Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
No easing in cycle yet as ‘confusing’ RBA changes tack: Sage
The path to a soft landing in the Australian economy has narrowed, with the Reserve Bank of Australia’s latest switch back to increasing rates creating more risk around household spending and increasing the chance of a recession, according to analysis from domestic long/short equity fund manager Sage Capital.
In a recent market update Sage lamented the RBA’s recent decision to re-engage interest rake hikes after pausing only the month before. On May 2 the RBA lifted the official cash rate from 3.6 per cent to 3.85 on May 2, adding roughly another $100 per month in repayments on a $600,000 home loan.
Since the hiking cycle started a year ago, around $1,300 in monthly payments has been added to a $600,000 loan.
While RBA governer Phillip Lowe said the pause was to give the time to analyse the economy, the misdirection is seen by some economists as having the effect of undermining confidence in its path.
The ASX/200 fell 0.7 per cent in the immediate hours after the RBA’s rate decision was announced.
“In Australia, policy outcomes have been even more confusing as the RBA changes tack from pausing to inflation fighting,” Sage commented in its market update to investors. “More work likely needs to be done in this regard, as real rates remain negative and below the level of other countries, while recent inflation data has displayed some more worrying trends.”
Those trends are what’s keeping Lowe on edge. Inflation has declined slightly from its December peak of 7.8 per cent but is still far from the RBA’s stated goal of 2 to 3 per cent.
According to Sage, the pain is likely to continue for consumers as swathes of fixed rate loans reach their term limit and fall off the ‘cliff’ to inflated variable rates.
“Consumer stress is likely to get worse from here as a large proportion of low fixed rate mortgages roll off over the coming six months,” Sage stated.
The RBA did little to abate this concern, with Lowe reiterating its commitment to stifling inflation at any cost.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” Lowe said.
“The [RBA} board will continue to pay close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market. The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
