced late Saturday night in the US, and assuming its passed on the hill , the debt ceiling crisis looks like it has been postponed until 2025. As the US markets are closed on Monday for Memorial Day, we can expect Asian markets to react first! It is also a Bank Holiday in the UK!
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Just a couple of days ago, markets bounced on the back of hopes talks on raising the US debt limit were in play, on growing confidence a deal to raise the $31.4 trillion debt limit could be reached in coming days, with the benchmark S&P 500 climbing more than 2%. But as this came to a sudden halt, the optimism that had been building through the week fell away. As a result, U.S. stocks ended lower and the dollar lost ground on Friday as the negotiations to raise the U.S. debt ceiling were put on hold, yet moving closer to the deadline to avoid default. Then reports were made suggesting talks had recommenced.
Initial reports that debt ceiling negotiations had reached an impasse rattled markets even as investors were scrutinizing Federal Reserve Chairman Jerome Powell’s remarks in a panel discussion for clues regarding next month’s interest rate decision. In his remarks, Powell said that uncertainties surrounding the lagging impact of past rate hikes and recent bank credit tightening made it unclear whether more monetary tightening will be necessary.
All this is creating febrile markets, where big players can trade the volatility. But others may be best on the sidelines!
CONTENTS
0:00 Start
0:15 Introduction
1:00 Debt Ceiling Impasse?
2:15 Powell On Inflation, Credit and Rates
6:24 US Markets
11:08 Europe and UK
13:40 Asian Markets
17:15 Gold
18:32 Oil
19:40 Australian Markets
21:20 Crypto
22:54 Summary And Close
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Go to the Walk The World Universe at https://walktheworld.com.au/
