RBA | The rate riddle

The Reserve Bank's Monetary Policy Board gathers next Monday, with its decision due on Tuesday at 2:30 pm. The meeting lands at perhaps the most confusing moment in recent monetary policy history. In the space of twelve months, borrowers have experienced three rate cuts, and now three rate hikes, the latest bringing the cash rate back up to 4.35%. Those keeping score at home can be forgiven for feeling whiplash.

The consensus among the major banks is for a hold, with Commonwealth Bank economists noting the RBA will want to assess whether May's increase is working its way through the economy. NAB has gone a step further, removing its previous forecast for an August hike and signalling its view that the next move in rates is more likely to be down, albeit with considerable uncertainty around timing. Westpac, ever the contrarian, still has two further hikes pencilled in for 2026.

There is, however, a hawkish wrinkle. Macquarie's equity strategy team this week urged markets not to be complacent, arguing that futures are materially underpricing the chance the RBA keeps a further hike firmly on the table in its post-meeting statement. The messaging, more than the decision itself, will be what markets focus on.

Economy | The data doesn't lie -- and it isn't flattering

The economic backdrop against which the RBA meets is not comfortable. April CPI came in at 4.2%, well above the 2-3% target band, and the very reason the RBA has been hiking. At the same time, unemployment rose to 4.5% in April, the highest reading since late 2021, with employment falling by 18,600 in seasonally adjusted terms. The RBA is being asked to extinguish inflation without smothering an economy already showing signs of stress.

Consumer confidence tells the same story, only more bleakly. The Westpac index fell 12.5% in April, recovered a modest 3.55% in May, then fell again in June by 2.9% to reach 80.6, the lowest reading in the 50-year history of the index. The number doesn't just reflect pessimism; it reflects something closer to exhaustion.

Property | Blunt instrument

The government's changes to capital gains tax and negative gearing, being pushed through parliament with haste and considerable determination, were designed with genuine intent: to improve housing affordability for first home buyers priced out of the market. Whether that intent will be realised remains to be seen. What is already visible is the blunt force with which the changes are hitting the broader property market, and potentially the economy as a whole.

Investor appetite has cooled sharply. And as investor demand retreats, prices soften, for existing owners and prospective ones alike. The unintended consequence, familiar in policy circles but no less frustrating for it, is that the medicine is affecting the entire patient, not just the targeted symptom.

Hedge Clippings heard this week from a real estate agent who held three open for inspections, that together failed to attract a single viewer. Anecdotal, yes, but sometimes anecdotal can be a leading indicator.

Markets | Fear, greed, and the rocket man

The Strait of Hormuz situation drags on, its grip on fuel prices loosening somewhat as other headlines compete for attention. Trump's overnight announcement of an imminent deal--reportedly his thirtieth such announcement--was received by markets with the scepticism it deserved.

Displacing much of the geopolitical anxiety this week has been the sheer spectacle of the SpaceX IPO, the largest in history, priced last night at US$135 per share, raising US$75 billion at a valuation of US$1.75 trillion and listing today on Nasdaq under the ticker SPCX. Demand was reportedly more than three times the available supply before final pricing. One fund manager who we spoke to this week described the offering as the greatest Ponzi scheme he'd ever seen. He may be right. He may be wrong. But the observation points to something real: valuations at this scale are ultimately sustained by belief, not by cashflow, at least in the near term.

Markets, of course, have always run on two fuels: fear and greed. To which one must add that most potent of accelerants, the Fear of Missing Out. FOMO built the dot-com bubble. FOMO built the crypto frenzy. Whether SPCX is the next chapter or a category of its own, borrowers watching their mortgage repayments climb while queuing for SpaceX allocations might reasonably wonder which sentiment is driving whom.

The bottom line

A hold next Tuesday seems the most likely outcome, but it will be the RBA's words, not its decision, that set the tone for the months ahead. In an economy where inflation is too high, unemployment is rising, property is softening, and consumers haven't felt this gloomy in half a century, the path forward for monetary policy is genuinely unclear. And when the path is unclear, the sensible course is to proceed carefully, which is, ironically, exactly what the RBA says it is doing.