Source : THE AGE NEWS
The Macquarie Australia Conference held in Sydney this week customarily has kicked off corporate Australia’s dreaded “confession season”.
With financial accounts for most of Australia’s companies closing off on June 30, now is the time to acknowledge whether their results are coming up short and face potentially brutal sharemarket punishment.
Macquarie Group’s chief executive Shemara Wikramanayake warned against complacency at the group’s conference this week.Credit: Max Mason-Hubers
But that was not really the case this year. Instead, the event provided an unusually upbeat insight into the unintended consequences of the Trumpian tariff storm.
The big confession that emerged from the conference was: Australia continues to be the lucky country, and we are attracting global funds fleeing Trump’s attack on US economic exceptionalism and the institutions that underpin it.
There were already a few signs. The ASX’s astonishing rebound from Trump’s “Liberation Day” tariff disaster last month was partly aided by the flight of money from the US into haven stocks such as Australia’s banks, which have returned to stratospheric share prices.
Investment managers at the conference cited alternative assets such as Australian water rights as items of overseas interest in investments that have no correlation to the US benchmark S&P 500 index.
“We are considered a safe alternative,” Macquarie boss Shemara Wikramanayake told the conference.
Australia is well-placed, relative to other economies, when it comes to fiscal and monetary levers to be used to ensure our economic resilience and strong institutional safeguards.
But she had a warning for the packed audience of investment professionals: Australia and its emphatically returned Albanese government will need more than luck to survive the big structural shifts under way.
Complacency, she said, “is an issue for us”.
Complacent seems apt to describe the massive sharemarket recovery last month that meant the fortunes of local investors have been restored, despite the huge risks that can be unleashed by a Trump post to social media and not be rolled back.
Anyone with a handle on the data will quickly tell you Australia’s direct exposure to this US trade war is minimal.
Regal Partners chairman Paul Moore was surprisingly sanguine about the medium-term outlook if the end game is Trump settling on a GST-like tariff of 10 per cent to pay for his planned tax cuts, address the fiscal deficit and bring home some manufacturing.
This view was underlined by the US/UK trade agreement overnight, which keeps the 10 per cent tariff rate, with a few carve outs, and led to it being dubbed a “nothingburger” by one expert. It may just signal that Trump is desperate to be seen to do deals.
Moore warns that any continuation of the 100 per cent tariff barriers between the US and China will prove disastrous.
The trade deal announced by UK Prime minister Keir Starmer and President Donald Trump was described as a “nothingburger” by one expert.Credit: AP
The potential impact, he warns, is “not a recession, but a depression”.
Anyone with a handle on the data will quickly tell you Australia’s direct exposure to this US trade war is minimal. Macquarie points out that our direct trade with the US amounts to a minuscule 0.1 per cent of GDP.
What is all the fuss about? Consider the well-worn expression: “When the US sneezes Australia catches a cold.”
Macquarie’s chief economist, Ric Deverell, says there is a reason for this, despite the economic disconnect.
Australia’s corporate sector is bizarrely aligned to US business sentiment. When US bosses lose confidence and stop investing, so do our local bosses and vice versa.
It is also reflected in our sharemarket, which is strongly influenced by the overnight performance of Wall Street regardless of local factors that should dominate performance.
The seismic impact of Trump’s chaos, the product shortages and price increases that are only just hitting US consumers, are potentially as bad for Australia as the impact from our largest trading partner, China.
New York has slashed its tourism forecast this year by 17 per cent due to Trump policies. Investors are pointing to US job losses now reaching recessionary levels.
And keep in mind the other destructive genie that Trump will not be able to put back in the bottle: uncertainty.
Screens on a trading post on the floor of the New York Stock Exchange show the news conference of Federal Reserve Chair Jerome Powell.Credit: AP
“I fear that a lot of the damage has already been done,” Deverell says.
Bloomberg data shows that the “U” word has cropped up more than 9000 times so far in corporate quarterly earnings reports – more than at the start of the pandemic – with some of America’s largest companies revealing the billions in additional costs from tariffs.
And the US Federal Reserve’s firemen will probably be late to put out any fires due to the fiendish nature of the economic forces unleashed by Trump’s policies.
As US Federal Reserve chairman Powell pointed out this week, the tariffs, as currently proposed, are likely to generate a rise in both inflation and unemployment – the dreaded stagflation.
Powell will have to wait to see whether this rising inflation prevents him from lowering interest rates to help rescue a stuttering economy. If stagflation occurs, he can remedy one – but not both.
Needless to say, none of this is currently priced into sharemarkets. It has the potential to trigger a financial nosedive to match Trump’s Liberation Day tariffs, without the quick rebound.
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