Its got a magic to it

Delivered on By Justin Pyvis

Good morning! Today’s the day – will the Reserve Bank of Australia (RBA) belatedly raise the cash rate, or defer yet again to avoid hiking in an election month?

The last time the RBA raised rates in an election month was back in November 2007, the same month that Prime Minister John Howard was bounced from The Lodge and what turned out to be the antepenultimate rate hike before the global financial crisis struck.

For what it’s worth, interbank futures suggest no change:

"The RBA Rate Indicator shows market expectations of a change in the Official Cash Rate (OCR) set by the Reserve Bank of Australia."
"The RBA Rate Indicator shows market expectations of a change in the Official Cash Rate (OCR) set by the Reserve Bank of Australia." Source

Reading the tea leaves

Daily % change

AUD/USD

70.5

-0.4%

AUD/CNY

4.66

-0.2%

AU Bond

3.31

+2.2%

US Bond

3.00

+3.8%

ASX200

7,347

-1.2%

S&P500

4,155

+0.6%

Brent (bbl)

109.5

0.0%

Gold (oz)

1,863

-2.4%

Iron ore (t)

146.5

0.0%

Bitcoin

38,471

+0.0%

Ethereum

2,838

+0.4%

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

TheΒ US S&P500 surged late to add 0.57%, shrugging off news of a disappointing ISM national manufacturing activity gauge, which “grew at its slowest pace in more than 1-1/2 years in April”.

Earlier in the day yields on US 10-year Treasury notes passed 3% for the first time in more than three years ahead of a two-day Federal Reserve meeting that kicks off tonight (US time), at which the Board is expected to further tighten monetary policy. Bond yields have now doubled since the start of the year, pressuring valuations of companies that trade on future earnings (e.g. tech).

Iron ore and Brent crude oil prices were unchanged due to the Labour Day and May Day holidays in Singapore and London, respectively.

Locally, theΒ ASX200 fell -1.18% with all 11 sectors declining after Friday’s bloodbath on Wall Street, led by tech (-3.97%).

A notable mover was Qantas (+2.86%), which announced that it expects to return to profitability in the next financial year and “had ordered 12 A350-1000 planes from Airbus to be used on what will be the world’s longest commercial flight from Sydney to London, as well as 40 narrowbody jets to renew its domestic fleet”.

Qantas' ultra long-haul non-stop flights from Australia’s east coast to London and New York are expected to commence by the end of 2025.


Food for thought

Investment legends Buffett and Munger are no fans of crypto.
Investment legends Buffett and Munger are no fans of crypto. Source

At the Berkshire Hathaway Annual Shareholder meeting over the weekend the Oracle of Omaha, Warren Buffett, had the following to say about Bitcoin:

“Whether it goes up or down in the next year, or five or ten years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything. It’s got a magic to it and people have attached magics to lots of things.”

Buffett’s comment makes sense – there’s a lot of uncertainty surrounding crypto and there’s no guarantee that Bitcoin will ultimately succeed. Perhaps it will be Ethereum, Dogecoin or as Buffett also warned, none of the above because the government will smite them all down:

“Anybody that thinks the United States is going to change the way they let Berkshire Money replace theirs is out of their mind.”

In contrast his long-time partner in crime, Charlie Munger, chimed in with this familiar but baseless attack:

“In my life, I try to avoid things that are stupid, and evil, and make me look bad in comparison to someone else, and bitcoin does all three. In the first place, it’s stupid because it’s very likely to go to zero, and it’s evil because it undermines the Federal Reserve System and national currency system, which we desperately need to maintain its integrity and government control and so on.”

Bitcoin has its problems but undermining the integrity of central banks isn’t one of them – they’ve done a good enough job of that all by themselves (seen inflation lately?)!


Chewing the fat


Bits and bytes

πŸ’Έ APRA data show that of the “1 million new home loans written over the past two years, about 280,000 Australians have borrowed six or more times their income and/or have loan-to-value ratios of more than 90%”.

🏑 According to CoreLogic, Australian home price growth in April “dropped from a recent peak of 22.2% growth for the year ending November 2021, to 16.7% over the latest 12-month period”, with prices falling in Sydney and Melbourne month-to-month.

πŸ“‰ Former Treasurer and chair of the Future Fund, Peter Costello, warned that as interest rates rise “investors should expect lower returns than in the past over the long term.”.

😷 Canberra-based Aspen Medical, “a politically connected healthcare company”, reportedly won “taxpayer-funded contracts β€” without a public tender β€” worth more than $1.1 billion”.

🚜 Russian troops stole “all the equipment from a farm equipment dealership… But after a journey of more than 700 miles, the thieves were unable to use any of the equipment – because it had been locked remotely”.

πŸ”₯ “Police fired tear gas to push back black-clad anarchists who ransacked business premises in Paris on Sunday during May Day protests against the policies of newly re-elected President Emmanuel Macron.”

πŸ›’οΈ According to diplomats, the EU is looking to go without Russian gas by the end of this year but while Germany “appeared to be willing to go along… countries including Austria, Hungary, Italy and Slovakia had reservations”.

βš”οΈ “Ukrainian military sources” claimed that: “We believe the Kremlin has already taken the decision to attack Moldova.”

πŸ“ “Finland will decide to apply for NATO membership on May 12, Finnish newspaper Iltalehti reported late on Sunday, citing anonymous government sources.”