WATCH THE RBA, WAKE UP TO THE FED

AT 2.30pm last Tuesday the Reserve Bank cut its official interest rate by a quarter per cent. In the 90 minutes left for trading, buyers surged back into the market and sent it rocketing up to close – all of 12 points higher on the day.

That night shares on Wall St surged on the expectation – not, note, the actual delivery – of cuts to US official interest rates, and kept going up for the rest of the week.

Our market followed and by the end of the week had (really) rocketed up not a further 12 points but an extra 112 points.

That tells you almost all you need know about what will drive our market. It’s not what our RBA does with our rates but what the US Fed does with their rates – and even just what Wall St expects it to do.

Not because our traders care so much about what happens to US rates – even though they can and do flow directly into local interest rates, because our big banks borrow 30 per cent of their money in global capital markets and it is US rates which essentially set the rates in those markets. But because of the tight link between US rates and Wall St – and then the way Wall St is the core driver of every other stock market on the planet.

As we see most graphically at times of crisis – like most recently, the

GFC, and before that in 1987 with the 1929-style crash that for 58 years we had always been told could never happen again. Until it did.

Further and importantly, is the way Wall St and the – very, very greedy – so-called ‘masters of the universe’ hold the Fed chairman hostage.

Wall St just needs to throw a temper tantrum – like a couple of 1000-point daily drops or like late last year a month-long 20 per cent fall in share prices – and the Fed chairman will promise not to raise rates and indeed cut them.

This chairman Jerome Powell looked like he was prepared to break free of this so-called ‘Fed put’ of his two predecessors – Janet ‘the blinker’ Yellen and Ben ‘the printer’ Bernanke.

But in the end he also bowed to Wall St. And to President Trump. But in truth, more to Wall St.

Although the Fed is tending to dress it up as taking pre-emptive action against the way a trade war with China – and whomever else – could hurt the US economy.

Our local RBA has never, never, cut its official rate to help the local market.

In part that’s because it knows it would be pointless – whatever forces are coming across the Pacific each night will be far more powerful. But more fundamentally, because it doesn’t see its job as boosting the bonuses of stockbrokers and money managers.

What our RBA does will be driven by what it thinks will be best for the broader economy. For the last 30 years that’s been primarily about not letting inflation run too high. Right now, it’s aimed at getting inflation – and wages – to actually run somewhat higher. It could be about to shift to fighting against the jobless rate kicking up.

That’s why the next big, big, reference point is the monthly jobless figures on Thursday morning. We’ll of course tell you what they say. More importantly, we’ll also tell you what they say to the RBA.

Watch the RBA to know what’s going to happen to the interest rate on your home loan. And on any bank deposits you have. Watch it to know what might happen to your job or your business.

But watch the US Fed to know what will happen to the value of your shares.