A balancing act
By Justin Pyvis – Delivered on 03 Dec 2021

Good morning! Just over a week since reopening its borders, South Australia reported 18 new cases yesterday and took a step back by putting "further requirements" on those arriving from NSW: a COVID-19 test on arrival.

So much for national cabinet getting on the "same page about what this variant means and there was nothing in front of us yesterday that should suggest a step back".

Explaining the change, Premier Steven Marshall said he was "concerned" that NSW doesn't "have the 14-day requirement for isolation and quarantine that we have in South Australia", essentially allowing international travellers to circumvent South Australia's 14-day isolation requirement by travelling via NSW, where it's just 3 days.

Déjà vu... yet another divide seems to be emerging between the approaches taken each jurisdiction, all supposedly acting on the "best health advice". And QLD and WA haven't even reopened yet!

Fully vaccinated population (aged 16+)

ACT
NSW
VIC
TAS
SA
NT
QLD
WA
Markets

Daily % change

AUD/USD

70.9

-0.6%

AUD/CNY

4.52

+0.4%

AU Yield (%)

1.67

-3.3%

US Yield (%)

1.45

+1.0%

ASX200

7,225

-0.2%

S&P500

4,586

+1.6%

Brent (bbl)

70.3

+2.0%

Gold (oz)

1,768

-0.8%

Iron ore (t)

99.2

-4.4%

Bitcoin

57,076

-0.3%

Ethereum

4,523

-1.4%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries. The S&P500 is a snapshot 30 minutes before close.

At the time of writing the US S&P500 was up a solid 1.60% in a broad-based rally, with all 11 sectors advancing. Volatility reigns in the wake of Omicron but sentiment may have been helped by the US labour market, where weekly initial jobless claims rose from the previous week's 50-year low but still came in below expectations at 222,000, while continuing claims fell below the 2 million mark for the first time since March 2020.

Locally, the ASX200 shed another 0.15% with by far the worst performer being tech (-3.19%), driven by a -6.08% hit to Afterpay. The plunge followed that of its US suitor, Square, after the Bank of Spain dragged its feet on approving the merger.

While we're on the topic of Square, it decided to rename itself Brick Block because, well, that's what all the cool kids are doing these days (it supposedly "creates room for further growth").

Economy

Korea inflation November: Consumer prices in Korea increased at their fastest rate for a decade in November, rising 3.7% "exceeding all economists' estimates". The Bank of Korea has already raised interest rates twice this year.

All good things have to end: Australia's goods and services exports fell by $A1.49 billion (3%) in October, "driven by falls in iron ore prices [-22%]", partially offset by gains in coal and LNG prices. Imports also declined but not by as much ($A887 million), meaning Australia's trade surplus fell for the second straight month.

Losing momentum: New housing loan commitments in Australia fell 2.5% in October from the prior month although remained 32.2% higher than a year ago. The slowdown was driven by owner occupiers (-4.1%, the fifth straight decline), with no such concerns in the investor market where new loan commitments rose another 1.1% "to near record levels".

Time to save face: Kurt Campbell, US President Joe Biden's Asia Czar, said "I fully believe that over time, that China will re-engage with Australia. But it will, I believe, re-engage on Australian terms. I think China's preference would have been to break Australia. To drive Australia to its knees... I don't believe that's going to be the way it's going to play out".

Please spend: Treasurer Josh Frydenberg is eyeing up the $A400 billion saved by households and businesses through the pandemic, commenting that "This is money that will be spent across the economy as restrictions are eased and Australians go about their daily life. This is going to give our recovery momentum." It might also unleash a fair bit of price inflation.

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Feature
A balancing act

A balancing act is the title of the OECD's latest economic outlook, which argues that the "revival" from the pandemic "is unbalanced, with countries, businesses and people facing very different economic realities".

Breaking it down: It's a long report so we're not going to be able to do it justice here. But the TL;DR is that it follows a similar line of thinking to all major institutions, in that inflation is temporarily elevated due to "persisting supply bottlenecks" in the durable goods sectors and rising energy costs.

However, it was far from certain about that projection. It warned of "significant risks", including new COVID-19 variants, problems in China's real estate sector and persistent inflation "due to more persistent supply pressures than anticipated or a stronger and sustained surge in energy costs".

If any of those risks materialise, they "could expose vulnerabilities that persist from high debt, stretched asset valuations in some markets, and the fragile recovery in many emerging-market and lower-income economies".

Why this matters: The OECD is an influential body. Australia's former Finance Minister, Mathias Cormann, became its Secretary-General in June of this year after traversing the world in a RAAF aircraft at a cost to taxpayers of around $A380,000.

Australia gets a decent mention in the report, which warned the Reserve Bank of Australia (RBA) that it "should be vigilant about signs of rising inflation and may need to tighten monetary policy faster than it is currently anticipating". Quite direct for a non-partisan body!

Looking forward: The OECD expects the Australian economy to grow by 4.1% in 2022 and then 3.0% in 2023, "aided by the recent temporary increase in government support and the gradual decline of the household saving ratio".

In terms of policy recommendations, it encouraged Australia to pursue "occupational licensing reforms and changes to land use regulations that more easily allow land to be repurposed", along with "a review of Australia’s monetary policy framework".

In other words, stop blowing air into house prices with supply-restricting land use regulations aided by a central bank that has consistently misdiagnosed the macroeconomic climate.

The Wrap Up
    📈Turkey lost another Finance Minister after Lutfi Elvan resigned amidst the currency crisis caused by a President that believes interest rates "are an evil that makes the rich richer and the poor poorer".
    👩‍⚖️James Hayward, the Nationals member for the South West in WA, faced court charges over the alleged child sex abuse of an eight-year-old girl.
    🛑We could run out of politicians soon... Education Minister Alan Tudge will stand aside "while the allegations [of being emotionally and physically abusive in a relationship] are investigated by an independent review run by the Prime Minister's department".
    🦗Alex Carey will replace Tim Paine in Australia's team at the Gabba in the opening Ashes Test.
    ⚱️Perth City mayor Basil Zempilas said "It's disappointing for everybody that we're, by the looks of things, not going to have the fifth Ashes Test".
    🎾The women's professional tennis tour suspended all tournaments in China, including Hong Kong, in response to the disappearance from public life of the tennis star Peng Shuai.
    🏦Returning the favour. Macquarie Group appointed former RBA governor Glenn Stevens chairman of the group and of Macquarie Bank.
    ⚰️The founder and president of televangelist Daystar Television Network "that spreads COVID-19 misinformation... died after a battle with COVID-19".
    💉Merriam-Webster declared "vaccine" as its word of the year, as it "was extremely high in our data every single day in 2021".
    Germany's government 'locked out' unvaccinated people from accessing all but the most essential businesses, such as supermarkets and pharmacies, and is considering a nationwide vaccine mandate from February at the earliest.
    🥶US President Joe Biden revealed his "winter plan" for dealing with COVID-19, including masks on public transport, testing of international arrivals and a booster shot marketing campaign.
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