A game of tug of war
By Justin Pyvis – Delivered on 20 Oct 2021

Good morning! Following on from Monday's big border announcement, Premier Annastacia Palaszczuk fired off a warning to the 400,000 unvaccinated Queenslanders that there are only "12 days for people to come and get vaccinated if you want to be fully protected by the 17th of December".

That's because there's a minimum 3 week gap between doses and full protection isn't achieved until 2 weeks after the second dose. Twelve days plus five weeks equals 47, meaning Palaszczuk expects to hit the 80% fully vaccinated mark around 5 December.

Moving on, Victoria's Premier Daniel Andrews provided more info on what life might be like for the unvaccinated, saying it will be "well and truly into 2022" before they enjoy any of the freedoms that will start flowing to vaccinated Victorians from Thursday night:

"We will not be doing that here. Why would you have that thing up and running and then pull all the architecture that you have built, all the infrastructure that you have built, the culture that you have changed – why would you change that four, five weeks later?

If you make the judgement do not get vaccinated, if you think you can wait us out, the public, whatever you think you are waiting out. You will not wait out the virus because it will be here for a long time and the only protection against it is to be vaccinated. This will be well and truly into 2022."

Finally, the Hermit State Western Australia's Premier Mark McGowan said that his state would remain locked away for the rest of the year because he didn't want to "fall at the last hurdle". Instead:

"Next year we'll have high levels of vaccination, we'll be able to reopen safely, our borders, and we'll be able to manage our soft landing I am very hopeful... We will continue just to be safe and keep the State as secure as we can whilst we'll get our vaccination rates up over the course of coming months".

There you have it, straight from the horse's mouth. Precisely the opposite thing to say if your goal was to improve the state's last-place vaccination rate. It means Australia should be united again by Christmas, with the almost certain exception of WA (unless polling swings force the development of an actual reopening plan) and perhaps the NT (depending from where you're travelling).

Fully vaccinated population (aged 12+)


Daily % change




AU Yield (%)



US Yield (%)









Brent (bbl)



Gold (oz)



Iron ore (t)






Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries.

The US S&P500 jumped 0.74% overnight to notch up its fifth consecutive gain, as September quarter earnings reports continue to flow in above expectations. According to FactSet, 82% of the 41 companies that have reported so far have revealed earnings that beat market forecasts, with average third quarter profit growth expected to be in the region of 30%.

Locally, the ASX200 was flat yesterday (-0.08%), a mixed bag with declines to the big miners (materials -1.4%) and energy sector (-0.7%) mostly offset by gains to tech (+1.6%) and real estate (+1.0%). A notable mover was BHP, which dropped 2.0% after reporting a 5% decline in its Australian iron ore shipments in the September quarter due to maintenance and "temporary rail labour shortages due to COVID-19 related border restrictions".


Hitting the brakes: Recent economic concerns such as the Evergrande debacle may have forced China's President Xi Jinping into a change of mind about his big "common prosperity" shake-up. Bloomberg reports that authorities have moved "to soften sweeping policies designed to make the economy less dependent on debt, monopolies and fossil fuels... [and] financial regulators told some major banks to accelerate approval of mortgages in the last quarter".

Rates rising: It's not just Kiwi and Aussie debt that's being sold off – Bank of England Governor Andrew Bailey said the central bank will "have to act" to curb inflation, which may not be as "transitory" as first thought. Markets are now pricing in a 15 basis point rate hike next month.

Regulated to death?: The founder of Cardano, the world's fourth largest cryptocurrency, said "the [US] Treasury Department does everything in its power to try to kill our industry... A $2 trillion industry just pops up in our backyard, and my government's trying to kill it".

Output struggles: Housing starts in the US fell 1.6% in September and permits dropped 7.7% to hit a 1-year low, unexpected declines as "supply is struggling to catch up given higher input costs and shortages that remain headwinds for builders".

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A game of tug of war

At its policy meeting just two weeks ago, Reserve Bank of Australia (RBA) governor Philip Lowe predicted that his "condition" for raising interest rates ("full employment [and] inflation consistent with the target") "will not be met before 2024".

Markets are now challenging that claim by flogging Aussie bonds, raising the yield on April 2024-dated bonds to a level that's currently 70% above the RBA's target, setting the stage for a mighty game of tug of war.

Stepping back: Bond yields move inversely to prices – if supply grows faster than demand, prices will fall and yields will rise. The RBA can offset that process by artificially boosting demand through its own bond purchases with money it conjures out of thin air, also known as 'quantitative easing' or 'yield suppression'. It does this to lower borrowing costs with the idea that businesses will invest more than otherwise, improving the employment situation and raising consumer price growth to within its 2-3% target.

However, recent data from New Zealand and other advanced economies suggest that the RBA might have underestimated both the recovery and the inflationary pressures that monetising additional government spending to the tune of 10-20% of GDP may have unleashed.

Why this matters: Both bond markets and the RBA cannot be correct. Investors are betting that the RBA will break well before 2024, with the first rate hike currently priced in for the second half of 2022. If markets are correct, it means mortgage interest rates (especially fixed-term) will likely rise next year. That could come as quite the shock to the one in five borrowers who in the June quarter took out new loans at more than six times their incomes.

Looking forward: If bond markets continue to sell Australian government debt with the expectation that the RBA will raise rates well before 2024, the RBA may have to nationalise that part of the market by buying the entire $A32.9 billion worth of April 2024 bonds. But that could also be self-defeating – depending on what the recipients do with the cash, it could create even more inflationary pressures and trigger rising yields toward shorter duration bonds, which would drive up variable mortgage rates (banks borrow short and lend long).

A more sensible move would be to admit it was wrong, announce it's no longer targeting specific yields and that its bond buying programme will in fact end (no more "at least until" wording). But whatever it does, something's gotta give and next month's RBA policy meeting (on Melbourne Cup day!) will be very interesting, especially as Aussie inflation data will be released the week before.

The Wrap Up
    ✈️People from 10 countries can now travel to Singapore quarantine-free, including Brunei, Germany, Britain, Canada, Denmark, France, Italy, the Netherlands, Spain and the United States.
    🧳The ACT government brought forward freedoms after hitting the 80% (people aged 16+) fully vaccinated mark, permitting all retail to open, larger capacity limits, a scrapping of outdoor masks and free travel to all of NSW.
    🎭Kanye West is in Europe, trotting around wearing weird masks in various colours that cover his entire face and neck.
    🧭Queenslanders will be able to travel to Western Australia without quarantine from 22 October after the state was downgraded to "very low risk".
    🚢Moody's Analytics predicted that global supply chain problems "will get worse before they get better", creating a "a perfect storm where global production will be hampered... [and] costs and prices will rise".
    💉Yesterday Australia (56.5%) overtook the United States (56.3%) in terms of the share of its population that's fully vaccinated against COVID-19.
    The Red Sox became just the second team in baseball history to hit three grand slams in a single postseason series. Check out the third one here.
    🏉The World Rugby Sevens tournament will skip Australia and New Zealand in 2022 "due to the logistical challenges associated with the COVID-19 pandemic in their region".
    🏀Aussie NBA star point guard Ben Simmons was tossed out of training by the Philadelphia 76ers and suspended for a week "for conduct detrimental to the team".
    🗳️Australia's opposition Labor party told its members to prepare for a federal election on 11 December, with the expectation ScoMo "will call a snap election following his trip to the Cop26 climate summit in Glasgow".
    🤖Google released the latest phones in its line-up, the Pixel 6 and 6 Pro, which aim "to beat competitors on camera and performance while undercutting them on price".
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