What’s the current lie of the land when it comes to the likely tariff we’ll cop? And how will our government, central bank and stock market react?

It’s August 1 here, but ‘here’ doesn’t count when it comes to the Trump tariffs, so we have to wait until tomorrow to see what tariff Australia cops from President Donald Trump. Of course, he often does big ‘stuff’ on the weekends, like dropping bombs on Iran, so the tariff slug could be revealed a day later. Whatever it is, important bodies like the RBA, the Albanese Government and the stock market will have a reaction.

What the US President hits us with will be a big news story, but the real impact of a 10% tariff on most Australian imported products into the US will only have a small economic impact. Interestingly, it could actually lead to our exporters finding alternative markets that have been ignored because it was easier to sell to Americans, given we currently have a free trade agreement!

Of course, that was a deal struck with another US President.

So, what’s the current lie of the land when it comes to the likely tariff we’ll cop? And how will the likes of our government, our central bank and our stock market react?

Right now, we’re on the list of key trading partners who haven’t ‘cracked a deal’ with the Trump team. Of course, that team has only made eight agreements in the 120 days or so since Liberation Day. CNBC showed them this morning.

Against these, India, Canada, Mexico and Australia are seen as key trading partners without a signed, sealed deal with Trump ahead of August 1.

On Liberation Day, Canada was threatened with a 35% tariff, Mexico 30% and India 25% (plus some other penalties). We were looking at the small country slug of 10%.

So, what are CNBC’s reporters telling us is the news on the ground in Washington about us? Here it is in a nutshell:

1. We’ll cop the baseline rate, which on April 2 was 10%.
2. However, there’s speculation that this could be raised to 15% or even 20%.
3. “Canberra has not been publicly known to be in trade talks with Washington,” CNBC noted.
4. Prime Minister Albanese maintains our trade deficit means we should not face any tariffs.

Interestingly, these US reporters pointed to Australia relaxing restrictions on US beef, a move that the office of the US trade representative credited to Trump. Our PM allegedly said, “the move was not prompted by Trump”, which, if true, mightn’t be the smartest piece of honesty, given the nature of Donald J. Trump!

Let’s look at the reaction to the upcoming tariff revelations.

1. The Albanese Government

A 10% tariff would be accepted, though the PM and Trade Minister Don Farrell would stick to their argument that our trade deficit entitles us to no tariff. If the tariff is 15% or 20%, there could be a public, negative reaction but the outcry could be muted because specific punishments from the President, such as big tariffs on pharmaceuticals and other specific sectors, are still in the wings. Also, the President has indicated that he doesn’t like us potentially punishing the likes of Google, Apple, Microsoft et al, who seemingly are tax dodging.

2. The RBA

The central bank would not be influenced by the tariff being 10% or higher in the short run. While a US tariff won’t affect our inflation rate, it could reduce the number of rate cuts if global inflation kicks up because of the knock on effects of the Trump tariffs. That said, the expected August rate cut wouldn’t be affected, though the tipped November one could be. On the other hand, if the tariffs worldwide lead to a global slowdown, these tariffs could mean more rate cuts here in Australia.

3. The stock market

Our market would slide on a bigger-than-expected tariff but not by a huge amount. Individual companies badly affected by a bigger-than-expected tariff would see a big stock price fall but the tariff deal that could really hit or help stocks will be the agreement with China.

I’m betting stocks rise for the next 12 months on relief that tariffs aren’t as bad as expected, China gets an OK deal, rates are falling, and Trump will cut taxes and introduce deregulation. But the real kicker is AI that will help the bottom lines of a lot of companies in the US and worldwide.

If we copped a ‘nice guy’ 10% tariff, our stock market would be relieved, but I wouldn’t put my money on the nice guy play!

The nations borrowers were praying for a good inflation number yesterday. They got it, so there should be no excuses for the RBA to deny a rate cut on August 12.

At a time when the US central bank boss Jerome Powell has put his head on the Trump chopping block by denying Americans an interest rate cut, our RBA Governor has to be under a lot less pressure to do what her Washington counterpart has refused to do.

And the US President isn’t happy as he has been denied five times this year by the Fed and matters have been made worse by Powell saying if it wasn’t for the Trump tariffs there would’ve been rate cuts.

Luckily for Michele Bullock, the only notable significant critic of the RBA is former Prime Minister Paul Keating, who, to be fair, hasn’t railed against the current governor of our central bank. However, her predecessors have been accused of being historically “late to the party” when it comes to well-timed rate cuts.

However, if our Governor holds back on an August 12 cut to the cash rate from 3.85% to 3.6%, the country’s gracious and respectful approach towards Bullock could become a little more aggressive.

Why?

Well, apart from 32 out of 36 economists being surprised that the RBA board thought they weren’t all that smart in tipping a rate cut in July, there are a lot of small businesses and home loan borrowers who’ll be hopping mad if the Bullock board holds out on a rate cut again.

And that’s especially so, given what yesterday’s Consumer Price Index showed us. In case you missed it, here are the big takeaways:

1. The monthly headline inflation for year to June 30 was 1.9%.
2. The monthly trimmed mean inflation for the past 12 months fell from 2.4% to 2.1%.
3. The more respected quarterly numbers showed the headline rate for the three months to June was 0.7%.
4. That took the annual quarterly headline rate down to 2.1%, compares to 2.4% in the year to March.
5. The annual quarterly trimmed mean inflation rate, which is the most important to this board, fell from 2.9% in March to 2.7%, which is the lowest since December 2021, when we were out of Covid lockdowns.

What I found interesting is that goods inflation was up 1.1% for the year to June but services inflation was up 3.3%, showing that consumers are putting off buying products, so product price increases are less prevalent, while services businesses are in a stronger position to raise prices.

Looking to the economists who trawl through these economic data drops, Westpac’s Chief Economist Luci Ellis says the door is now open for a rate cut at the August meeting as “inflation is within target. The RBA likely to continue reducing monetary restrictiveness, including by cutting the cash rate at its August meeting”.

From one bank’s view to another, this is what the CBA’s Harry Ottley took out from the CPI numbers: “Commonwealth Bank (CBA) Group economists have retained our view that the RBA will resume its rate cutting cycle next month, with 25 basis point reductions in the cash rate target at the August and November 2025 meetings taking the cash rate target to 3.35% by year-end. While the annual core CPI growth rate of 2.7% is slightly above the RBA’s May forecast of 2.6%, we don’t see this as a barrier for an August rate cut, given the softer June labour market data, and supportive trends across services, housing and tradeable inflation”.

Personally, I would have preferred the trimmed mean at 2.5% rather than 2.7%, so the RBA would’ve had no excuses to welch on a rate cut next month, but if these guys at Martin Place refuse to cut again, then the mudslinging at the too cautious central bank mob might be too hard to hold back.

Sneak preview time with Donald Trump! The US President has shown us overnight  the tariffs that could be hitting not only Australia but the rest of the world.

Not only did Trump preview big deals struck with major trading partners, he’s given himself an extension on his homework until the start of August.

The pause we're now still in has given a lot of countries a chance to negotiate down the tariffs that he’s proposing. Despite the extension, however Wall Street did not like the news. The Dow gave up something like 422 points—that’s 0.94%. The S&P 500 was down 49 points. And the tech-heavy Nasdaq, which has companies like Tesla, Meta and Apple and the like, was down 0.92%.

So, what’s scaring or spooking the stock market this morning?

Well, try this: Japan, South Korea, Malaysia and Kazakhstan have all now confirmed they'll cop a 25% tariff. Laos and Myanmar will fall—they too get a 40% duty. And South Africa will cop a 30% slug.

And then there's the EU. The EU is promised a 50% tariff. They’re negotiating—and they’re doing that right now. But always, uncertainty is not good for stocks.

The good news for us is Australia looks like it’s only going to be hit with the 10% tariff that was mentioned on Liberation Day, April 2nd. I call that "Clobberation Day" after what we saw happen to global stocks.

The reaction overnight hasn’t been as great, but there is this kind of feeling that if the retaliation from other countries ends up being bigger than expected, it could really rock stocks.

Interestingly for Australia, the US Treasury Secretary, Scott Bessent, said—and I love the fact he used this term: countries will “boomerang” back to the April 2nd tariffs by the start of August if they have failed to negotiate with Washington.

The Trump administration has also said it has sent over 100 letters out. If you get a letter, it basically says: negotiate on tariffs or you’ll cop what we promised on Liberation Day.

Fortunately, Australia has not been the recipient of such a letter. The Prime Minister (who jets off to Beijing today) was hinting about that last week, so we’re not expecting anything more than the 10% tariff that was imposed on Liberation Day.

Sure, steel and aluminium parts—they copped a 50% tariff. That’s what we call "sector tariffs". And then we’ve got other areas like automobile parts—they’re about 25%. There’s going to be a whole range of little tariffs for various sectors. But basically, Australia is getting off a lot better than people were expecting.

Our market was tipped to open 43 points lower at the start, and the Aussie dollar is down under 65 cents—at 64.95 US cents.

That’s showing you that the market is not comfortable with the tariff pressure that’s going to be applied between now and the start of August.

Meanwhile, speaking of Trump's orbit, former friend and government flunky Elon Musk is in the news. Or more specifically, Tesla. The EV maker spectacularly dropped $68 billion in market value overnight. That’s 7% off the share price. You know why? Because Elon Musk decided to start his own political party, and it’s going to be called the America Party.

I reckon the guy has a cap of his own—you know, like the MAGA cap that Donald Trump has, which means “Make America Great Again”. I Elon's could probably read “MACRA”: “Making America Crazy Again.

In a week when the Reserve Bank is certain to cut interest rates, the home loan market and, undoubtedly, property prices are set to surge if recent applications for lenders’ money is any guide.

The Australian reports that new figures by mortgage brokerage Loan Market have revealed that following the RBA's February cash rate cut, pre-approvals were 43% higher (!!!) than in the same period last year.

Given most economists expect not one but three rate cuts this year and a possible fourth early next year, you don’t have to be Harry Triguboff, Tim Gurner or John McGrath to work out that this will help bring buyers back to auctions and Saturday afternoon browsing for a property.

What we will see is the opposite of the mortgage cliff, which said borrowers who were on COVID-driven very low fixed rate home loans would fall over a spending cliff when they were forced onto higher rate variable home loans.

What happened to the cliff?

So did that warning come to pass?

The RBA told us in 2023 that around 880,000 fixed-rate loans expired in that year, with another 450,000 due to expire by the end of 2024.

One aspect of the “cliff” was that borrowers would fall into arrears. While that didn’t become a scary issue for banks and other lenders, spending did fall away, so consumer discretionary outlays of holiday, furniture, cars and other retail did suffer.

Ask Airbnb if holiday lettings fell and the answer is yes — big time! And many retail business owners have hit the wall as rate rises killed spending. Even now borrowers are saving money coming from the two rate cuts this year.

I’ve often said to audiences that Aussies would sell their granny into captivity before they stop paying their home loan and gave up their precious quarter acre block or apartment!

This chart shows a cliff-like retail slump from 2023 after rate rises started in 2022.

And the chart below shows how economic growth has slumped over the period of late 2021 to now. While this is another indicator that the mortgage cliff happened, it just wasn’t as steep as the media and other alarmists portrayed it.

Want more proof of the cliff effect? Check this out from Creditor Watch as reported by the ABC:

“Hospitality closures hit a record high of 9.3 per cent — one in 11 businesses — in the 12 months to February, up from 7.1 per cent in the previous 12 months as customers under cost-of-living pressure cut their discretionary spending.”

The loan surge explained

So, what’s behind this 43% surge in loan pre-approvals?

Loan Market research says the rise is linked to rising buyer confidence following the February rate cut of 0.25%. Since then, there has been another one in May. Then there are the news reports of the likes of AMP’s chief economist, Shane Oliver, who’s tipping cuts in July, August, November and February.

The Loan Market research also points to a surge in listings for the upcoming Spring sales period that’s also getting would-be borrowers out inquiring about a possible loan.

First homebuyers and people wanting to upgrade their homes are leading the charge to get the tick for a possible loan, with many applicants driven by FOMO (the fear of missing out) as they expect three or four rate cuts to lead to a stampede for properties that will drive prices up.

So, will the RBA give us a 0.25% or 0.5% cut on Tuesday? Given the slowdown in the economy and the expectation that official rate cuts will come in July and August, a jumbo half-a-percent cut would be great for stimulating the economy, but the RBA could worry about the house price effect.

I’m sure they will want to keep their powder dry for helping the economy in case Donald Trump’s tariffs, expected to be revealed this week on July 9 leads to a collapse of global trading and economic confidence. If this happens the central bank might go with a 0.5% to try to avoid a tariff-related recession.

Note, while this is a worst-case scenario that I don’t expect to happen, second-guessing the most unpredictable US President ever is not a very wise strategy.

This could be a huge week for our views on rate cuts going forward. It would be the first time that someone in the White House had such a huge influence on what we pay for our mortgage!

As the decisions of Donald Trump hit us daily, never have the words of James Brown “Living in America” meant so much to us here in Australia.

Living in America (yeah)
Hit me
Living in America
Living in America!

 

Ahead of his economic roundtable to boost the economy’s flagging productivity, Albo channels former Labor PMs Hawke and Keating with a commitment to the business sector.

Ask any good Artificial Intelligence these days and it'll tell you that business wants the Albanese Government to foster “robust” growth via significant reforms. Ahead of his economic roundtable to boost the economy’s flagging productivity, the Prime Minister has made a very un-Labor-like commitment to the business sector.

This big promise comes as President Trump’s One Big Beautiful Bill, also called the mega-tax bill, was passed by the House of Representatives. And a better-than-expected jobs report has again powered US stocks higher into record-level territory.

One has to ponder if this upcoming productivity talkfest will ultimately take our stock market higher in August, when the results of the Economic Reform Roundtable wrap up.

Today’s Australian summarises what the PM is signing up for with the following:

“Anthony Albanese will declare it is time for big employers and small business owners to resume their rightful place as primary drivers of the economy and acknowledge government 'doing less' would unleash the private sector, as he lays the ground for Labor’s economic reform roundtable.”

This implies that along with immigration, the public sector with its infrastructure projects (such as metros, new roads, airports, etc. and a surge in the hiring of public servants) has kept the Australian economy growing, especially since Covid killed the private sector with lockdowns, global supply chain blockages and collapse of trade worldwide.

In his National Press Club speech last month, the PM outlined what he thought was important to boost productivity, which included faster housing and energy approvals, a better skills system, more user-friendly government services, and regulation to balance the risks and opportunities of artificial intelligence.

But what does business actually want?

Try these reforms for starters:

1. Less red tape.
2. Better regulation.
3. Incentives for small business to boost innovation.
4. Incentives for research and development.
5. Tax changes to boost incentives for business growth investments.
6. An economically sensible approach to AI restrictions that unions will be demanding.
7. A better commitment from the Government compared to the Jobs and Skills Summit, which business didn’t agree with and argued would stifle productivity, with the reforms imposed on business driven by the unions.

Economists refer to the excessive involvement of a government in the economy as “crowding out”, where the public sector competes for resources (including borrowed funding) with the private sector. This drives up interest rates and wages for all and creates disincentives for the private sector.

This roundtable on August 19-21 in Canberra will be a huge test of the credibility of Anthony Albanese after this undertaking to put the private sector ‘front and centre’ of the push to grow this country by boosting productivity.

Let’s hope the PM and his team don’t act like the political leaders once described by the USSR President, Nikita Krushchev, who reminded us that: “Politicians are the same all over. They promise to build a bridge even where there is no river.”

Our tight job market and possibly local attitudes to work have pushed employers to look overseas to recruit foreign workers, such that soon we might have police on the beat saying: “Hello, hello, what have we got here?”

If you haven’t been a fan of old UK television dramas such as The Bill, you might need more information, so let’s make it clear. Right now, the South Australian police force has an advertisement showing three boys in blue standing in the water holding a big picture of a sunrise over the sea with the pitch: “WISH YOU WERE HERE.”

The AFR’s Hannah Tattersall tells us that these guys are late to this recruitment party as the Queensland and Western Australia police forces have been enlisting the famous English bobbies for some time.

But we’re not just targeting cops to clean up the streets of Australia, as Tattersall revealed with the opening lines to her story:

“When George Peppou finally convinced SpaceX engineer Ines Lizaur to move to Australia from the US and work for his cultured meat company Vow, it wasn’t the money that sealed the deal, or the equity she would gain in a firm that had just raised more than $80 million from investors.”

It was the city Sydney itself!

Like a lot of tourists who holiday here, this country shows that Australia has something worth pursuing and it’s a great lifestyle. Sure, our distance from the rest of the world is a travel problem but once someone gets here, they see it’s worth it. That’s a competitive advantage the governments of Australia should be exploiting that they aren't currently.

In recent times, even as the economy slowed to snail pace growth, unemployment hasn’t risen above 4.1%, which says we have a tight labour market. Part of that is driven by the fact that we lack workers in specific areas.

Tattersall reports that “Shannon Karaka, Australian head of global human resources platform Deel, which facilitates hiring and paying employees internationally and also offers immigration support, says there are skilled labour gaps in tech, healthcare, engineering and education, as well as software development, cybersecurity and data science.”

But it’s not all a cakewalk for Australia attracting talented workers. This is where the Federal Government must lift its game.

Karaka says countries such as Singapore, Hong Kong and the UK tend to offer broader incentives and faster visa processing.

According to recruitment firm Robert Half, one of those incentives is that we’re a country where workers have largely gone back to the office, while overseas many employees are two or three day workers from home!

In an age where the Albanese Government has named raising productivity as the country’s number one economic goal, getting the right workers, no matter where they come from, seems like a smart way to boost our efficiency.

Demand for housing is on the rise, and with four rate cuts expected by economists between July and February next year, there are two related problems for anyone wanting to get a new property.

First, the number of of houses being built (also known as supply) is way too slow and second, wait for it, the average cost of building a house is up 50% in the past year.

Yep, you read it right: 50%. In one year!

The Australian’s Jessica Wang has looked at figures from the Institute of Public Affairs and here are the hard facts:

1. Construction costs have risen 50% in a year.
2. In 2014, it took 8.5 months to build a home. Now it’s 12.7 months.
3. Costs for building materials have risen 53% over the past decade.
4. Covid negatively-affected the supply chain for materials.
5. In 2024, while the Albanese Government promised 1.2 million homes built in five years, in one year they’re already 55,300 homes short.

When pulling out the performances state-by-state, Wang found the following:

“Using building activity data from the Australian Bureau of Statistics, the IPA found Western Australia was leading the construction lag with an unenviable increase of 85 per cent to 17.8 months. Building costs also have increased by 45 per cent. South Australia had the next slowest builds of 15.8 months, a rise of 74 per cent, with costs going up by 51 per cent.

“Across 10 years, the cost of materials had increased by 58 per cent in NSW and Queensland (where it takes 12.7 months and 10.2 months) respectively, to build a detached home. It takes 11.3 months to build a home in Victoria, and 12.6 months to complete a home in Tasmania, with material prices increasing by 56 per cent and 55 per cent.”

Quite correctly, the industry points the finger at government regulations not helping, a slowness to make land available and huge immigration levels. However, there are other negative factors contributing to this housing crisis.

IPA research director Morgan Begg gave more reasons for the cost and supply problems. “Over the past decade Australia has seen demand-driven cost increases to construction material and labour caused by large, inefficient government projects, creating the perfect storm of rising prices and rents, particularly in the post-pandemic period,” he said. “The latest figures reinforce the depth of Australia’s housing crisis, brought about by out-of-control migration intakes, a construction sector burdened by red tape and competition or resources from large, expensive and inefficient taxpayer-funded projects.”

A key message is that public sector infrastructure projects haven’t only taken tradies and builders away from the private sector, they’ve competed for materials and driven up what participants in the sector can ask for in terms of wages and prices for doing their work.

But there’s more to this high-cost story for anyone wanting a new home, which include:

1. Inflation - which has been high since Covid and has only started falling over the past year;
2. High interest rates and the aforementioned inflation have led to tradies and builders raising their prices;
3. More luxurious and expensive asks from homebuyers and homebuilders compared to a decade ago, and
4. A rising rate of mistakes in the building sector, which hurts productivity, further inflates costs and lowers overall quality.

Regrettably, we do in fact have a housing crisis, and a lot has to be done to fix it.

While Labor’s 1.2 million homes in five years was a good goal, there doesn’t seem to be a politician, federally, who’s doing much to kick it between the sticks, so to speak.

In NSW, Premier Chris Minns did try to convert Rosehill racecourse into 25,000 homes. However, the members of the Australian Turf Club nobbled that idea. And with potential new homeowners losing 12% of their pay to super, something serious has to be done to contain the rise in costs of building a home.

The Federal Minister for Housing Clare O’Neil has a huge task ahead to achieve her government’s goal of 1.2 million homes in five years at an affordable cost.

At the risk of blowing my own trumpet and saying I told you so, the AFR has underlined how last financial year for stocks (and therefore our super) was the best year for returns since the Coronavirus! And that’s despite many headwinds that could have easily-derailed stocks.

But wait, there’s more: with highly respected market players seeing more stock price rises ahead, thanks to the Reserve Bank set to cut rates possibly four times between July and February next year.

For the record, the key market indicator called the S&P/ASX 200 Index was up 10.1%. And that’s before you add in dividends and franking credits. The chart below shows the gains for the year.

S&P/ASX 200 Index

That wasn’t a bad innings when you note the big drop thanks to Donald Trump’s aggressive tariff talk that sent our stock market down over 14% in February to April.

And the AFR quotes Ten Cap portfolio manager Jun Bei Liu, who appeared on my TV show last night to share the same wisdom. This iconic fund manager says she expects at least six more months of a rising market as the RBA’s expected four rate cuts in July, August, November and February, help share prices keep rising.

This is what the respected fund manager Jun Bei Liu said: “Any point in time when the RBA cuts rates, and we’re not in a recession, is a very bullish sign for equity markets, particularly in a market where a lot of the uncertainties, like trade, are already well known.

Soon you will see people deploy capital in a big way into the market. I’m pretty optimistic. I think the market will continue to climb, and for many that are not fully invested, they’ll be forced back in.”

Many of the experts I interview have a similar view as they cite falling rates globally, lower inflation, Artificial Intelligence innovations and Donald Trump’s One Big Beautiful Bill with its lower taxes, as well as deregulation as big helps to stock prices.

But how did our market achieve such a good year for stocks and super, despite the volatility that Donald Trump has brought to investing via his tariffs, all on top of a worrying Middle East war that adds to the existing Ukraine conflict?

Here are the positives or tailwinds for stocks that clearly outweighed the headwinds from cyclone Trump:

1. There has been a win over the persistently high inflation in the US, here and worldwide.
2. Interest rates were cut. This is an historical plus for stocks.
3. Our economy, though slowing, has defiantly kept unemployment down.
4. The Albanese Government and state governments have pumped demand into the economy, often for electoral dividend reasons.
5. The lead from Wall Street has been very positive and big tech companies have ridden a wave of positivity connected to Artificial Intelligence and the expectation that rates would keep falling.
6. The TACO factor that says Trump Always Chickens Out has meant the stock market that first was spooked by the Trump tariffs, now recognises that the President talks tough but then can fall back to a more reasonable compromise.

If anything could derail the current optimism for stocks that have US and local market indexes at all-time high levels, it would be Trump playing hardball on his tariffs with the likes of the EU, Japan, South Korea and so on. The T-day date for his imposition of tariffs globally is July 9 and there are mixed messages from the President and his staff about how hard a date this is.

While only time will tell, right now the market and experts such as Jun Bei Liu are gambling that Trump pluses will outweigh the negatives, aided and abetted by central banks, which should make the price of money fall to help consumers and businesses spend. This kind of action is a big plus for stocks.

Focussing on the local market, the AFR’s Lucas Baird and Joanne Tran pointed to the role that the CBA and other top 20 stocks have played in powering our market higher. Our biggest bank surged 47% over the past year, which defied expert calls that it was likely to fall.

This hasn’t just helped the stock market but also super funds, with SuperRatings expecting the good balanced super funds to beat the long-term average of 7% this year and these funds exposure to the likes of CBA and other top 20 stocks explain these good returns.

Why did CBA do so well?

Try these:

1. The slow cutting of interest rates.
2. Trump’s tariffs and other policies have led to less money going into US markets and CBA is an attractive company for overseas investors.
3. Our low dollar makes the CBA record high prices of late more affordable for foreign share players.
4. It’s the 11^th biggest bank in the world by market capitalisation.
5. It’s seen as one of the safest banks in the world because of Australia’s regulation.
6. The leadership of the CBA has made it a world class company.
7. Trump has created uncertainty and the CBA and our other banks are seen as safe plays in these troubled times.

Right now, analysts from big investment banks and brokerages think the CBA share price will fall by 41.1%. Some think the drop could be more, as the chart below shows.

CBA

I expect a fall in CBA’s share price as four rate cuts kick in, but I think a 15% or 20% drop will bring in bargain hunters, happy to buy one of the best banks in town!

While the fall in CBA’s share price won’t help our market index go higher this financial year, other companies will benefit from falling interest rates. The big miners like BHP and Rio are overdue for a share price comeback, which should help these positive forecasts for the stock market come to fruition.

Only Donald Trump could KO this great story.

Here’s a summary of the big hip pocket changes that start tomorrow.

July 1 is the start of a new financial year that should breed optimism. For a lot of wage earners, pay rises kick off on the first day of the financial year and compulsory superannuation goes up too.

For parents, leave payments also increase.

For bosses in struggling businesses, however, the day brings pressure that will require help from an improving economy, lower interest rates or via some smart pivoting from those in charge.

But it’s not all bad news for bosses.

The only clearcut plus about July is that historically it’s a good month for stocks. Why? Well, many investors sell losing stocks before July 1 to offset their tax bills on the stocks sold that had a capital gain. That creates a buying opportunity in July.

As the chart below shows, the month is a good one for local share players. Bosses of listed companies should like July because the share price of their companies should rise.

But back to the outlays for employers and the boosts to the bottom lines of others.

Here’s a summary of the big hip pocket changes that start on Tuesday:

1. The minimum wage increases by 3.5% going from $24.10 an hour (or $915.90 a week) to $24.95 an hour (or $948 a week).
2. Award wages also go up by 3.5%, which affects 2.9 million workers.
3. Centrelink indexation payments go up by 2.4%.
4. Superannuation payments rise from 11.5% to 12%.
5. Paid parental leave goes to 24 weeks, or 120 days.
6. Support for students and apprentices, with student loan debts to be cut by 20% and student loan paybacks now will start when incomes reach $67,000 a year.
7. Energy bill relief of another $150 comes along from July 1 for households and about one million small businesses.
8. The Government will pay about 30% of the cost of installing a battery system alongside solar energy for households and businesses. This is the Cheaper Home Batteries program.
9. An aged pension will be more accessible, with changes to the tests for qualifying for a pension.

While many of these changes put pressure on employers and the Government, the latter has more of a role to play. This is because we're seeing signs that the 13 interest rate rises since 2022 have hurt the economy.

Thankfully, inflation is looking under control and the July rate cuts will help households start spending, which businesses need to see. Businesses will like the news that economists such as AMP’s Shane Oliver said on Friday:

“We continue to expect the RBA to cut rates again in July, August, November and February.”

Provided the Trump tariffs don’t KO the outlook for global growth, then lower rates and generous government spending should send the local economy’s growth in the right direction.

And employers will need these pluses to cope with the negatives that July1 is bringing to their bottom lines.

Treasurer Jim Chalmer’s new tax buddy, Assistant Treasurer Daniel Mulino, has said that he wouldn’t “rule out making further changes to Australia’s $4.2 trillion superannuation system”, and has other tax changes in the wings.

The political party famous for breeding aspiration i.e., the Labor Party has a new Assistant Treasurer, who says the upcoming super tax won’t kill aspiration. He’s right because the Government’s jumbo slug on earnings in super over $3 million will mean successful people will aspire to earn money in lower tax alternatives.

But wait there’s more, because Daniel Mulino, this new Labor kid on the ministry block, has told the AFR’s Ronald Mizen that he wouldn’t “rule out making further changes to Australia’s $4.2 trillion superannuation system”.

That’s the kind of warning that aspirational wealth-builders will hear that will result in them asking where else they should put their money that’s better than super.

Of course, while up to the $3 million mark, super is a great investment, the $3 million figure isn’t to be indexed. This means that over time more Australians will be caught in Mulino’s super tax net.

In case you’ve forgotten what Labor wants to do with super, here’s a recap:

Labor wants to raise the tax rate from 15% to 30% on superannuation earnings on balances above $3 million. It also wants to tax unrealised capital gains on assets such as businesses, farms and shares held in self-managed super funds. If you’re in Australian Super or other types of industry funds, you’ll also be hit but the pain will be less apparent because most members in these funds just get their returns sent to them. In stark contrast, SMSF trustees are more hands on and more likely to know when and how they’re slugged by the ATO.

While Mulino says the super tax won’t be anti-aspirational because it only hits those with $3 million in super, I’m not sure he knows how aspiration works.

Right now, those with $2 million in super are worried about what they’ll have to do when their balance gets close to $3 million. They are so aspirational that they’re asking people like me what they should do.

They could get advice to start looking at their principal property as an investment vehicle because it’s capital gains tax free. They could look at investment bonds that are tax free after waiting 10 years. While the creators of these products pay the tax along the way, the effective tax should be less than 30% (the new super tax rate) and there wouldn’t be a tax on unrealised gains.

Right now, while Treasurer Jim Chalmers, Daniel’s partner in this super caper, says 80,000 super players will be affected, number crunchers say over the next 30 years, some 10% of the workforce will be affected.

Mizen makes the point that Mulino is no dummy after getting a PhD in economics from Yale University, (which is where President Donald Trump’s Vice President, J.D. Vance got qualified as a lawyer, but I suspect they were in different political associations on campus).

Mulino also has some big goals. The most immediate ones are:

1. Implement the super changes promised at the election. They weren’t given much prominence, and I guess we can blame Peter Dutton for that!
2. Freeze the excise tax on beer. After these super changes, many Aussies could turn to drink.
3. Ban genetic testing for life insurance policies.

Other areas he wants to fix up are:

4. Stronger financial advice laws.
5. Regulating the crypto sector.
6. Overhaul Apple’s control over the payment’s system.
7. He also wants US tech giants to pay media businesses for using their content, which could put him into a big fight with his fellow Yale alumni, J.D. Vance and his boss Donald Trump.

One thing’s for sure: Daniel Mulino will be a Member of Parliament who won’t go unnoticed. While his party has recruited a smart guy, he could prove to be a financial threat to a lot of aspirational wealth-builders.

As a student, he clearly was aspirational but that doesn’t mean he’s an expert of sowing the seeds of aspiration into others. Only time will tell.

One final point. While the 30% tax on super earnings over $3 million can be dealt with by smart financial advisers and educated super trustees/members, the tax on unrealised gains makes Labor a real worry in terms of what it might cook up for super going forward.

The big question is this: will they take this taxing on unrealised gains to other assets, such as properties and other valuable assets?

It’s rate cut time again in July and even the hardnosed Reserve Bank board members know many Australians have copped high interest rate pain. Now it must be the gain that comes when the price we pay for loans come down. However, it does raise the new question that goes: Should it be a half a percent cut?

If forced to bet, I’d put my money on 0.25% but I think a 0.5% cut would be wiser. Such a move would not only help inflation fall faster by lowering costs to businesses, but also it would speed up economic growth for an economy that recorded a per capita recession in the March quarter.

When the growth number for the three months to the end of March came in at a low 0.2%, making the year’s number only 1.3%, this is what CBA economist Stephen Wu said: “The Aussie economy stalled at the beginning of 2025, barely growing, as consumers stayed stubbornly frugal, government spending sputtered, and extreme weather events weighed on exports. Aussie households and businesses remain cautious – as reflected in recent sentiment surveys – because of global trade uncertainty.”

Given the fall in jobs not created in May and weaker-than-expected retail numbers in March and April, there’s an argument that the economy needs a big shot in the arm that a surprise 0.5% cut could deliver.

After looking at the May Consumer Price Index figure released yesterday, which had headline inflation at 2.1% and underlying inflation at 2.4%, CBA’s Harry Ottey told us the following: “Commonwealth Bank (CBA) Group economists now expect the RBA to deliver further 25 basis point rate cuts in July and August for an end year cash rate of 3.35%.”

This doesn’t make my call for a 0.5% cut on July 8 so outlandish, given CBA economists are tipping two rate cuts in a row over July to August. If our economy is potentially as weak as the economists at the nation’s biggest bank claim (remember the CBA has the best window on what’s happening to Australian households because it’s the biggest lender in the country), then why not do a ‘shock and awe’ jumbo rate cut?

Unfortunately, the Reserve Bank interest rate setting board hasn’t been selected for their adventurous spirit and will probably argue that they need to keep their powder dry in case the Middle East truce doesn’t last and hostilities recommence and oil prices head towards US$150 a barrel.

I’ve said it before and I’ll say it again, former PM Paul Keating has often said that “the RBA is invariably late to the party” when it comes to cutting rates. In 2020, when even the Covid threat was huge for the economy, he said the Bank was having another of its “dalliances with indolence”.

And he didn’t miss them with this spray: "The problem about central banks, and this is true of the Reserve Bank of Australia - it has become a sort of deity, where lesser mortals might inquire, however respectfully, what the exalted priests might be thinking or have in mind for their prosperity or the country at large.

"The only difference between the deity and those to be governed is that the governor and his deputies do not wear clerical collars and black suits. But that is the only difference in their comport and attitude."

Let’s pray the RBA has some divine intervention and comes up with a miraculous big rate cut in two weeks time.

Wall Street spiked higher on the words of the legendary song by The Cars titled Let The Good Times Roll, with the human curveball Donald Trump’s declaration that an Israel-Iran truce is a goer. While the US President can be known for ‘gilding the lily’ for pure deal-making reasons, big investors in the Big Apple and beyond have bought this very good news.

Let’s pray that Donald is on the money. If he is, our investments and super will be in the money too.

The Dow Jones finished up 507 points (or 1.19%), the S&P 500 went up 1.11%, while the tech-heavy Nasdaq added a big 1.43% (or 281.56 points). And our market will open in the green and is bound for a good day at the office.

But more importantly, for those who pay scant regard for what goes on in the ‘unreal’ (though very important) world of high finance, the headlines scream that “oil prices tanked”. That’s great news for future inflation and how many interest rate cuts lie ahead for the US, Australia and the global economy.

If this truce talk is more than talk and becomes a reality, then next year, which I thought could be a year to go more defensive and less exposed to stocks, could be another great one for shareholders. However, it’s crucial for stocks that this Trump truce has to be the truth. Furthermore, the Trump tariffs due to kick-off on July 9 must end up looking reasonable and manageable for the companies and countries hardest hit by these taxes on trade.

If the President pulls those two threats to stocks off, then the good times will roll, helped by lower interest rates and taxes in the US, along with Trump’s promised deregulation and the power of Artificial Intelligence. Together, these would create profit opportunities that will send stock prices higher.

If you need more proof of the ‘threat’ of good times on the horizon, just look at oil prices, which were down more than 6% overnight.

US-based Jon Brager, a portfolio manager at Palmer Square Capital Management, summed it up succinctly for CNBC: “The key event for the market was how quick and limited the US involvement was, as well as the ‘weak’ response from Iran, which was essentially a choreographed fireworks display for domestic consumption.

“So even if the ceasefire results in occasional flare ups, the market has decided this risk is now in the rearview mirror and the focus probably returns to tariffs and fiscal policy.”

Of course, the things driving this new round of optimism could turn on a dime (as the Yanks love to say), but that’s investing life under Donald J. Trump.

Sure, he could come up with something to spook stock markets. However, my positivity about that insult that says he can be a TACO guy is a plus not a negative for stocks. This Trump Always Chickens Out slight on Trump really means he talks and can act tough, as we saw with his bombing of Iran over the weekend. However, he is willing to back off to get a better deal.

And surely that’s a good thing. If this ‘deal’ kills Israel-Iran hostilities and the latter’s preoccupation with nuclear playthings, then I’m glad Trump is a TACO guy.

George Bernard Shaw once told us “Nothing is ever accomplished by a reasonable man”, a line suggesting that significant change often comes from those willing to push boundaries rather than conform to existing norms.

The quote from this Irish playwright and critic underlines that people like Donald Trump can be valuable, sometimes.