FNArena’s Weekly Insights – June 05 2024
In this week’s Weekly Insights:
-Winners Are Winning For Longer
-Rudi Interviewed
By Rudi Filapek-Vandyck, Editor
Winners Are Winning For Longer
The share market being an open forum where humans combine and clash with robots and other humans, it should be no surprise Monday’s announcement by the Fair Work Commision to increase by 3.75% the National Minimum Wage and all modern award minimum wages from July 1st onward has already been interpreted in opposing ways.
Forget about any prospect for RBA rate cuts anytime soon, says one share market commentator, an increase of this magnitude means the official cash rate will remain untouched until mid-2025, at the earliest.
Economists at ANZ Bank and Westpac beg to differ, however, and believe nothing fundamentally has changed (ANZ) or that the announcement is actually positive for inflation and for the RBA. Westpac had expected this year’s wage increase could have been as high as 4.50%.
Clearly, the Fair Work Commission has also taken into consideration there will be tax cuts for virtually everyone from July 1 onward, and it’s not like there aren’t any other forms of financial support in the pipeline from both state and federal governments. This might well explain why the Commission stayed well clear from Westpac’s 4.50% scenario.
Both ANZ and Westpac economists believe the RBA would be comforted by Monday’s announcement. Judging from the price actions on the day, it looks like that assessment is carried by the majority of investors and forecasters.
ANZ Bank has reminded us all the RBA’s latest forecasts see the local Wage Price index growing at 3.7% from the year earlier in the final quarter of 2024, and by 3.6% by the second quarter of 2025. The Fair Work Commission’s statement considers the forecast return of the inflation rate to below 3% in 2025 remains intact.
Those who prefer a more negative interpretation can point to the fact this is the first time in three years when the increase exceeds recorded price inflation, so there’s a surplus coming for wage earners in Australia (while Monday’s decision doesn’t affect all wages, there usually is a follow-through impact on wages that are not directly impacted).
A more constructive view is the freshly announced 3.75% increase remains well below the 5.75% rise in FY23, as well as the 4.6% rise in the year earlier. While this year implies a small rise in inflation adjusted incomes, real wages will still be below the level before inflation spiked higher.
All of this melts into the economic debate that weighs on general sentiment among Australian investors, also illustrated by the fact some media reports still have the RBA hiking rates while most other central banks around the globe are preparing for rate cuts. I see a lot of biased hyperbole, and a not so subtle political agenda.
I sympathise with the view that many Australian households are feeling the squeeze, while small businesses are closing their doors, and thus many among us won’t go on a spending spree if we find a little bit of extra money in our purse post June 30th.
The counter-argument is today’s economic impact from inflation and rate hikes is not being felt by a large proportion of the population that owns its property and welcomes additional wealth through the share market, or otherwise.
It’s a polarised world, for sure, and this also polarises experts views and predictions, as well as ASX-listed companies.
Before we zoom in on what has been happening inside corporate Australia, let’s first take note of what has been happening in the USA recently, as that might surprise a few readers.
