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Post Market Wrap | Budget Forecasts Confirm Robust Economic Outlook

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This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Cost of living payments and infrastructure expenditure positive for the economy 
  • Full employment + strong GDP growth = Inflationary pressure
  • RBA response to inflation will see interest rates rise
  • Bond yields currently reflect higher future interest rates, but economy to remain strong 
  • Equity markets most likely to follow the economy and remain positive

Federal Budget Economic Boost

Full employment, strong economic growth and high commodity prices for Australian exports, support continuing positive momentum for the Australian share market. This is because household consumption remains buoyant following a cut in fuel excise and the announcement of cash payments for low and middle income earners, to alleviate cost of living pressures. Targeting low and middle income earners delivers an immediate cash boost to the economy because that money usually gets spent quickly. Consumer stocks are likely to benefit immediately from this budget initiative. 

Infrastructure expenditure featured prominently in the budget outlays, with $17.9 billion set aside for various projects. Far North Queensland will see a $5.4 billion dam constructed while $0.7 billion has been set aside for the Melbourne international terminal at a cost of $3.1 billion. $0.7 billion will be spent on inland roads and $0.5 billion on NBN upgrades. 

This expansionary budget, at a time of full employment, is supportive of business earnings growth and that should underpin the share market at current levels, at least for the foreseeable future.

Robust Economic Growth

A key feature of the budget forecasts is the markedly improved growth outlook for the Australian economy. Economic growth, as measured by Gross Domestic Product (GDP), has been revised upwards from the government’s mid-year economic and fiscal outlook statement. GDP for 2022 is now estimated at a very robust 4.25 percent (previously 3.75 percent) and for 2023 GDP is estimated to increase by 3.50 percent before easing slightly to 2.50 percent in 2024. These are strong growth numbers. 

The equity market will follow the economy. This is another reason to be confident that the share market and other asset prices, including property, should remain buoyant in the period ahead.

Strong economic growth is conducive to strong employment growth. Unemployment now sits at 4 percent. At this level, there have never been more Australians in a job than at present. The budget anticipates unemployment to fall to 3.75 percent in 2023 and remain at this level for the following 3 years. This represents a tight labour market, not seen in nearly 50 years. 

Although full employment is generally positive, a note of caution is warranted. Strong economic growth at a time of full employment can lead to higher wages, which in turn creates inflationary pressure. The appropriate response by the Reserve Bank (RBA) under these circumstances, is to increase interest rates. This is aimed at curtailing consumer demand to a level where inflation is contained within RBA parameters. Currently, the RBA inflation target band is between 2 and 3 percent, on average, over time. The 2022 budget forecasts provide for inflation to move 3 percent in 2023. This, being at the high end of the RBA’s target range, implies higher interest rates from late 2022 and into 2023. The 10-year Australian government bond yield heading toward 2.9 percent in reaction to the Federal Budget, confirms that interest rates are set to rise.

Image: File

It is important however to recognise that interest rates are set to rise for the right reason and is a reflection of the confluence of domestic and global events that have recently tilted in Australia’s favour. This includes historically high commodity prices for Australian exports of LNG, coal, iron ore and for agricultural products like wheat and beef. High export volumes have accompanied these high commodity prices, resulting in Australia presently running a current account surplus with the rest of the world. Coupled with full employment, this outcome is unambiguously positive for all Australians. 

What is good for Australians is also good for our equity market. The current economic and financial state appears likely to persist for the foreseeable future, which implies a continuation of the positive trend in Australia’s share market.  

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

"Michael Kodari is one of the world's most consistent, top performing investor. A philanthropist and one of the prominent experts of the financial markets, he has been referred to as ‘the brightest 21st century entrepreneur in wealth management' by CNBC Asia and featured on Forbes. Featured on TV as the "Money Expert", on the weekly Sunday program "Elevator Pitch", he is recognised internationally by governments as he was the guest of honour for the event "Inside China's Future", chosen by the Chinese government from the funds management industry, attended by industry leaders, when they arrived in Sydney Australia, on April 2014. Michael and George Soros were the only two financiers in the world invited and chosen by the Chinese government to provide advice, and their expertise on Chinese government asset allocation offshore. With a strong background in funds management and stockbroking, Michael has worked with some of the most successful investors and consulted to leading financial institutions. He was the youngest person ever to appear on the expert panel for Fox, Sky News Business Channel at the age of 25 where he demonstrated his skillset across a 3 year period forming the most consistent track record and getting all his predictions right over that period. Michael writes for key financial publications, is regularly interviewed by various media and conducts conferences around the world."

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RBA stands pat on interest rates as hopes dim for future cuts

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RBA stands pat on interest rates as hopes dim for future cuts

Stella Huangfu, University of Sydney

The Reserve Bank kept the cash rate steady at 3.6% at today’s meeting. In its post-meeting statement, the central bank said the monetary policy board

judged that it was appropriate to remain cautious.

This pause follows three cuts earlier this year — in February, May and August, each by 25 basis points — which lowered the cash rate from 4.1% to its current level. Governor Michele Bullock said the bank is watching those previous cuts work through the economy.

Bullock stressed that while inflation has eased from its peak, progress remains uneven, and the bank is not ready to declare victory.

For now, patience is the safer course. The next big test will be the September quarter inflation report, due at the end of October. That release will go a long way to deciding whether cuts resume later this year or slip into 2026. Market pricing, once confident of a November move, now sees the odds as little better than a coin toss.

“By the next meeting in November, we’ll have more data on the labour market and inflation data for the September quarter,” Bullock told a press conference after the meeting.

Why the RBA is waiting

The monthly consumer price index (CPI) for August showed annual inflation rising to 3.0%, up from 2.8% in July. Although this is a 12-month high, much of the increase came from the expiry of electricity rebates — a temporary factor the bank had already anticipated.

Bullock has repeatedly said the Reserve Bank puts more weight on the quarterly “trimmed mean” inflation measure — a point she emphasised most recently before the House of Representatives economics committee. This measure strips out one-off price swings and gives a clearer picture of underlying inflation.

Even so, the monthly figures show the annual trimmed mean edged down from 2.7% in July to 2.6% in August. That suggests the underlying trend remains one of gradual disinflation (a slowing in the pace of price increases), despite the lift in the headline rate.

Bullock told reporters:

The monthly data are volatile […] I don’t want to suggest that inflation is running away, but we just need to be a little bit cautious.

Progress is not yet secure. Inflation must stay within the 2–3% target range on a sustained basis before the Reserve Bank can cut with confidence. Moving too early risks undoing hard-won gains and forcing harsher measures later.



Other data reinforce this cautious approach. June quarter economic growth surprised on the upside, showing the economy is more resilient than expected. Meanwhile, unemployment has ticked higher but remains low, pointing to a labour market that is cooling only gradually.

As the statement noted,

private consumption is picking up as real household incomes rise […] The housing market is strengthening […] Credit is readily available to both households and businesses.

Together, these signals give the Reserve Bank space to pause rather than rush into easing.

A big shift in expectations

The major banks have also adjusted their forecasts. NAB has ruled out any further move this year, dropping its earlier forecasts for November and February cuts and now expecting the next reduction in May 2026. Westpac still expects a November cut, but acknowledges the timing could slip.

Financial markets have also pared back their bets. Pricing once implied near-certainty of a November cut, but that probability has now fallen to roughly 50-50.

The September quarter consumer price index will be decisive: a softer result could revive expectations of an earlier cut, while a stronger one would reinforce the view that rate cuts will not resume until 2026.

With the economy stronger than forecast and CPI a touch higher, both banks and markets are pushing out the timing of cuts. The Reserve Bank’s message is clear: inflation must show sustained progress before policy can be eased. Until then, the next cut is a matter of when, not if.

Rates around the world

The Reserve Bank is not alone in being cautious. In the United States, the Federal Reserve delivered three cuts in 2024, but only made its first cut of 2025 in September. The European Central Bank has reduced rates four times this year, but has kept policy steady since June.

Political tensions, volatile energy prices and fragile global growth all add to the uncertainty, reinforcing the case for patience in Australia.

For households, today’s decision offers no relief. Mortgage repayments remain at an elevated level and consumer spending is weak.

Looking ahead, the Reserve Bank said it will remain data-driven and responsive to risks:

The Board will be attentive to the data […] focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome.

For households, that means the wait for relief goes on. The next move is a cut, but today’s decision makes clear it won’t be rushed.The Conversation

Stella Huangfu, Associate Professor, School of Economics, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Money

Markets remain strong amid potential government shutdown fears

Markets remain strong as investors anticipate jobs data while ignoring government shutdown and tariff concerns

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Markets remain strong as investors anticipate jobs data while ignoring government shutdown and tariff concerns

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In Short:
– Major indices are near session highs, with the Dow up 382 points and resilient to shutdown concerns.
– Rising Treasury yields may challenge bullish sentiment, while upcoming economic reports will influence market direction.
Major indices are trading near session highs, with the Dow Jones Industrial Average up by 382 points, the S&P 500 by 41 points, and the Nasdaq Composite by 100 points.
Investors seem undeterred by the looming government shutdown and new tariff announcements. Despite the challenges, markets appear resilient due to previous experiences with shutdowns.Banner

This coming week, markets should brace for monthly jobs data, assuming no shutdown occurs. Previous initial claims reports have lessened after reaching 263,000 on September 11.

Technical indicators show promise following a retreat to the 20-day SMA. The end of bearish seasonality approaches, coinciding with Q3 earnings season.

Market Perspective

However, rising Treasury yields could pose a challenge for bullish sentiment. The 10-year yield has increased over the past eight trading sessions and may close at a three-week peak.

If it stays below 4.25%, it could support ongoing bullish trends. A notable risk remains the potential negative impact of the jobs report.

Upcoming economic reports include pending home sales, consumer confidence, and nonfarm payrolls, all key to market direction.


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Crypto market plummets near $1 billion in liquidations

Crypto markets crash as liquidations approach $1 billion, marking a severe downturn in September 2025

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Crypto markets crash as liquidations approach $1 billion, marking a severe downturn in September 2025

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In Short:
– Cryptocurrency markets declined significantly, with liquidations nearing $1 billion and Bitcoin below $110,000.
– $442 million in positions were liquidated on Thursday, with Ethereum most affected, raising trader concerns.
Cryptocurrency markets faced significant declines on Thursday, with liquidations nearing $1 billion, contributing to a larger selloff that has cost the sector over $160 billion in market capitalisation.
Bitcoin fell below $110,000, trading around $111,400, while Ethereum dipped below the critical $4,000 support level, marking its lowest point in seven weeks.
The global crypto market capitalisation dropped by 2.2% to $3.91 trillion.Banner

Liquidation reports revealed that $442 million in positions were forcibly closed on Thursday, with Ethereum most affected, accounting for over $180 million.

The previous week saw a larger liquidation event, with $1.7 billion wiped out. Traders are concerned as a significant number of long positions were liquidated in this downturn.

Market Trends

Market analysts highlight a pattern of leveraged trading leading to cascading selloffs. Seasonal factors, regulatory uncertainty, and a strengthening US dollar contributed to the declines.

Despite the downturn, some large investors are taking the opportunity to accumulate assets.


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