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A solution looking for a problem

Good morning! Queensland's lockdown was extended until 4:00pm on Sunday, making it an 8-day affair. The state government announced cash grants for all Queensland businesses as part of a 'Business Support Program', and of course affected individuals will be eligible for the federal government's retrospective 'COVID-19 Disaster Support Payment', now that the lockdown will extend beyond 7 days.

Elsewhere, Australia's Vaccine Taskforce Commander General Frewen said the government is now looking to "shift our strategy" to vaccinate "key transmissibility groups", i.e. younger people.

Regular Wrappers will know that's precisely the strategy we recommended back on 18 June, given there was no community COVID-19 in Australia but more hotel quarantine leaks were inevitable: "Vaccinate the vulnerable, then the socially active!"

Markets

Daily % change

 

AUD/USD

73.6

-0.5%

 

 

10Y Bond

1.14

-4.2%

 

 

ASX200

7,491

+1.3%

 

 

Brent (bbl)

76.3

-0.1%

 

 

Gold (oz)

1,812

-0.1%

 

 

Iron ore (t)

177.4

+0.3%

 

 

Bitcoin

38,767

-5.9%

 

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

The US S&P500 edged down 0.18% on the back of a weaker than expected ISM manufacturing Purchasing Managers' Index (PMI) reading of 59.5 in July, the second straight monthly slowdown (a reading above 50 indicates growth). Worryingly, cost pressures remain – while down from June's 50-year high 92.1, the prices paid index was still a very strong 85.7 in July. All eighteen industries reported rising prices for raw materials, with only copper and lumber prices falling in the month.

Locally, the ASX200 (+1.34%) rose to yet another record high after Twitter founder Jack Dorsey's financial payments company, Square, announced its acquisition of Australia's buy now, pay later giant Afterpay for a cool $A39 billion in Square stock, with Afterpay shareholders to own around 18.5% of the combined company.

China slowing: It has become pretty clear why the People's Bank of China cut the reserve requirement ratio – the amount of cash banks must hold as reserves – from 15 July, given how much its fading credit impulse is affecting activity. Yesterday we found out that the Caixin/Markit Manufacturing PMI fell to 50.3 in July, the lowest level since April 2020 and well below analyst expectations of 51.1. Particularly worrisome were the sub-components, with new orders contracting and growth in production slowing considerably, all while input prices continued to rise.

Labour demand down: Australian job adverts fell 0.5% in July from June, which had been the highest level recorded since 2008. July's result was still up 94% from July 2020 – not bad considering Sydney was locked down for the entire month. The RBA board meets later today and many expect it to extend or even expand its bond buying programme in response to the recent lockdowns, effectively unleashing QE3.


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Feature

A solution looking for a problem

Graphic showing how a central bank digital currency might work in practice.
How a central bank digital currency might work in practice. ICBA

The Financial Times ran a good opinion piece on central bank digital currencies (CBDCs) last week, arguing that they "are a solution looking for a problem".

Stepping back: CBDCs have been all the rage since China’s central bank announced it was testing the 'E-Yuan' in the real world, with the aim of having it operational by the Beijing winter Olympics in February 2022. The announcement was met with calls from influential authors such as Niall Ferguson and Martin Wolf for central banks in countries such as the United States to introduce their own CBDCs as soon as possible, or risk the "rise of an alternative financial system that essentially bypasses the Federal Reserve and potentially also the U.S. Treasury".

Fear not: The authors, Stephen Cecchetti and Kim Schoenholtz, argue that such fears are misguided. Their reasoning is threefold —

  • one, "the public and private sectors are already moving to provide cheaper, faster, more reliable, and more accessible systems that operate both within and across borders";
  • two, CBDCs would risk "disintermediation, currency substitution, and a greater role for the state in credit allocation"; and
  • three, "using CBDC means everything we do becomes traceable".

Why this matters: Last month the RBA told the committee on Australia as a Technology and Financial Centre that its report on wholesale market use of CBDCs was close to being finalised, and that it was "continuing to closely monitor the case for a retail CBDC and is engaging with some other central banks on possible use cases, including for cross-border payments".

While RBA governor Philip Lowe has previously said Australia’s central bank "does not consider that a policy case has yet emerged for issuing a CBDC", if every other central bank jumps off the CBDC bridge, you can be sure the RBA will follow. If that looks like it might happen, the issues highlighted above will warrant serious debate.


Tokyo 2020 🗼

With the swimming events done and dusted the gold medal count remained static for Australia yesterday, adding just a single silver and bronze to the tally courtesy of the equestrian eventing competition. Andrew Hoy medalled in both the individual and team events, becoming Australia's oldest Olympic medallist at the age of 62!

However, the biggest shock from the land-based sports was the unfortunate exit of the #1 ranked Hockeyroos, who went down to India in the quarter-finals. Stunned commentators described it as "one of the greatest upsets in the history of Olympic women's hockey". 😬

Medal tally

🥇

🥈

🥉

1 🇨🇳 China

29

17

16

2 🇺🇸 United States

22

25

17

3 🇯🇵 Japan

17

6

10

4 🇦🇺 Australia

14

4

15

5 🇷🇺 ROC

12

21

17


The Wrap Up

  • 🛂 ScoMo confirmed that national cabinet is considering new state laws to enable venues such as pubs, hairdressers and stadiums to be able to require patrons be vaccinated.
  • 🙄 Responding to a question as to whether there will be incentives for those who get vaccinated, NSW Premier Gladys Berejiklian said "absolutely potentially". Phew, well that clears that up then.
  • 🗳️ A new survey found that 72% of Australians would support rules requiring people to prove they are vaccinated before travelling interstate, while 63% agreed that it should be required for venues such as restaurants.
  • 💉 The UK will offer Pfizer booster shots from September to anyone aged over 50, those deemed clinically vulnerable and healthcare workers.
  • 🦜 Five parrots at a British zoo had to be separated "after encouraging each other to curse profusely at guests".
  • 🎶 Popular video game Fortnite revealed a "Rift Tour" concert series from 6-8 August, featuring pop star Ariana Grande.
  • 😷 Anthony Fauci, the chief medical advisor to the US President, said "things are going to get worse... [but] I don't think we're going to see lockdowns". Make of it what you will but he said the same thing back in January 2020.
  • 🍔 McDonald's, in partnership with the California Department of Public Health, will offer COVID-19 vaccinations at 70 of its restaurants across the state, along with free food of course.
  • 🔥 The US tech job market is hot – top of the dot-com bubble levels of hot – and "good and experienced tech workers are being treated like celebrities".
  • 🍷 What pandemic? Former President Obama is hosting a 60th birthday bash for himself on Martha's Vineyard... [with] 475 confirmed guests.
  • 🐱‍💻 According to a Department of Health report, the privacy nightmare that is the federal government's COVIDSafe app has identified just 2,827 potential unique close contacts, with only "some that would not have been otherwise identified". The app cost over $A8 million.

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