Markets hope to tap new capital opportunities that were held back by former US administration

The world’s capital markets are signalling that the US is setting a new pattern for world growth. Picture: Spencer Platt/Getty Images/AFP

Visy chairman Anthony Pratt’s decision to announce he was shifting residence to the US is confirming with actions what the world’s capital markets are signalling – that the US is setting a new pattern for world growth.

Australia’s problem is that we have embraced a different pattern and that is reflected in the Australian dollar, which hit US69c when Donald Trump was struggling and is now in danger of falling below US65c.

The markets have believed for some time that the US was headed for a soft landing, but president-elect Trump has opened up a new vista of capital opportunities that to date have been held back by the structure of the US administration.

The share and currency markets believe he has found a way to unlock the potential of the US. If it works, then it’s a formula we will need to embrace if we are to be a US defence partner.

One reason Anthony Albanese and former Prime Minister and current US ambassador Kevin Rudd have made such disparaging remarks about Trump is that they hate his formula. Albanese has headed the nation in a different direction.

But the US bond market has sympathy for the Albanese view and, as discussed below, is sounding a warning.

In his first term of office, Trump unsuccessfully promised a revolution similar to the one the market is now embracing. Trump has had four years to think about what went wrong the first time around. The market now believes devised a formula that will transform the US.

For countless decades in the US and Australia, the two major political parties have both gained power in an avalanche of rhetoric but usually haven’t made a great deal of difference.

Both countries have been run by the public servants and a series of bodies that advise on and direct their policies. Those that control these bodies are far more powerful than the politicians. It’s “Yes Minister” in real life.

In 2025, one of Trump’s first steps will be to dismantle some of these powerful bodies. And then he will unleash Elon Musk and his team on the public service and using enhanced computer power and artificial intelligence Musk plans to cut government expenditures (read the public service) by about 30 per cent.

As reported in the Australian this week Albanese and his ALP state premiers have embarked on an unprecedented public service hiring spree which is the main reason why the nation is short of skills and why the Reserve Bank’s high interest rate policy has not curbed the economy and inflation in the way that was planned.

The equivalent Australian bodies to those that Trump is targeting in the US are controlled by Australian unions.

Trump’s first target will be the behemoth US education department, which Trump plans to reduce to a few people and a phone. Its functions will be scattered. Trump’s first advice to Robert Kennendy Jr as he attempts to change US health policy was to “clean up the corruption in our government health agencies and return those agencies to their rich tradition of gold-standard, evidence-based science”.

In education, by dismantling the power base and using the money stick, Trump plans to swing US education to a nationalistic curriculum and away from gender and climate issues. This is a massive undertaking. Removing harmful additives from ultra processed foods will be just as difficult. And from there Trump goes to expelling migrants, imposing tariffs, lowering energy costs via gas and nuclear, fostering US investment in manufacturing and ending the wars in the Middle East and Ukraine by US money and arms power.

The sheer magic of all this has captured markets.

I would normally say that such an agenda is impossible, but he has had four years to think about it. But there is a clear warning from the bond market. Bond traders believe this revolution will boost US interest rates so they are selling US bonds and the 10-year yield has risen from around 3.6 per cent to 4.4 per cent in two months.

Back to Australia and our miners are under pressure because China is preparing its economy for Trump tariffs in a way that will lessen the need for Australian iron ore, particularly as China is harvesting its scrap.

At least in US dollars, gold is falling because its market is being impacted by cryptocurrency.

Copper is being affected by the move away from mining stocks.

High cost and badly implemented energy policies to reduce carbon dioxide emissions is causing both Australian and US opinion polls to discover that concern about climate is falling among the general population. But the artificial intelligence revolution and its link to the reliability and low cost of nuclear power is going to boost demand for copper.

The US is going to demand that Australia substantially increase its investment in defence and restore its space agenda. When the Australian government claims we cannot afford it, Trump will simply point to the bizarre public servant hiring spree in Canberra and the states. We will not want to reverse that hiring, but we might be forced to if we want to be part of the US alliance.

Finally, the first world leader to be invited into the Trump pre-inauguration bunker is not from a G20 leading nation but rather the President of Argentina, Javier Milei, who has embarked on a program to Make Argentina Great Again. It has many similarities to that of Trump. He may give Trump advice on the hazards.