Australian Stock Market Report - Trump, Steel and the Australian Economy
Market Commentary and Stock Tips - 9th March 2018
This week it’s a Trump Special – it’s all about the Donald! – but is it really a case of America First or America shooting itself in the foot – Meanwhile back home, in the aftermath of a solid workmanlike reporting season we see that the concentration of economic data out this week shows we are in fine fettle - the Reserve Bank telegraphing that there are still no interest rate rises on the horizon – and Economic Growth is expanding nicely but not setting anyone’s ears back – So could this be the dawn of the new era?
Donald plays his Trump card - but will he lose the hand?
The Donald has played his Trump card - but really it shouldn’t surprise anyone. The man signaled in his stump speeches before the Trump Triumph that he was going to do something to help workers in the American rust belt, Pennsylvania, Michigan and nearby states where most steel products are made. But Donald has a problem. - while he may be erecting tariff barriers to help the steel workers, it means that workers in other areas of the economy may not be so lucky ---- and the general population and users or buyers of things made with steel components are actually going to be paying more than they did before. For example, for a farmer in Mid-West US the cost of a Ford Ute will now be dearer than previously — and the potential is that more jobs could be lost overall than steel jobs retained- Not like winning a war I would say.
Now it’s the economy
While tariffs on imported steel may make local steel making industries a bit more profitable, the cost to the overall economy can be quite significant. However, given all the chest thumping about the tariffs and it’s being called a trade war by some, for me it is more like a small-time guerilla insurgency. I believe that the world wide implications of the tariff hike are reasonably limited. For instance major steel importers into the United States are: Canada; Brazil; South Korea; and Mexico. The collateral damage however is that other countries may consider retaliating -- but the vibrations I get is that it looks more like being a bit of embroidery, rather than redesigning the cloth! And in this respect, and interestingly, ironically and somewhat humorously I have heard that the Russians may impose their own tariffs on US bourbon for goodness sake! -- Not much harm done there I would say, I’m sure that the Russians will get by – sipping more vodka no doubt.
So what’s in it for us?
The Australian economy still seems to be trundling along quite nicely. Annual growth in the overall economy is increasing at around 2.5% per year – may not seem much, but when you have an economy worth about $1500 billion - 2.5% is not a bad number. Indeed right now it’s better than just about all other major developed countries except China and India.
Elsewhere the building sector is easing back somewhat after its hectic pace over the last couple of years.
Retail sales are not setting anyone’s ears back, but one notable result has been the nice rebound in expenditure on food in the latest figures. Good for Coles and Woolworths.
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The hoo-ha over the Donald’s foray into the Wide Wide World of international trade looks to be more and more like, as they call it in soccer, scoring an “own Goal” i.e., kicking a goal for your opposition - This is on account of the negative effects on the rest of the US economy because of the higher prices Americans will have to pay for goods wherever higher priced steel is a component --- which in fact is most things - Of relevance here is a similar experiment which turned out to be quite short lived by former President George W Bush in the year 2002 – So long as the rest of the world doesn’t get its toga in a knot over the Donald’s antics – life should go on pretty much as before when this blows over.
- Tuesday: Home loans and NAB Business confidence and conditions surveys which again should continue their resilient and strong performances.
- Wednesday: Westpac Consumer sentiment – expected to be a bit less robust than business confidence.
In the U.S.:
- A range of data scheduled --- most importantly there is: - inflation, business activity, industrial production, housing market and the premier Consumer Confidence survey by the University of Michigan.
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