The hawks are out

Delivered on By Justin Pyvis

Good morning! It’s official – the recent election did absolutely nothing for consumer confidence, which fell 4.1% last week “to its lowest since mid-August 2020”:

“Consumer Confidence is now a significant 23.7pts below the same week a year ago, June 5/6, 2021 (110.7) and is now 8.8pts below the 2022 weekly average of 95.8.

On a State-based level Consumer Confidence was down in Victoria, New South Wales, Queensland and Western Australia, but up in South Australia. Looking at the indicators confidence about the Australian economy deteriorated in regards to both the next year and next five years.”

To be fair to Albo the rot started well before the election and coincided with a steady rise in two-year ahead inflation expectations, which increased again last week by 0.2 percentage points to 5.7%.

Consumer confidence has been down since the 2021 Budget.
Consumer confidence has been down since the 2021 Budget. Source

Reading the tea leaves

Daily % change







AU Bond



US Bond









Brent (bbl)



Gold (oz)



Iron ore (t)









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

The US S&P500 gained 0.95% overnight despite further losses for the large retailers after Target (-2.4%) warned it would have to “take a short-term hit to profits as it cancels orders and marks down unwanted merchandise”, the second downgrade to its outlook in just two weeks.

Locally, the ASX200 extended its losses all day to finish down -1.6%, with all 11 sectors finishing in the red led by rate-sensitive tech (-3.0%). There was an especially big dip late in the day following the larger than expected 50 basis point rate hike by the Reserve Bank of Australia (RBA), which we cover in more detail in today’s Food for thought below.

Elsewhere in the region the Japanese yen hit a fresh 20-year low against the greenback after Bank of Japan governor Haruhiko Kuroda claimed that for Japan, “monetary tightening is not at all a suitable measure”.

Food for thought

It's excessive demand, not restricted supply, that's primarily responsible for Australia's cost of living crisis.
It's excessive demand, not restricted supply, that's primarily responsible for Australia's cost of living crisis. Source

The hawks are out: The Reserve Bank of Australia (RBA), one of the most dovish central banks in the world over the past year, is belatedly addressing the cost of living crisis in Australia. Yesterday it hiked the cash rate by 50 basis points to 0.85%, the biggest rise in 22 years and a second consecutive monthly increase after last month’s 25 basis point move.

Explaining the rationale behind the decision, governor Lowe said:

“Inflation in Australia has increased significantly. While inflation is lower than in most other advanced economies, it is higher than earlier expected. Global factors, including COVID-related disruptions to supply chains and the war in Ukraine, account for much of this increase in inflation. But domestic factors are playing a role too, with capacity constraints in some sectors and the tight labour market contributing to the upward pressure on prices. The floods earlier this year have also affected some prices.”

Lowe is again harking back to supply problems as the main reason for his shoddy performance over the past year, while almost entirely ignoring aggregate demand, as indicated by nominal GDP (NGDP).

Australia’s NGDP grew at an annual rate of over 10% for the fourth consecutive quarter in March, with the GDP implicit price deflator – a broad measure of inflation that includes all prices, not just those in a consumer goods basket – rising 2.9% in the quarter (12.1% annualised), the fastest rate of increase since March 1988.

A supply shock such as the one caused by COVID-19 restrictions wouldn’t cause all prices to rise at the rates we’re seeing; if people have to spend more on petrol, they by definition have less to spend elsewhere. Supply shocks also tend to reduce real (inflation-adjusted) growth, something we haven’t seen in Australia – real GDP rose 3.3% in the March quarter, a fifth consecutive expansion. The economy is now 4.5% larger than it was pre-pandemic (December 2019), a feat that would be difficult to achieve if supply chains were as clogged as Lowe makes them out to be.

The only way all prices can rise at the rapid rates as we’re seeing today is due to the impact of expansionary monetary and fiscal policies on aggregate demand.

Governor Lowe is trying to pull a fast one on us. Supply disruptions are but a small piece of today’s inflationary puzzle; ultimately the buck stops at the RBA, which has proven itself woefully inadequate as the nation’s regulator of aggregate demand.

Chewing the fat

Bits and bytes

🏭 Federal Resources Minister Madeleine King said to solve Australia’s energy crisis: “What we really need to do is to have the coal power stations come back online, because that is the missing piece in the puzzle right now.”

🥬 We’re not sure how KFC’s patrons will feel about getting more fibre and minerals in their burgers: KFC “told customers to expect a mixture of lettuce and cabbage in its products due to ongoing supply shortages caused by floods in Queensland and NSW.”

🚜 Strong demand, restricted supply = prices rise: “Industrial auction markets selling everything from second-hand vehicles to agricultural equipment were setting records with some items ‘grossly exceeding’ their full retail price, said Pickles Auctions head of agricultural sales.”

🚘 Australian used car prices in May were up 18.4% from a year ago and 1.8% higher than in April.

⚽ The Socceroos will play Peru next Tuesday morning for a spot in the 2022 World Cup after defeating the UAE 2-1 in Doha.

🚢 The Chinese government is reportedly about to start work on the construction of a naval base on the Gulf of Thailand in southern Cambodia. When asked, Albo said it was “concerning”.

👩‍⚖️ A federal Australian court gave Twitter “14 days to hand [over] the basic subscriber information of @PRGuy17… a high-profile political account that attracted large audiences during the pandemic with its pro-lockdown and pro-Labor commentary”.

📉 The World Bank “slashed its global growth forecast by nearly a third to 2.9% for 2022”, warning that “The danger of stagflation is considerable today. Subdued growth will likely persist throughout the decade because of weak investment in most of the world.”

🐹 Well, shit: “A team of scientists at the Georgia State University (GSU) were left speechless after an experiment involving gene-editing on hamsters turned them into hyper aggressive little demons.”

⚡ US President Joe Biden signed an executive order exempting South East Asian countries including Thailand, Vietnam, Malaysia and Cambodia from solar panel tariffs that can exceed 200%.

🧊 A team of scientists from New Zealand discovered “a cathedral-like cavern hundreds of metres high”, hidden beneath an Antarctic ice shelf.

⛳ Former world number 1 golfer Dustin Johnson (currently ranked 15) resigned his membership of the US PGA Tour to play in the breakaway Saudi-backed LIV Golf Invitational Series. Tiger Woods reportedly turned down a nine-figure offer.

🔌 The European Union will require all electronic devices such as smartphones, tablets, watches and handheld video game consoles sold in the EU “to be equipped with the universal USB-C port for wired charging by fall 2024”.