Albanese govt & peak tax; investors jittery over Hormuz; Swift’s record

Albanese govt & peak tax; investors jittery over Hormuz; Swift’s record

News in brief

Hormuz rattles markets: Investors are increasingly nervous after Donald Trump rejected Iran’s latest proposal to reopen the Strait of Hormuz. Brent crude headed towards $US106 a barrel, while US bond yields climbed to fresh multi-year highs as markets worried about the inflationary consequences of prolonged disruption.

 

Northern Star rejects $38.7 billion bid: Northern Star Resources shares jumped 6 per cent after the gold miner rejected a $38.7 billion takeover offer from South Africa’s Gold Fields as opportunistic. Activist shareholder Elliott Investment Management is pushing Northern Star to engage with the bidder after a series of guidance misses.

 

Australia’s biggest battery hits full power: The Waratah Super Battery in NSW is now operating at full capacity. The 1,680-megawatt-hour project acts as a giant shock absorber for the electricity grid and, at maximum output, can supply the equivalent of as many as 340,000 homes during peak demand.

 

US, China offer tariff relief: Washington and Beijing have detailed plans to reduce tariffs covering about $US30 billion of imports in each direction. It’s one of the clearest outcomes from last week’s Trump-Xi summit, although the affected trade represents only a fraction of the $US415 billion in goods exchanged between the two economies last year.

 

Taylor Swift record: Taylor Swift is now the most-awarded artist in MTV Video Music Awards history, moving past Beyoncé’s 30 awards. Swift received the inaugural Artist Director Honours and also won video of the year for The Fate of Ophelia, which she dedicated to Dolly Parton.

Fear-o-meter

Warren Hogan from EQ Economics:

 

The RBA will increase the overnight interest rate to 4.60% today; there seems to be no alternative. RBA officials, including the Governor, have been beating the drum over the past month as global bond markets take long-term rates to new multidecade highs.

 

Adding to short-term inflation concerns are resurgent oil prices, which are responding to surprisingly resilient global demand as well as the stalemate between Iran and the Trump White House.

 

The political economy of oil markets is getting ugly. Surging retail fuel prices are becoming a political headache for Republicans ahead of the midterm elections. There are calls from worried lawmakers in Washington DC for Trump to place a temporary ban on diesel exports to suppress domestic prices. This is a real worry for Australia. Not only will a US export embargo put even more upward pressure on the diesel price we pay but there must be some risk of supply shortages.

 

Domestic economic momentum is clearly slowing in 2026 with recent indicators pointing to a growth pulse of around 1.5% to 1.8% in the second half of the year.

 

The RBA will likely fire off two 25bp rate hikes before Christmas in the hope that this is enough to suppress private sector demand and get inflation on a pathway back to their 2% to 3% target range.

 

The RBA is about to start of a series of rate increases that could take the cash rate a full percentage point higher. I have a 5.35% cash rate pencilled in for May next year.

Fear & Greed Q+A today

On oil prices, and what happens if the price of crude hits $US150 a barrel:

 

“If we compare where we are now to, say, when the Iran war started, the functional difference is we’re sitting with a lot fewer inventories than we were before. And so when we get to a position that we are right now, which is that inventory depletion is on the radar again — and we would put this number at around five to ten weeks — it really does mean that if any major player, in terms of the US or Iran, overplays their hand, we could really risk physical shortfalls in this market.

 

“And I would say that is why the market is very jittery right now. Because we know that everyone is trying to leverage what they can in these talks between the US and Iran. But if we see this prolonged for longer than markets can handle, you start having to price in these worse outcomes.

 

“When we talk about what happens if we get to inventory depletion, we would say that we need to see prices get to levels where emerging Asian economies basically see uncontrolled demand destruction.

 

“And by that I mean high prices for oil, which end up reducing demand, particularly for the most vulnerable and poorest Asian economies, like, say, Sri Lanka, Bangladesh, Thailand, Vietnam. These are the economies that are really exposed. And for that price to induce that level of uncontrolled demand destruction, we estimate that at about $US150 a barrel for Brent.”

The Albanese government has come within a whisker of overseeing the highest tax take in Australian history, just as households prepare for another expected interest rate rise.

 

The final budget outcome shows tax receipts reached 24.1 per cent of GDP last financial year. That’s above the ceiling adopted by the former Coalition government and just below the 24.2 per cent reached during the Howard government in the mining boom.

 

There was better news for the budget itself. The deficit came in at $22.3 billion, $6 billion better than expected, while federal debt was about $11 billion lower. Lower-than-forecast spending and stronger tax receipts both helped.

 

But deficits remain forecast for years, while rising global bond yields are making government debt more expensive.

 

And today the focus shifts to the Reserve Bank, which is widely expected to lift rates for the fourth time this year — sharpening the debate over whether government spending and cost-of-living support are making the inflation fight harder.

Greed-o-meter

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A 25 basis point increase by the RBA would take the cash rate to 4.6% – its highest level since 2011. The fourth hike this year would extend a remarkable reversal from the record-low rates of the pandemic.

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Source: RBA, Mozo