Australia became the first of the G20 nations to raise interest rates yesterday, having previously slashed them to prevent economic meltdown. The country moved its reserve rate from a 49-year low of 3% to 3.25% - amid "evidence the recovery is gaining momentum", said Daniel Hauk on Bloomberg.
The move took the markets by surprise (even although it was heavily flagged in the local press earlier this week so much for market efficiency). The excitement at this very visible sign of recovery helped drive markets higher across the board.
But don't expect the Bank of England to follow suit any time soon. We share little economic common ground with the Aussies. Australia is heavily driven by commodities, and this year China has been on a huge buying spree. No wonder they're worried about the early return of inflation down under. What's more, Australia didn't get involved in sub-prime mortgages to the same extent as the UK or the US.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Whether that's because banks such as NAB missed the boat- as one senior banker who works there admitted to me recently is hardly important. The fact is that Aussie households, and therefore consumers, are in better shape than many others in the Western world. So as Jim Reid, a strategist at Deutsche Bank in London, put it: "if there was a country that would be first to hike, then Australia was always a strong candidate".
The UK, on the other hand, is not. Take the latest plunge in industrial production, which fell 2.5% month on month in August, the biggest fall since January. Vicky Redwood of Capital Economics summed up the figures as "dreadful". Sure, house prices may be rising- up 1.6% according to the Halifax- but all such numbers must be taken with a huge dose of salt, given the low level of transactions.
But we wouldn't bet too much on a rampant Australian recovery right now. Ultimately, the country is a bet on commodities. We're bullish on these in the long run, but in the short term we could certainly see prices falling.
With anti-dollar sentiment reaching fever pitch (as Dominic Frisby points out in today's Money Morning: Gold hits an all-time high - yet no one's interested), we may well be on the verge of another correction for the markets (at the moment, as the dollar rises, stocks decline and vice versa). If that happens, the Australian market will turn down alongside everything else.
-
ScottishPower launches half-price electricity at weekendsNews ScottishPower is offering 50% off electricity at weekends, which could slash hundreds off your bill. We look at who can get it and how to apply
-
Trump calls “tariff” the “most beautiful word in the dictionary”, but investors may disagreeDonald Trump has promised to slap Mexico, Canada and China with new tariffs on day one of his presidency. What does it mean for the economy and investors?
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
