Terry McCrann: Trump clarity will benefit us

THANKS to Donald Trump, we have started the year with the clearest outlook for investment and the economy than we’ve seen in quite a while, writes Terry McCrann.

THANKS to Donald Trump, we have started the year with the clearest outlook for investment and the economy than we’ve seen in quite a while — indeed, probably since 2009 when after the GFC it was all black.

What the outlook might be at the end of the year is a very different matter — again, but in a more complicated sense, also thanks to Trump.

That’s to say, by then we will probably be getting blowback from both the “good” and the “bad” things he’s done or says he wants to do.

The one absolutely unambiguous thing just the mere existence of a “President Trump” has done is to send global share markets soaring.

Wall Street hit another record overnight on Friday. It’s up more than 10 per cent since his election — indeed, closer to 15 per cent from the immediate post-election panic, mostly outside the US, when it became clear that he would win.

Where Wall Street goes, everyone else follows. Even our market has been dragged almost reluctantly higher.

I say “reluctantly”, because both our market and our economy’s near total dependence on resources exports and a Melbourne-Sydney property boom (the big four banks, to a lesser extent the property trusts and retailers) means we don’t really have too many stocks to benefit directly from a US economic surge.

The one absolutely unambiguous thing just the mere existence of a “President Trump” has done is to send global share markets soaring. Picture: AP

That, though, is the second element. His election has locked in a strong US economy through 2017.

Now, the US economy was looking good anyway. Eight years of zero interest rates had generated so much profit for asset owners, it had to start feeding into a stronger economy as well.

What Trump has added, though, is the critical confidence factor. Both US business and consumer confidence has soared. This is going to be followed by actual policy moves that will turn that increased confidence into sustained consumer spending and business investment.

You can argue over whether they are all good policies, but they will be delivered policies. This gives direction, clarity and certainty. You look at our gridlock in Canberra and you have to cry.

Trump wants to take the US corporate tax down from 35 to 15 per cent; we are struggling to get it down from 30 to just 25 per cent — and then only after 10 years.

The big thing this has all meant is that, again, for the first time in close enough to 10 years, the US is the centre of all our immediate futures.

It’s not that China doesn’t matter: of course not, it is still the most important country for our economic growth; especially with growth maturing from commodities to higher-value services like tourism.

Retail consumption in China is expected to rise sharply in the next five years, but in Beijing trading conditions are mixed as shoppers face higher prices and shop owners battle increased competition

But over this year at least the US is going to drive global growth outcomes; share markets and critically interest rates and currency values. And drive them, for us especially, in a positive way.

We got a bit of this in the latest forecasts from the Reserve Bank in its regular quarterly statement on Friday.

On the surface, they didn’t look a lot different from the last forecasts — which had been, rather amusingly, developed right at the start of November when everyone thought we were about to get a President Hillary.

They didn’t look a lot different because they were almost exactly the same. But in a core sense, that was exactly the change.

Back in November the RBA was projecting the economy would tick over “not too strong, not too weak” — that’s to say, Goldilocks fashion.

It’s saying the same again; but in the discussion as opposed to the numerical forecasts, it is clearly more confident that this will actually happen. And if anything, actual outcomes will push towards the top of the wide forecast ranges.

Yes, the RBA is assuming that China will keep ticking over — buying more and more of our iron ore and coal (that we don’t want to use). But it is now also expecting the US will provide the boost at the margin. But it will also likely mean US interest rates going up more and faster. Last year the Fed promised four rate hikes and delivered just one, and right at the end of the year. This year it has promised three. Absent some left-field shock, it will deliver all of them, and quite possibly one or two more. And they will come earlier.

Again, that’s great for the RBA, and what’s great for the RBA is also great for us. In particular it won’t force it to follow. Then the RBA will be happy to let higher US rates take any upward pressure off the Aussie dollar.

To sum: the excitement is coming out of the US. But it will still be important to watch China. Wall Street could get very “interesting” around midyear if by then we’ve had two more US rate hikes.

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Originally published as Terry McCrann: Trump clarity will benefit us