Better late than never

Delivered on By Justin Pyvis

Good morning! Well this is awkward – after ScoMo slammed Labor’s ill-conceived housing equity scheme by saying “the government and Anthony Albanese [want] to own your home”, video emerged showing a younger ScoMo from around 12 years ago (during the global financial crisis) saying:

“We suggested that the (Labor) government take out of that $8 billion they put aside for residential mortgage backed securities, they take $500 million of that, that is already out there and put that into shared equity mortgages.

Because shared equity mortgages are a really good opportunity if you do get into mortgage stress, you can reconsolidate your mortgage, you can go on a situation where the bank take effectively a portion of equity in your property and that way you can reduce your payments.”

That’s certainly different to Labor’s scheme but jeez it must be tough to keep track of every viewpoint you’ve claimed to have held when you’ve been a politician for 15 years!

Reading the tea leaves

Daily % change







AU Bond



US Bond









Brent (bbl)



Gold (oz)



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Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries.

The US S&P500 edged up 0.48% ahead of the US Federal Reserve’s latest announcement, at which it’s expected to hike rates by 50 basis points.

Locally the ASX200 fell -0.42%, plunging after the Reserve Bank of Australia (RBA) shocked the market by hiking a full 25 basis points (see Food for thought below for more). The Aussie dollar and bond yields shot up on the news.

In terms of market sectors, only tech (+0.90%), health care (+0.38%) and industrials (+0.10%) managed to eke out gains while real estate was hit the hardest (-1.34%), with S&P Global forecasting a lift in home loan arrears as rates rise.

An notable mover was AGL Group, which fell -2.67%% after tech billionaire Mike Cannon-Brookes revealed an 11.28% stake in the energy giant, making him the largest shareholder. He “vowed to vote against a proposed demerger that would see AGL split into two entities”.

Food for thought

The market messed up the timing of yesterday's rate hike but it's now pricing in a further 3.15 percentage points of hikes over the next year alone.
The market messed up the timing of yesterday's rate hike but it's now pricing in a further 3.15 percentage points of hikes over the next year alone. Source

At long last, the Reserve Bank of Australia (RBA) “decided to increase the cash rate target by 25 basis points to 35 basis points”, the first increase since November 2010 [emphasis ours]:

“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected. There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions…

The central forecast for 2022 is for headline inflation of around 6 per cent and underlying inflation of around 4¾ per cent; by mid 2024, headline and underlying inflation are forecast to have moderated to around 3 per cent. These forecasts are based on an assumption of further increases in interest rates.”

Somewhat surprisingly, the RBA also said it would adopt a form of quantitative tightening by letting its bond purchases roll off its balance sheet when they expire (at a significant loss):

“The Board does not plan to reinvest the proceeds of maturing government bonds and expects the Bank’s balance sheet to decline significantly over the next couple of years as the Term Funding Facility comes to an end.”

It also flagged further rate rises and attempted to reassure people that it hasn’t lost its inflation-busting credibility, despite getting it so very wrong over the past year:

“The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead.”

Better late than never! Inflation problems such as the one we face today are caused in part due to the RBA’s dual mandate of unemployment and inflation, itself a legacy of the Phillips curve and “activist policy of the 1970s”, a theory to which governor Philip Lowe’s RBA subscribes.

Ending the RBA’s dual mandate by dropping the unemployment component – which is better left to economic policy – and forcing it to focus solely on price stability would go a long way to preventing another RBA-induced inflation crisis in the future.

In the meantime, we can only hope that the RBA belatedly manages to pull inflation back without also causing a costly recession.

We’re not confident.

Chewing the fat

Bits and bytes

🐷 Westpac wasted no time responding to the RBA’s rate hike, announcing 8 minutes after the news that it was “currently reviewing our variable interest rates”. Of the ‘big four’, so far only NAB has yet to pass on the full 25 basis points.

📈 Consumer prices in South Korea grew at their fastest rate for 13 years in April, rising 4.8% from a year ago, well above the market forecast of 4.4%. The Bank of Korea has a 2% target.

👴 A temporary fix, but China likes those: “If China were to raise retirement age to 65 over next 20 years, the labour supply issue disappears.”

🥝 The Kiwi government raised its debt ceiling to 50% of GDP, up from 20%, “with the flexibility to go higher in response to a significant economic shock”.

🧳 Who needs luggage when travelling between hemispheres, anyway? “An issue with the runway pavement at Darwin Airport… meant we weren’t able to carry some passengers' bags on their flight.”

👩‍⚖️ In a leaked draft, the US Supreme Court “voted to strike down the landmark Roe v. Wade decision… which guaranteed federal constitutional protections of abortion rights”.

📝 Victoria’s government released its budget yesterday, “an upbeat assessment… [forecasting] a $650 million surplus within four years”. Net debt will rise to over 25% of the state’s economy by 2025-26.

😲 “100-year-old man breaks Guinness World Record for working at same company for 84 years.”

🛢️ Insiders reported that to keep the 27-nation bloc united, any Russian oil embargo implemented by the EU might offer Slovakia and Hungary “an exemption or a long transition period”.

📉 The CIO of global investment and advisory financial services firm Guggenheim Partners, Scott Minerd, warned that: “We’ve never been able to reduce inflation by more than two percentage points in the US historically without inducing recession.”

📣 Elon Musk is trying to convince Twitter’s shareholders to accept equity in his new private company rather than taking cash, to limit the amount of wealth he needs to tie up in the deal.

⚔️ US officials claimed that Russia’s “President Vladimir Putin could formally declare war on Ukraine as soon as May 9, a move that would enable the full mobilization of Russia’s reserve forces”.

👷‍♀️ Unemployment in the eurozone hit a record low 6.8% in March while real hourly wages fell at their fastest ever rate, prompting “unions to step up demands for higher wages to offset soaring energy and food prices, which lifted eurozone inflation to an all-time high of 7.5 per cent in April.”