A long, cold, crazy winter
By Justin Pyvis – Delivered on 08 Oct 2021

Good morning! There were some changes to New South Wales' reopening plan yesterday, with new Premier Dominic Perrottet relaxing even more restrictions than originally planned from Monday, including:

doubling household gathering sizes from 5 to 10;
increasing public gathering limits from 20 to 30;
raising the cap of people at weddings or funerals from 50 to 100; and
allowing indoor pools to reopen.

Once the state reaches the 80% double-dose mark (people aged over 16), additional perks will now include:

no requirement to wear a mask in an office;
household gathering limits increased to 20;
public gatherings will increase to a limit of 50; and
nightclubs can reopen (no dancing); and
up to 3,000 people will be allowed to attend ticketed outdoor events.

The return of in-person schooling will also be brought forward to 18 October for Year 1 and Year 12 students, to be joined by all other students on 25 October.

Phew. Now that that's out of the way, our thoughts – it's great that NSW is reopening but these 'freedoms', even at the 80% double-dose mark, are still quite restrictive when compared to how people in the 5 states and territories that are currently COVID-free are living.

Barring an outbreak, we can't see the holdouts flicking the border reopening switch before they're 90% double-dose vaccinated, which could take a while given vaccine complacency in those jurisdictions and the complete absence of positive incentives offered by their respective governments.

Don't hold your breath for a united Australia by Christmas. 😞

Fully vaccinated population (aged over 12)

NSW
ACT
TAS
VIC
NT
SA
QLD
WA
Markets

Daily % change

AUD/USD

73.2

+0.5%

10Y Bond

1.62

+3.8%

ASX200

7,257

+0.7%

Brent (bbl)

82.4

+2.0%

Gold (oz)

1,756

-0.5%

Iron ore (t)

117.7

-0.3%

Bitcoin

54,169

-1.9%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract.

The US S&P500 jumped 0.83% overnight as the US government announced it had struck a deal for "an extension of the nation's debt ceiling through early December". Also supporting the recovery trade were initial jobless claims, which fell a better than expected 38,000 from the previous week. In a further boost, there was a huge decline (-854,638) in the number of people claiming benefits under all programs, "as enhanced pandemic-related programs ran out".

Locally, the ASX200 gained 0.70% as all sectors finished in positive territory except for energy (-0.8%) following the drop in oil prices on Wednesday night. The standout sector was tech, which added 2.3% on the back of stabilising US bond yields and a rise in the tech-heavy Nasdaq index the night before.

Economy

Energy volatility: UK natural gas prices increased by 40%... in a single day (and then fell back down). Oil prices were up again overnight after the US government revealed it "may not release emergency crude reserves to combat rising gasoline costs".

We have plenty more on the energy crisis in the Feature below. 👇

Crypto comeback: Bitcoin hit its highest level since mid-May after billionaire investor George Soros' fund confirmed it was trading bitcoin. Meme crypto Shiba Inu coin continued its run higher (now over 300% in a week) following, you guessed it, an Elon Musk tweet about his pet dog, which happens to be a Shiba Inu.

Lockdown blues: The latest payroll job data from the ABS showed the number of jobs in Australia falling back below their pre-pandemic level due to a "series of falls in payroll jobs through July, August and into September". The losses were largest in the locked-down jurisdictions of the ACT and Victoria, with the latter accounting for almost 75% of all jobs lost during the fortnight.

Something's broken: German industrial production plunged 4.0% in August from the month prior, well below an expected 0.2% decline. According to the Federal Statistics Office, "manufacturers continue to report production constraints due to supply shortages of intermediate products".

Feature
A long, cold, crazy winter

Writing in the New York Times, columnist Thomas Friedman opines that "Every so often the tectonic geopolitical plates that hold up the world economy suddenly shift in ways that can rattle and destabilize everything on the surface. That's happening right now in the energy sphere."

Stepping back: Something of a perfect storm hit the world's energy markets this year. First, COVID-19 and the fear that it would cause a deep, prolonged recession caused the cancellation of everything from microprocessor orders to investment plans for new natural gas capacity.

However, the recession proved to be short-lived – a temporary supply shock to the global economy. But governments and central banks responded with record levels of demand-side stimulus, much of which is still flowing, and supply has been unable to keep up.

Initially inventories buffered some of the demand/supply mismatch but those have now but been exhausted, and it takes a long time to build a new microprocessor factory or sink a new crude well.

Mix in a global transition to renewables "in totally uncoordinated ways, from the top down, and before the market has produced sufficient clean renewables", and you have the recipe for a global energy crisis.

Why this matters: The energy crisis is getting worse, with power prices "hitting fresh records almost daily, and some energy-intensive companies have temporarily shut operations because they're becoming too expensive to run".

The northern hemisphere is about to enter winter, i.e. peak energy season. There's a very real risk of not just a global slowdown caused by output cuts in an inflationary environment, but also that people could die of the cold during blackouts.

Looking forward: According to Friedman, the crisis risks more than just declining output and rising inflation. The "European Union's biggest pipeline gas supplier — Russia — is now in the catbird seat", and the crisis "could make Vladimir Putin the king of Europe".

It might also strengthen the bargaining position of Iran, which "wants to make itself a threshold nuclear power, like Japan, where it would stay just a few turns of the screw away from actually having a bomb".

If the US "feels it has to strike Iran's nuclear program in the middle of what could be the worst energy winter since 1973", Iran might respond "by firing at US or Western oil tankers in the Persian Gulf, where Qatar, the world's largest exporter of liquefied natural gas, resides".

Paraphrasing the Beatles (1969), Friedman concludes that "Little darling — it's gonna be a long, cold, crazy winter."

Indeed.

The Wrap Up
🥐That didn't take long. France's ambassador to Australia will return to Canberra "to help redefine the terms of our relationship with Australia in the future".
⛏️Mining giant BHP made COVID-19 vaccination mandatory for all of its employees no later than 31 January, joining rival Rio Tinto in doing so.
💉All students attending leavers (schoolies) events in Western Australia will need to have had one dose of a COVID-19 vaccine by 22 November.
🗳️According to the latest Resolve Political Monitor, primary vote support for the federal government fell to 39% in the July-September period (from 41% at the 2019 election), with Labor unchanged at 33%.
🛰️A new law designates any person in Russia who "reports on anything that might be even tangentially related to Russia's military activities or space activities... as a foreign agent".
🕵️Veteran mobsters in New York have accused their "millennial mafiosos" of "going soft" because they prefer texting to traditional face-to-face pistol-whipping.
🏉NRL Australia will expand to 17 teams in 2023. A new side is expected to be added and announced by the end of the month.
🏥ScoMo told state Premiers that work to get hospitals ready for COVID-19 "should've been done for the last 18 months", and that "this isn't about funding. This is about management of hospital systems".
👨‍💻ScoMo lashed out at social media companies, calling them a "coward's palace", adding that the government would be "leaning further" into online accountability.
🚑"A Colorado health system is denying organ transplants to patients who aren't vaccinated against COVID-19 in 'almost all situations', because they're more likely to die if they contract the coronavirus.
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