Alan Kohler on why Trump’s war hasn’t spooked Wall Street
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ABC Listen. Podcasts, radio, news, music and more. Hello, I'm Fran Kelly and every day on the Radio National Hour, I take a deep breath and dive in.
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The war in Iran is creating economic uncertainty around the world. Higher inflation and pressure on central banks, including the RBA, to push up rates. So how are global stocks still surging? And why is Wall Street hitting record highs? Today, the ABC's finance expert, Alan Kohler, on why share markets remain so buoyant And a clue, it's got a lot to do with AI. I'm Sam Hawley on Gadigal land in Sydney. This is ABC News Daily.
Alan, things are looking pretty rough for the economy right now, aren't they? Inflation is up at 4.6%. That's the highest it's been since September 2023. And of course, there is now pressure on the RBA to, I guess, keep hiking rates.
Yes, and the market odds of a rate hike today are 76%. So it's almost certain, I guess, most of the economists, about roughly three quarters of economists are also saying a rate hike will take place today. The market's also saying that there'll be another one this year and probably a third. So there's a small number of economists who are predicting three more rate hikes this year. So I do think that if that happens, even if two happen, there's likely to be a recession. So we're into the second quarter now. We won't find out what GDP in the first quarter was until June the 3rd, and it's likely to be continued growth. The second quarter, which is what we're in now, is likely to be negative. So then the only question concerning a recession is whether the third quarter is also negative.
We won't find that out until well into the second half of the year. But look, I think that the odds of having a recession are quite high now.
Wow. But why does the, just explain then, why would the RBA continue to raise rates if the risk is there would be a recession?
Well, because it wants, because it doesn't want there to be a recession, but it thinks that, and I think that a few economists think, that in order to get rid of inflation, there has to be a recession. I mean, I think that we're just about... perhaps not quite in that situation, but we're getting there. I mean, and the problem is that the increase in fuel costs themselves slow the economy. But because the inflation goes up, you said 4.6%, that includes the rise in diesel and petrol. People start to put that into their wage claims. And because the labour market is quite tight, those wage claims tend to be paid because companies have to, because they haven't got any choice. And so what the Reserve Bank faced with is the prospect of having to cause unemployment to rise in order to stop those wage claims actually flowing through.
And this is all because of the war in Iran.
Yeah.
All of it.
Pretty much. What a disaster.
So this is all because of Donald Trump's decision to go to war with Iran and we don't know when that's going to end still.
We certainly don't. I mean, as we speak, the Strait of Hormuz remains closed. Obviously, they're not fighting at the moment, as they were to begin with, but the Strait of Hormuz is closed because both of the US and Iran are blockading it.
What economic factors are driving uncertainty in the world?
trying to squeeze the other out.
I just want to shift now and talk about something a bit peculiar about this situation, which is while we're all obviously suffering because of higher fuel prices, rising inflation, rising interest rates, Wall Street and the markets, they're doing OK, right? So what is going on?
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