The news this morning is that Stephen Walters of JP Morgan has cut his rate cut call and left just Tim Toohey of Goldman Sachs and myself as the last doves flying.
I’ll not beat around the bush. The reason why GS and MB are in sympatico is simple: we are both the most bearish in the market about iron ore prices.
All of the old-hand economists that have rolled over in recent months – Bill Evans, Alan Oster, Saul Eslake, Stephen Walters today – have made the same points. They see many headwinds for the economy but a little rebalancing and a recalcitrant RBA determined not to go lower.
I agree on all of those things but the difference is just one thing: an external shock via iron ore. It’s not a coincidence that the GS/MB sympatico also extends to the most bearish outlook on the iron ore price.
As Saul Eslake recently acknowledged at MB, if you include an external shock then not even the RBA would argue about cuts. The banks and RBA all have much more bullish outlooks on both China and iron ore than MB/GS and that is why they are all wrong!
