InvestMacro

by JustForex

According to former Morgan Stanley Asia chairman Stephen Roche, stagflation in the US is inevitable. He warns that the US is on a dangerous path that leads to higher prices combined with slower economic growth. “The markets are not even close to discounting the full extent of what’s going to be required to bring the demand side under control… That underscores the deep hole Jerome Powell is in right now.”

Many analysts believe that if fuel and food prices continue to rise, the real estate market and the labor market will be next under attack. The real estate market plays a fairly important role in the US economy, with approximately 65% of the units being owner-occupied. This makes homes an important source of household wealth, and housing is a key source of employment.

The stock market plunge accelerated over the past two weeks after the Federal Reserve said it would raise interest rates relentlessly and even slow the US economy if necessary. At the close of the stock market on Friday, the Dow Jones index (US30) added 0.03% (-2.77% for the week), the S&P 500 index (US500) increased by 0.57% (-2.78% for the week), and the technology index NASDAQ (US100) lost 0.30% (-3.19% for the week). All three indices ended the week with losses. This is the 7th consecutive week of declines, the longest losing streak since the dot-com crash of the late 1990s. This indicates that more and more market participants fear a slowing economy and a move into a recession.

President Biden on Saturday signed a law providing $40 billion in additional US aid to Ukraine. The law was passed by Congress with bipartisan support, reinforcing the US commitment to Ukraine. US officials have warned of a possible protracted conflict.

Major European indices traded higher on Friday. German DAX (DE30) gained 0.72% (-0.03% for the week), French CAC 40 (FR40) added 0.20% (-0.48% for the week), Spanish IBEX 35 (ES35) increased by 0.93% (+2.01% for the week), British FTSE 100 (UK100) added +1.19% (-0.38% for the week). European Central Bank (ECB) President Christine Lagarde said the first interest rate hike in more than a decade could come in July but downplayed the idea of a 0.5% increase amid concerns about economic growth. ECB officials are increasingly alarmed about record inflation and are focusing on problems caused by rising prices and supply chain problems that could undermine a pandemic recovery. With inflation in Europe almost four times more than the 2% target and the US Federal Reserve raising interest rates several times, growing criticism is that the ECB has been too slow to act. German producer price index data showed a higher-than-expected jump, indicating that consumer prices will remain high in the short term.

Russia’s Gazprom halted gas exports to Finland on Saturday, the Finnish gas system operator said, due to its refusal to pay in rubles.

Oil prices continue to rise as gasoline markets remain tight amid strong demand ahead of peak driving season in the US and other countries. The peak driving season in the US traditionally begins in late May and ends on Labor Day in September. Oil refineries are in capacity-building mode, but at the moment, demand far exceeds supply, causing prices to rise.

Gold prices added 2% for the week. Gold prices are inversely correlated with the dollar index and US government bond yields. The benchmark 10-year US Treasury bond yield fell to 2.79% from a peak of 3.2%. But that doesn’t mean yields will continue to decline because the more aggressive monetary policy, the higher bond yields.

Asian markets closed in the green territory last week. Japan’s Nikkei 225 (JP225) gained 1.27% for the week, Hong Kong’s Hang Seng (HK50) increased 2.96% for the week, and Australia’s S&P/ASX 200 (AU200) added 1.15% for the week. Singapore’s annual inflation rate remained at 5.4% (forecast 5.5%), with the core consumer price level rising (excluding food and fuel prices) to 3.3%. Last month, Singapore’s central bank tightened monetary policy and stepped up its fight against rising prices, exacerbated by the war in Ukraine and global supply problems.

In the commodities market, futures on natural gas (+5.15%), sugar (+4.23%), silver (+3.64), soybeans (+3.6%), copper (+3.03%), orange juice (+2.96%), gold (+2.04%) and platinum (+1.92%) showed the biggest gains by the end of the week. Lumber futures (-12.86%), gasoline (-3.02%) and cocoa (-2.35%) showed the biggest drop.

Main market quotes:

S&P 500 (F) (US500) 3,901.36 +0.57 (+0.02%)

Dow Jones (US30) 31,261.90 +8.77 (+0.03%)

DAX (DE40) 13,981.91 +99.61 (+0.72%)

FTSE 100 (UK100) 7,389.98 +87.24 (+1.19%)

USD Index 103.03 +0.30 (+0.29%)

• – Singapore Consumer Price Index (m/m) at 08:00 (GMT+3);
• – Eurozone Germany Ifo Business Climate (m/m) at 11:00 (GMT+3);
• – Eurozone Eurogroup Meetings (Tentative);
• – UK BoE Gov Bailey Speaks at 19:15 (GMT+3).

by JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

By Paul Strangio, Monash University 

Today we are running two longer articles looking at the men who are vying to be the next Australian prime minister. You can read Michelle Grattan’s profile of Scott Morrison here.

Karen Middleton’s 2016 biography of Anthony Albanese concludes with a speech he made that year, on the 20th anniversary of his election to parliament.

“I’m patient”, he told his clapping audience, “I’m patient — I’m a Souths fan”. The South Sydney Rabbitohs are the Rugby League club Albanese supports, which for the greater part of his adult life was notorious for its competitive under-performance.

The audience realised, of course, that in proclaiming his long-suffering dedication, Albanese was really alluding to his political vocation and his other underachieving “tribe” — the Labor Party.

Albanese’s journey in Labor politics has indeed been long and arduous. He was still a boy when he began accompanying his mother and grandparents to local branch meetings of the Labor Party; he remembers handing out for Gough Whitlam in 1972 when only nine. He formally joined the ALP as a teenager. Up to his ears in student Labor politics as an undergraduate, upon leaving Sydney University he went to work for the elder statesman of the New South Wales left faction, Tom Uren. By his mid-20s he was assistant secretary of New South Wales Labor, and won the seat of Grayndler for the ALP in 1996 on his 33rd birthday.

Even his path to leadership has been unusually slow. One has to go back to the middle of last century for an opposition leader who was older (56) and who had served for longer in the parliament (23 years) when first elected to that position.

His wait for the chance to become prime minister has been of far longer duration than most of Australia’s recent national leaders. Kevin Rudd, Julia Gillard, Malcolm Turnbull and Scott Morrison averaged only around a decade between entering parliament and attaining office. For Albanese, it will be a quarter of a century if Labor wins Saturday’s election.

To continue the slow burn theme, if Albanese is to be believed, his ambition for leadership formed late. Those who reach leadership positions are typically consumed with an aspiration for the top job from early in their parliamentary careers — if not before. They are fuelled by a sense of their own prime-ministerial destiny.

Albanese is different. On his telling, it was only in 2013, on the defeat of Rudd’s second government, that he first entertained thoughts of becoming leader. Until then he had contented himself with the role of “counsellor and kingmaker”.

And still he had to wait. Despite winning a comfortable majority of the rank-and-file vote, he narrowly lost the leadership to Bill Shorten in 2013 because several of his left faction Caucus colleagues defected to support Shorten. Albanese then had to stay his hand in 2016 when Shorten’s better-than-expected performance at that year’s election insulated him from a leadership contest. When Shorten seemed poised for victory in 2019, Albanese must have figured his chance to be party leader had passed. But then came “Morrison’s miracle” and Albanese emerged as the only candidate to succeed Shorten within a demoralised Labor caucus.

Playing the long game has also been the hallmark of Albanese’s leadership over the past three years. Beginning with “listening tours” of the regions where Labor badly faltered in 2019 — most notably in Queensland — it has been painstaking and unglamorous graft.

As journalist Katharine Murphy has observed, to his detractors his approach has been akin to a campaign of “attrition”. Those critics have harped on the theme of his leadership being a small target and his program prosaic. This is not how Labor wins office, they have insisted. Drawing on a sample size of three — the number of times Labor has claimed government from opposition since the end of the second world war under the leaderships of Whitlam, Bob Hawke and Rudd — the critics have argued the template for Labor success is a bold, transformative reform program and a charismatic, popular leader. Under Albanese, they complain, Labor has neither.

One can quibble at the edges of the critics’ reading of history. Though Whitlam unquestionably heralded an expansive reform program in 1972, the Labor Party was sufficiently concerned about his image that it launched an unprecedented advertising blitz to humanise him in the eyes of the public.

When Hawke won in 1983, Labor’s program for government was all but subsumed by the leader’s messianic appeal as encapsulated in the slogan, “Bob Hawke Bringing Australia Together”.

Rudd’s victory in 2007 was on the back of a campaign in which Labor selectively staked out policy differences with the Coalition. The nerdy Rudd painted himself as more of a fiscal conservative than John Howard, and was reassuringly perceived as a kind of youthful version of the prime minister. In short, the idea of Labor relying on larger-than-life platforms and leaders to win government is exaggerated.

This is not to deny that under Albanese, Labor is running on a considerably less daring agenda than it did in 2019. Indeed, it is an irony — or confirmation that ideological tags count for nothing in the contemporary Labor Party — that the right faction’s Shorten campaigned on an aggressively redistributive program spiced by “class war” rhetoric about the “big end of town”. In contrast, the left faction’s Albanese has abandoned those redistributive measures and has been emollient in his language towards business.

The plan to curb franking credits was first to go under Albanese, followed by the dumping of plans for changes to negative gearing, capital gains and, most recently, family trusts. As well, Labor has announced that in government it will not repeal the third tranche of the Coalition’s tax cuts that benefit high income earners. Simultaneously, Albanese has portrayed himself as a friend of aspiration. He believes, he says, in an Australia “where nobody is held back and nobody is left behind”.

To be fair to Albanese, it makes sense Labor changed tack from 2019. The party’s review of that defeat blamed it on “a cluttered policy agenda that looked risky and an unpopular leader”. In a speech to the National Press Club on the release of that review, Albanese indicated he had got the message: “too many people were confused or even frightened by our policies”. Elsewhere, he has pointedly noted none of Labor’s past successful opposition leaders campaigned on increases in taxes.

If there is a playbook to Albanese walking away from the Shorten program, then it is from the other side of politics. In 1996, heeding the lesson of John Hewson losing the unlosable election three years earlier on a radical neoliberal manifesto headlined by a new tax (the GST), John Howard renounced the GST as well as other contentious policies from Hewson’s Fightback! program. Howard determinedly narrowed the points of difference with Prime Minister Paul Keating, driving the latter to distraction.

Albanese has been unabashed about his strategy of not rejoining the battles of 2019, declaring he has no intention to “relitigate the past”. To those who cavil that Labor has abandoned its ideals by dropping the redistributive policies he has been equally blunt: “One of my Labor principles is for Labor to win elections”. This might not be as caustic as Whitlam’s famed put-down of the Labor hard left: “Only the impotent are pure”, but the point is fundamentally the same. To change the nation, Labor first has to win at the ballot box.

The abandonment of the Shorten-era revenue measures has curtailed Labor’s scope for campaign initiatives. According to the Coalition, Albanese is like a thief in the night, trying to steal his way into office on a meagre policy program. This is largely unfair. Beginning at a leisurely pace, Albanese gradually accelerated the roll out of policies.

Labor entered the campaign proposing, among other things, major investments in aged care, childcare and social housing, manufacturing renewal, greater support for TAFE and universities, an upgrade of the electricity grid, a national anti-corruption commission and implementation of the Uluru Statement. During the campaign, this program has been buttressed by further promises in areas like health, housing and pay equity for women workers.

Another conclusion of Labor’s review of its 2019 election campaign was that there was an absence of a clear narrative binding together the party’s policies. Albanese too has struggled in that space. In the second half of 2021, he seemed to be feeling his way there by talking about the reconstructive role of government following the crisis of the pandemic. This was potentially redolent of a great Labor reformist era (post-war reconstruction) and a sharp contrast to Morrison’s “can-do capitalism” mantra. Yet his prosecution of the case for the transformative power of government has remained inchoate.

Albanese’s predilection, as exposed on the hustings, for wandering into verbal marshes has not helped either in providing coherence of theme. But the lack of a compelling story line also goes back to the abiding caution of his approach.

The party’s policy on a 2030 carbon emissions reduction target is an illustration. This is another area where Labor kept its powder dry, delaying the release of its target until after the Glasgow Climate Change Conference. When Albanese finally announced a reduction target of 43%, it was almost as if the policy dare not speak its name. He declared it “a modest policy. We do not pretend it is a radical policy”. Hardly the inspirational stuff of “the great moral challenge of our time”.

Making amends for the disappointment of 2019 brings us squarely to the subject of leadership. If Shorten was a millstone on Labor’s vote, a perusal of opinion poll leadership ratings indicates Albanese, though not popular, has not been subject to anything like the antipathy that dogged his predecessor.

In the first half of this year, his leadership ratings edged into positive territory and, unusually for an opposition leader, he was nipping at the heels of the incumbent on the question of preferred prime minister. This was a good place to be.

Probably the most consistent take-out from the leadership polling over the past three years, however, is that Albanese has not made a major impression on the public. The relatively high number of respondents who have nominated “don’t know” when asked to rate his performance has been an indicator of this. The pandemic is one reason Albanese remained indistinct in the electorate’s mind. For stretches of the past parliamentary term, and particularly during 2020, he struggled for oxygen.

Yet undoubtedly the tepid response towards Albanese is also a function of the fact he has bent over backwards to be a non-threatening rather than arresting figure. For someone once styled as a warrior of the left, there has been nothing remotely incendiary from him.

That Albanese has journeyed a long way from his pugilistic younger days is a sign of maturity. But the charisma he displayed as a firebrand student politician has also leached away. He presents as a slightly rough-hewn, inoffensive type, workmanlike rather than exceptional. One senses he is more visceral than cerebral, with reserves of emotional intelligence. Colleagues testify that authenticity and decency are his defining attributes: a shorthand way of saying he is the antithesis of Morrison.

Altogether, Albanese’s is an unusually modest persona for an aspiring prime minister, which goes with his insistence he never had a sense of entitlement to leadership. At the same time, there is a core of resilience and self-belief. His inner strength is rooted in his hard scrabble backstory to which he routinely harks back. This is the story of being brought up as the only child of a single mother and invalid pensioner in council housing. His mother’s struggles are the lodestar of his political vocation.

In another way, though, Albanese was blessed as a child. Like past Labor luminaries, Whitlam, Hawke and Keating, he was the recipient of maternal special investment: what he remembers is his mother’s “absolute unconditional love” for him.

While he might not have believed it was his destiny to be prime minister, his mother harboured that ambition for him. Middleton’s biography records that she “believed he could go far — as far as a person can go in the Australian political system”.

What sort of prime minister can we expect Albanese to be if he wins power on Saturday? He has referenced Hawke and, to the gall of Liberals, even invoked Howard as prime ministers he will take a leaf from. The gold standard of modern Labor prime ministers, it is hardly surprising that Albanese looks to Hawke as a role model. He says that, like Hawke, he will govern by consensus, bringing business, unions and civil society together.

The transactional business of forging networks of support is second nature to Albanese: a craft he mastered as a left faction operative in the hostile environment of the right dominated New South Wales Labor Party.

There is evidence of his capacity for wrangling a middle ground. As leader of the House of Representatives during Gillard’s prime ministership, he was integral to the functioning of Labor’s minority government by closely liaising with the crossbenches. Gillard later remarked: “Albo is a very persuasive person. He’s good at talking people into things”.

While Albanese’s leadership style over the past three years has largely escaped analysis, it is notable he has mostly kept Labor united in common purpose. The walking away from the redistributive policies of the Shorten era required extensive consultation to work through the changes within the parliamentary party and beyond.

In the end, the result was achieved with surprisingly little rancour. Albanese’s collaborative abilities are also attested to by the strong leadership team he has assembled around him. In addition to his deputy, Richard Marles, and Labor’s talented shadow treasurer, Jim Chalmers, that leadership group includes Katy Gallagher, Mark Butler, Kristina Keneally, Penny Wong and Tony Burke.

Like all Labor leaders since Rudd, Albanese insists he has learnt the lessons of the dysfunction of that period of government. He will observe “proper” processes allowing genuine debate in Cabinet. Albanese’s team approach is a welcome contrast to the Coalition side, with Morrison giving the impression of running the show himself. If elected, Albanese’s ability to orchestrate consensus will hold him in good stead for tackling thorny policy challenges of which there will be many ahead.

Still, questions linger about whether Albanese has the stuff to be a substantial prime minister. Although a gifted transactional politician, does he boast the erudition and imagination to meaningfully shape the nation? He has demonstrated a flinty pragmatism over the past three years, but less certain is whether he has the driving sense of purpose required to achieve hard-fought reform.

And, like the best leaders, has he the ability to modulate his approach? Can he switch to a more dynamic galvanising mode of leadership or will the circumspection that has defined him in opposition shackle him in government? On the other hand, just maybe his unassuming leadership will provide for a dogged but conscientious form of government that suits Australia’s purposes.

With Labor enjoying a substantial lead in the opinion polls, Albanese’s patience looks set to be rewarded on Saturday. If the polls are right, on two-party preferred terms, the ALP is on track to achieve at least as handsome a victory as when the party won office in 1972, 1983 and 2007. Albanese will have defied the critics and bent the template of how the ALP wins government from opposition. Non-heroic in leadership style, he will nonetheless be celebrated as a Labor hero.

But there remain gnawing fears in the Labor camp that a low primary vote, fickle preference flows and a patchy swing might yet deny them majority government. Should a hung parliament result from Saturday’s contest, Albanese’s persuasive capacities will be tested immediately in wooing the crossbenchers. The probability is that in any negotiations he will have a stronger hand than Morrison because of an edge in numbers and the fact he is unencumbered by the same baggage as the prime minister.

It will be a final minor delay in Albanese’s protracted journey to the political summit.

About the Author:

Paul Strangio, Professor of Politics, Monash University

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