"In the earnings reports, companies have bragged about how they have managed to be ahead of the inflation curve, how they have managed to jack up prices more than their costs and as a result have delivered these record profits"

“Australia isn’t experiencing a wage-price spiral, it’s at the beginning of a price-profit spiral,” said Australia Institute chief economist, Dr Richard Denniss.

“The national accounts show it is rising profits, not rising costs, that are driving Australia’s inflation. While workers are being asked to make sacrifices in the name of controlling inflation, the data makes clear that it is the corporate sector that needs to tighten its belt.”

The report points out that wage growth was at record low levels, while the profit share was at a near-record share of GDP.” 

[The Guardian, 18 July 2022]

Corporations are causing inflation by passing on price increases. They are doing this to protect and grow their profits, the same reason why they are refusing decent wage rises https://t.co/1imWMHBBEA

— Sally McManus (@sallymcmanus) July 17, 2022

The Australia Institute, Are wages or profits driving Australia’s inflation? An analysis of the National Accounts, July 2022, excerpts:

Introduction

In recent months the role of wages in driving inflation has been frequently discussed, with many commentators expressing concern that Australia risks a ‘wage price spiral’.

For example:

“Aggressive wages growth will only spur further inflation growth.”

— Andrew Mackellar, CEO of the Australian Chamber of Commerce and Industry

“We are now at risk of a wages and inflation and interest rates death spiral.”

— Innes Willox, CEO of Australian Industry Group

“In the current circumstances, there is a clear risk that a high increase in wages without improved workplace productivity would fuel inflation and increase the likelihood of a steeper rise in interest rates to the detriment of growth and job creation.”

— Innes Willox, CEO of Australian Industry Group

The fear that wage growth has, or could, play a significant role in Australia’s inflation typically ignores the fact that, as shown in Figure 1, real wage growth is at historically low levels and has been for some time.

While wage growth clearly has not been the driving force of recent increases in Australian inflation, or indeed inflation around the world, the continuing impact of COVID 19 and the sharp increase in global energy prices associated with Russia’s invasion of the Ukraine clearly have.

What causes inflation?

Inflation refers to an overall increase in the level of prices in an economy. According to the International Monetary Fund:

Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.

While much is made of the link between increases in the costs of inputs (such as the price of oil) and increases in prices (such as the price of petrol) in fact many firms have a high degree of discretion about how much, if any, of an increase in costs they will pass on in the form of higher prices.

In short, if firms choose to absorb all of an increase in cost rather than increase prices the cost increases will lead to a reduction in profit not an increase in prices. Similarly, if firms pass on price increases that are more than enough to cover an increase in their production costs then profits will rise. In turn, macroeconomic data on economy-wide changes in prices and the share of GDP flowing to workers and profits can shed light on both the underlying sources of inflation and the distributional consequences of firms’ responses to rising production costs.

While spokespeople for large companies often suggest they have ‘no choice’ but to increase their prices when their costs increase not only do they have the choice to accept lower profits, a closer examination of their language makes clear that they face a range of choices.

For example, in attempting to explain how he had ‘no choice’ but to increase prices in his stores in early 2002, Gerry Harvey, the Executive Chairman of the retail chain Harvey Norman, actually made clear the range of choices he did face:

If a guy down the road drops the price, we drop the price,

If we drop the price, they drop the price.

But if it’s costing you all 10 per cent more than it was yesterday, they’re all going to put up their prices (because) they’ve got no choice.

Mr Harvey makes clear that his company is willing and able to choose to lower prices to match his competitors pricing, even in the absence of a change in cost. He also makes clear that he expects other firms not to absorb any increase in costs and that his firm and his competitors are all likely to increase their prices if costs increase by 10 percent, but it is not clear by how much his firm, or others, would chooses to increase their prices by.

Intriguingly, he ends this explanation by saying firms have no choice, even though all firms have different costs structures and his opening statement is that he would lower his price to match a cheaper offer by a competitor.

As all firms have slightly different cost structures, contract terms for inputs, bottoming costs and exposures to market rents it is inconceivable that all firms in any industry would experience identical changes in price and, in turn, the choices firms make about their price setting in response to changes in cost reflect both their current rates of profit and their willingness to gain or lose market share…..

In short, while in the long run firms must set prices sufficient to cover their costs of production, there is no direct link between costs of production and prices beyond the desire of firms to maintain, or increase, their profits. While firms in new industries seeking rapid growth often deliberately set their prices below their costs in, companies like Santos are currently enjoying a significant increase in price that is entirely unrelated to their cost of production.

Given that profits currently account for a record share of GDP there is simply no truth behind the assertion that the Australian corporate sector has ‘no choice’ but to pass on cost increases in full in the form of higher prices. Indeed, the rising profit share of GDP suggests that Australian firms have, for some time, been choosing to increase their prices faster than their costs have been rising. By definition this causes higher inflation…..

The European Central Bank’s analysis of the role of profits in driving inflation

In a recent speech, Isabel Schnabel, a member of the board of the European Central Bank, said “profits have recently been a key contributor to total domestic inflation” ……

Ms Schnabel went on to state that:

many firms have been able to expand their unit profits in an environment of global excess demand despite rising energy prices… The resilience of profits is particularly evident in those sectors most heavily exposed to global conditions, such as the industry and agricultural sector.

And:

To put it more provocatively, many euro area firms, though by no means all, have gained from the recent surge in inflation. The fortunes of businesses and households have diverged outside of the euro area, too, with corporate profits in many advanced economies surging over the past few quarters.

Poorer households are often hit particularly hard – not only do they suffer from historically high inflation reducing their real incomes, they also do not benefit from higher profits through stock holdings or other types of participation.…..

Australian results

The methodology used by the ECB to decompose recent shifts in price levels and attribute them to shifts in wages, profits and taxes can be applied to Australian data to show the contribution of each to inflation.

The Australia Institute applied the ECB method to annual data for the financial years 2005 to 2021 and quarterly data for June 2021 to March 2022 (the most recent quarter for which data is available). Annual data was used where possible to minimise the volatility in the underlying data caused by COVID-19 support payments affecting tax and subsidies.

The Australian data provides even more stark results than the ECB’s. Figure 5 shows that unit labour costs played almost no role in inflation (as measured by the GDP deflator) over the period 2013 to 2021 and had typically contributed less than half of the GDP deflator prior to 2013.

For the three quarters of data available for 2021–22, encompassing the current uptick in the CPI, labour costs have played an insignificant role, accounting for only 0.6 percentage points of the 4.1 percentage point increase in the GDP deflator (15 percent of the total).

Meanwhile profits have accounted for 2.5 percentage points of the increase in the GDP deflator (about 60 percent of the total).…..

Read the full 15 page report here.

Billionaire business owners and industry lobbyists have other ways of saying our profits are more important than people without ever mentioning the word. Here is a recent example.

ABC News, 17 July 2022:

Head of the Victorian Chamber of Commerce and Industry, Paul Guerra, welcomed the announcement but said the government must ensure it keeps the balance between supporting people in need and running the economy into debt.

"The federal government has told us the pandemic is not over," Mr Guerra said.

"The current wave seems to be stronger than we might have all first thought so we think it's a good thing that support is being provided there for those who are in need.

"That said, we'd like to make sure they come off as soon as the current risk is over so we can accelerate our way as we recover out of COVID."

BACKGROUND

Across the board record profit taking is not just an Australian phenomenon….

Political economist Assistant Professor Isabella M. Weber speaking on U.S. NPR radio program "All Things Considered", 13 February 2022:

Companies always want to maximize profits, right? In the current context, they suddenly cannot deliver as much anymore as they used to. And this creates an opening where they can say, well, we are facing increasing costs. We are facing all these issues. So we can explain to our customers that we are raising our prices. No one knows how much exactly these prices should be increased. And everybody has some sort of an understanding that, oh, yeah, there are issues, so, yes, of course companies are increasing prices in ways in which they could not justify in normal times.

But this does not mean that the actual amount of price increase is justified by the increase in costs. And as a matter of fact, what we have seen is that profits are skyrocketing, which means that companies have increased prices by more than cost. In the earnings reports, companies have bragged about how they have managed to be ahead of the inflation curve, how they have managed to jack up prices more than their costs and as a result have delivered these record profits. [my yellow highlighting]

A fact sociologists worth their salt know, the better economists remember & conservative politicians can never accept – it is units of labour which drive production & productivity in any economy

The Conversation, 12 January 2022:

Australians are getting a stark reminder about how value is actually created in an economy, and how supply chains truly work.

Ask chief executives where value comes from and they will credit their own smart decisions that inflate shareholder wealth. Ask logistics experts how supply chains work and they will wax eloquent about ports, terminals and trucks. Politicians, meanwhile, highlight nebulous intangibles like “investor confidence” – enhanced, presumably, by their own steady hands on the tiller.

The reality of value-added production and supply is much more human than all of this. It is people who are the driving force behind production, distribution and supply.

Labour – human beings getting out of bed and going to work, using their brains and brawn to produce actual goods and services – is the only thing that adds value to the “free gifts” we harvest from nature. It’s the only thing that puts food on supermarket shelves, cares for sick people and teaches our children.

Even the technology used to enhance workers’ productivity – or sometimes even replace them – is ultimately the culmination of other human beings doing their jobs. The glorious complexity of the whole economy boils down to human beings, using raw materials extracted and tools built by other human beings, working to produce goods and services.

A narrow, distorted economic lens

The economy doesn’t work if people can’t work. So the first economic priority during a pandemic must be to keep people healthy enough to keep working, producing, delivering and buying.

That some political and business leaders have, from the outset of COVID-19, consistently downplayed the economic costs of mass illness, reflects a narrow, distorted economic lens. We’re now seeing the result – one of the worst public policy failures in Australia’s history.

The Omicron variant is tearing through Australia’s workforce, from health care and child care, to agriculture and manufacturing, to transportation and logistics, to emergency services.

The result is an unprecedented, and preventable, economic catastrophe. This catastrophe was visited upon us by leaders – NSW Premier Dom Perrotet and Prime Minister Scott Morrison in particular – on the grounds they were protecting the economy. Like a Mafia kingpin extorting money, this is the kind of “protection” that can kill you…...

Read full article here.

There is a question now hanging over Morrison & Frydenberg's 2022-23 Budget, geared as it is to fulfill the Coalition's yet to be revealed election promises rather than buttressing the nation against the adverse economic winds blowing through countless CBDs around the country. 

An estimated 50 per cent of the national workforce are currently absent from their employment on any given day due to COVID-19 - either workers have contracted the virus, are home looking after a dependent family member/s who is ill with it, have become a "close contact" and are isolating because of it, or their place of employment has temporarily closed due to lack of customers who are afraid of catching it.

It's not just a question of how far household consumption is likely to fall as this situation continues through at least another six weeks. 

Note: as an example, two previous Household Final Consumption Expenditure falls during the pandemic have been 12.2% June Qtr 2020 & 4.8% September Qtr 2021. Periods in which infection growth intensified. 

Neither is it all about the financial pain being felt by small businesses after every Coalition public policy error compounds economic distress at community level, sweeping away hope and income.

It is also about how much will the inevitable loss of production and productivity carve off the value bottom line of states and territories' State Domestic Product (SDP) and what impact that has on Australia's Gross Domestic Product (GDP) or the level of eyewatering public debt government has to service. 

Does the Australian economy have the resilience to withstand a full year of  SARS-CoV-2 running unchecked in the general population due to the Coalition's political policy of 'living with COVID'?

A new economic theory may yet cut the ground from under Australian Prime Minister Scott Morrison's feet

ABC News, 17 July 2020:

We may be on the cusp of a revolution. What if everything we thought we knew about public finance over the past 40 years has been wrong? 

A new economic theory has emerged that could rewrite our understanding of how governments create and spend money and what type of society we can afford to build. 

And if it is correct, people may be furious. 

Because it could show that Australia's political elite can afford to spend far more than they are on public health and education, social housing, scientific research and green energy schemes, while eliminating unemployment. 

And yet they're not — either from a misunderstanding of government finances or because they don't want to. 

However, to embrace this radical economic theory you will have to forget what you've learned about budget deficits (that they're bad) and government debt (that it burdens future generations). 

Why? Because proponents of the theory say that far from being a problem, budget deficits are often a good thing — they can be the source of healthy economic growth. 

They argue a country like Australia that controls its own currency doesn't need to tax or borrow before its national government can spend money — the government can create all the money it needs to fund itself … within limits. 

It all sounds too good to be true, which is why critics warn the theory is naive, simplistic and potentially dangerous. 

But supporters of the theory — who are growing in number — say many of the world's problems today (extreme wealth inequality, poorly funded public hospitals and schools, chronic underemployment, stagnant wages) are a consequence of misunderstanding government financing. 

They say macroeconomic theory — which looks at the bigger picture of how the national economy works — has got too many major questions wrong. 

So what are we talking about? Let's take a closer look.... 

The theory is called Modern Monetary Theory (MMT). It is challenging the neoliberal economic orthodoxy that has dominated policymaking in Australia, the United States, the United Kingdom and many other countries since the mid-1970s. 

The reigning orthodoxy assumes a couple of things. 

Firstly, it assumes every country has a "natural rate" of unemployment and it's unwise to try to force the jobless rate below the natural level because inflation (and wages) will rise too quickly. Therefore, it assumes it's better to accept a certain amount of unemployment to keep prices stable (and to keep wage demands weak).

At the moment, Australia's natural rate of unemployment is assumed to be somewhere between 4 and 5 per cent. 

Secondly, the economic orthodoxy holds that the national government needs to collect taxes, or borrow from savers, before it can spend money. 

Politicians repeat this point incessantly. 

When you hear a politician saying the government must "live within its means," what they're really saying is the government mustn't spend more than it collects in taxes or borrowings.

However, MMT economists want to turn these orthodoxies on their head, among others...... 

The people who developed it have been working on the body of theory for decades, quietly, in countries such as Australia and the United States, but their ideas have recently burst out into the open as global leaders search for fresh ideas to deal with the unprecedented economic crisis of 2020, and the lingering effects of the global financial crisis in 2008-09.

 MMT economists make several claims: 

Firstly, they say we've been thinking about budget deficits incorrectly. 

They say budget deficits are not always bad. In fact, deficits are often necessary and beneficial. A budget deficit is merely evidence of extra government spending, and government spending boosts the wealth of private sector businesses and households.  

They say it depends what deficit spending is used for. Increasing the deficit to finance a war is not the same thing as increasing the deficit to build more hospitals and schools. 

They argue investments that will enhance productivity through better health, greater knowledge and skills, improved transport and the like are worth funding, even if it results in a budget deficit. 

Secondly, MMT economists say we've been thinking about government spending incorrectly. 

They say the argument (promoted famously by British prime minister Margaret Thatcher) that national governments must tax or borrow before they can spend is wrong. 

MMT argues it's the other way around — national governments have to spend money into the economy before they can tax or borrow. Government spending actually precedes taxation. Accepting this proposition is key to embracing MMT. 

Thirdly, they say taxes are necessary, but not for the reasons you may think. 

They say government taxes can be used to keep inflation under control, to control our behaviour (via fees and levies and rates), and to get us to produce things the government needs. 

MMT economists draw on the ideas of chartalism to make this last point. They say governments use taxes to create demand for their own currency — that is, if a citizen has to pay tax then they're going to have to work to earn the currency to pay the tax in that currency. 

Essentially, governments use taxes to put everyone to work. 

"At the end of the day, a currency-issuing government wants something real, not something monetary," writes Professor Stephanie Kelton, one of the highest-profile MMT economists and a senior adviser to Bernie Sanders in both his 2016 and 2020 Democratic presidential primary campaigns. 

"It's not our tax money the government wants. It's our time. 

"To get us to produce things for the state, the government invents taxes or other kinds of payment obligations." 

Fourthly, MMT economists say countries that issue their own fiat currency can afford to buy anything that's available for sale in their own currency, and they can never go bankrupt in their own currency. 

"Fiat" money is government-issued currency that isn't backed by any commodity, such as gold. It's paper or digital money that has no intrinsic value. We'll return to this point later too. 

Fifthly, MMT economists say "full employment" is not only possible, it's a moral imperative. Anyone who wants a job should have one. 

They say we must prioritise genuine full employment and governments should spend whatever is necessary to achieve it — no matter the debt or deficit. 

Sixthly, MMT economists say the national government should run a permanent "Job Guarantee" (JG) program to provide a job to everyone who wants one. 

They say it could be linked to other economic and social programs, such as a "Green New Deal" — a policy advocated by MMT proponents linked to the US Democratic senator Bernie Sanders, to create jobs by shifting to zero-emissions technologies.......

Read the full article here.

Scott Morrison delivers - but it is not good economic news

This was then Australian Treasurer Scott Morrison in 2016 with blunt warning about a future recession and dip in living standards..... 

The Sydney Morning Herald, 25 August 2016: 

A generation of Australians has never known a recession or high unemployment but unless hard decisions are taken soon, there is a "terrible risk" complacency could end Australia's 25 consecutive years of economic growth, Treasurer Scott Morrison has warned. 

In the first of three "economic headland" speeches the Treasurer will deliver in the coming weeks, designed to set out the budgetary challenges facing the nation - and the government's vision for how to tackle them - Mr Morrison will argue that it should not take an economic crisis to trigger a wake-up call, or restart the economic reform process, so that Australia enjoys a prosperous future. 

In extracts of the speech seen by Fairfax Media, which will be delivered in Sydney on Thursday, Mr Morrison made a simple plea. 

"I do not want my kids to know what a recession is and everything that goes along with that," he will say. 

"I recognise that in the absence of a 'recession we have to have', or the threat of 'becoming a banana republic', achieving necessary change will be more frustrating and more difficult. 

But it is no less necessary, and achieving it this way is far better than the alternative."  

In addition, Mr Morrison will say that on the current settings, a generation of Australians are likely to never pay tax, setting up a new divide - the "taxed and taxed-nots", prompting the Treasurer to ask: "Are we still up to the challenge of doing what we need to do to ensure another 25 years of consecutive economic growth? 

"Do we really appreciate how quickly our economic success can turn, and are we as prepared as we can be to deal with it ... my greatest concern is that we end up answering these questions the hard way." 

This is Australian Prime Minister Scott Morrison in 2019 delivering a fall in living standards and what looks like the beginning of that recession.....

The Australian, 4 September 2019:

The Prime Minister said on Tuesday that the GDP figures would show that Australia is still doing better than many other developed economies.....

“Today’s growth figures will show over the year a softness … what we will see is that in a tough climate we are actually battling away quite well.

The Guardian, 4 September 2019:

Today the government has been madly attempting to spin the GDP figures as good. So let’s cut straight to the point – the figures are terrible and are among the worst we have seen this century. 

But what makes it worse is this government would have us believe they saw them coming. 

How bad are things? Today’s figures show the worst annual economic growth for 18 years. GDP per capita is now lower than it was a year ago, productivity is plunging and the economy is pretty much staying above water purely because of government spending and a drop in imports due to weak investment and household spending. 

And yet these are the figures the treasurer, Josh Frydenberg, would have us believe are evidence of the “resilience of the Australian economy” and which the prime minister, Scott Morrison, said would “come as no surprise to me”. 

If this is how bad things get when the government says it is not being surprised, God help us if they ever get a shock. 

 That trend growth figure is the worst since March 2001. 

We have now had four consecutive quarters of trend growth below 0.5% – that hasn’t happened since the 1990s recession nearly 30 years ago. It is also the first time since the GFC that GDP per capita is lower than it was a year ago.... 

It was little wonder, in his press conference announcing the figures, that the treasurer quickly turned to talking about employment growth compared with the rest of the OECD, because there is not much to boast about on the whole economy side of things. 

Current growth has us in the bottom half of the OECD..... 

The figures also showed, despite the treasurer’s protestations, that living standards are continuing to decline. 

The treasurer suggested that “living standards continue to increase with real net national disposable income per capita rising 1% to be 2.7% higher through the year”. 

But that figure includes all income – both profits and wages. As such, when profits grow strongly due to big increases in export prices, then national income rises. But unless that flows through to households via wages growth, it is pretty meaningless to use it when talking about living standards. 

And we know that the big increase in income is coming from profits – primarily from the mining sector – and it is not flowing through to households. 

When we look at household disposable income we see that it fell not just in the June quarter but over the past year – down more than 1%. Household incomes per capita are currently at the same level they were in real terms in 2010. 

Today’s figures released by the ABS show the economy grew by 0.5% in the June quarter in seasonally adjusted terms and 0.4% in trend terms. Through the year the growth was a truly pathetic 1.4% seasonally adjusted and 1.5% in trend terms. 

Households of course know their living standards are falling, because they are showing it in how they spend their money. In the past year household consumption grew just 1.5% – again the worst result since the GFC..... 

But the treasurer, despite his talking up the figures, knows just how bad they actually are. He even noted that while profits in the mining sector rose 10.6% in the June quarter, in the non-mining sector they “actually fell 0.6%”. 

Because profits in the mining sector have grown so strongly and compensation to employees is growing so weakly, the share of national income going to workers has plunged. 

The last time the share of national income going to workers was this low, the Beatles had just toured Australia.....

Read the full article here.

The Sydney Morning Herald, 6 September 2019: 

“The crisis,” the [Reserve Bank] governor announced at a conference in 2017, “is really in real wage growth.”......

Instead of wages rising at more than 3 per cent a year, as they had in the five years to 2013, the average pay rise since has fallen to 2.2 per cent annually. 

After inflation, the average pay rise has been a scant 0.5 per cent.....

...without higher wages to pay for people’s groceries, medical care, homes and holidays, spending is weak and the economy enfeebled. 

Lowe has urged governments, state and federal, to lead the way, breaking their 2.5 per cent annual limits and paying workers more.

Then there is this headline demonstrating the folly of Liberal-National ideology......

Former failed advertising executive and Institute of Public Affairs adherent Scott Morrison clearly missing the point entirely.

Morrison, McCormack, Frydenberg & Co are hugging their projected budget surplus so tightly they are strangling the national economy.

Bully Boy Donald Trump has become a global threat to national economies

The picture is becoming clearer - Donald Trump is not just a political wildcard - he is a very real threat to the U.S. and the rest of the world.

Financial Review, 25 August 2019: 

A world of deepening political body-blows from Donald Trump to Brexit and Hong Kong are fast turning into genuine economic shocks that threaten to overwhelm central banks' powers, Reserve Bank of Australia governor Philip Lowe has warned. 

In a speech to a closed-door gathering of some of the world's most powerful monetary policymakers, Dr Lowe criticised the global rush to lower interest rates as ultimately counterproductive but acknowledged the lack of political stability was making the pressure difficult to resist. 

While Dr Lowe refrained from mentioning Donald Trump by name, he referred to Friday's tumultuous market turmoil unleashed by the President's extraordinary attacks on the US Federal Reserve boss, who he suggested may be a bigger "enemy" than Xi Jinping, and a bizarre demand that US companies withdraw from China. 

The President's tantrum against Fed chairman Jerome Powell stunned many participants at the annual three-day Jackson Hole symposium over the weekend. 

While the central bank and academic participants refused to criticise Mr Trump in public, in private conversations with The Australian Financial Review many were scathing. 

One who was prepared to voice his outrage, former Fed vice-president Stanley Fischer, seething at how few members of the central banking fraternity were prepared to challenge Mr Trump, told the forum the greatest threat to the international monetary system was the President. 

He was "trying to destroy the global trading system", Dr Fischer said...... 

On the global political turmoil that dominates headlines, Dr Lowe said it was prompting businesses to shun investment and could end up weighing on their hiring plans. 

By contrast, a return to political stability could unleash around the world "a very prosperous period as we catch up with delayed investment and a period of easing financial conditions". 

With the US-China trade war set to deepen, as well as ongoing doubts about other flash points, central banks around the world have cut interest rates in recent months. 

However, Dr Lowe cautioned that if every central bank acted in the same way, no country would enjoy the normal benefits that rate cuts provided via exchange rate depreciation. 

 Read the full article here. 

The Sydney Morning Herald, 25 August 2019: 

The Australian sharemarket is set to follow Wall Street sharply lower at the start of the week after fresh salvos in the trade war between the United States and China over the weekend. 

ASX SPI 200 futures point to a decline of 1.33 per cent, or 86 points, when trade opens on Monday morning extending Friday's slide in European and US markets.
“President Trump’s trade war escalated again on Friday…whacking US stocks sharply lower with a flow on to other sharemarkets likely to be seen early in the week ahead,” Shane Oliver, head of investment strategy and chief economist at AMP Capital, told clients. 

All major US stock indices slumped more than 2.4 per cent to end the week, led by the tech-heavy Nasdaq Composite Index which tumbled 3 per cent. Major European markets such as the German DAX and French CAC also shed more than 1 per cent for the session. 

The steep falls were caused by an unexpected and sudden escalation in the trade conflict between the United States and China with both sides announcing tariff increases on the others imports on Friday......

“At this stage there is still no end in sight and so sharemarkets likely have to fall further to pressure Trump to solve the issue and de-escalate,” said AMP Capital’s Oliver. 

The resumption of trade in Chinese markets is also likely to be influential on the performance of Australian shares, dollar and bonds later on Monday.

Australian Stock Exchange close of trading, Monday 26 August 2019:

UPDATE

News.com.au, 26 August 2019: 

The Australian share market has been hammered, losing $24 billion after a dramatic escalation of trade hostilities between the US and China over the weekend. 

The benchmark ASX200 tumbled at the open but recouped some of its losses by close to finish the day down 1.27 per cent. 

The Australian dollar was also hit hard, falling below 67 US cents to its lowest point in a decade but recovered slightly to be buying 67.37 US cents shortly after 4pm.