From my good friend Peter Switzer
Every economic week counts now as we try to anticipate the overdue correction of the stock market, or the next leg up in this seemingly never-ending march of Wall Street into all-time high territory.
But so what, you might be asking, but it’s a big “what”. This whole story about the US economy and stock market includes so much that will affect us so here goes:
It affects our stock market and therefore our super balances.
It affects our economy, as the economic recovery in the US is critical to the global recovery and the country’s demand for our services is actually the biggest of all our trade partners.
It will affect our dollar, with a stronger US economy likely to push the greenback up and the Oz dollar down.
It will then affect our interest rates, as a weaker dollar with a strong housing sector could make the RBA nervous about inflation.
It will boost economic growth as a lower dollar helps a lot of businesses and industries that have been struggling with the high dollar.
This again will help our stock market, super balances, employment, etc. and the virtual cycle created by a multiplier effect of demand leading to production and jobs ultimately takes us back towards a normal economy not needing historically low interest rates.
Over the weekend, in case you missed it, non-farm payrolls (employment) rose by 142,000 in August, which were way short of forecasts of a 226,000 gain. On the good side, unemployment fell from 6.2 per cent to 6.1 per cent but the concern for us is that if this month’s figure is a warning that the US economy is not as strong as I thought, then the first interest rate rise in the US could be six to nine months away.