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Beautifully, absolutely beautifully

Good morning! Twelve days ago Queensland's chief health officer Jeanette Young boasted that "there's no need to go into lockdown when we've got responses like this... We've handled it beautifully, absolutely beautifully".

The latest Queensland outbreak has now grown to 15 people, with authorities identifying two separate clusters, both originating at Brisbane's Princess Alexandra Hospital – location of the slip-up that was supposedly handled "beautifully" by the Queensland government. The newest cluster started with a nurse, who recently visited Byron Bay for a hens party and infected an "entertainer", who also worked at a nursing home. Oh oh.

This will not be over in three days.

Market Wrap

Worst session in more than a month

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

The ASX200 recorded its worst session in more than a month, with iron ore heavies Rio Tinto, BHP and FMG losing more than 2% each after the price of iron ore traded on the Singapore exchange declined (although it recovered some of those losses after Australian markets closed).

Globally, the US S&P500 and Dow Jones both fell 0.3% overnight, with Big Tech weaker. US President Biden is due to reveal details of his multi-trillion dollar infrastructure stimulus later today (US time).

Bubble watch: Dallas Federal Reserve Bank President Robert Kaplan said, "There's no question that financial assets, broadly, are at elevated valuation levels... I'm concerned about excess risk-taking and if that excess risk-taking goes too far, whether it creates excesses and imbalances, that could ultimately create challenges".

Investment watch: AGL's share price was down 3.5% after the Victorian government blocked the company's proposed Crib Point gas terminal on environmental grounds. Meanwhile, Santos approved a $A4.7 billion development of the Northern Territory's Barossa gas field off the Northern Territory, the biggest investment in Australia's oil and gas sector since 2012.

Econ Wrap

Housing intervention will come

Keep an eye on APRA's indicators.

Australian Prudential Regulation Authority (APRA) chair Wayne Byres yesterday elaborated on what might trigger him to implement measures to slow Australian house price growth. While noting that "aggregates can hide a lot", he listed three indicators:

  • The share of lending at high loan-to-value ratios (LVR).
  • High debt-to-income (DTI) ratios.
  • Levels of broker-originated lending.

Hands off, for now: Byres noted that right now, shares of investor lending and interest-only lending are below where they were 18 months ago, with high LVR lending, high DTI lending and broker-originated lending increasing at "not at a particularly rapid rate". He cautioned that while APRA does not want to damage the recovery, "we don't want to see credit standards, particularly in the area of housing lending, weakened".

Incentives matter: Much like the Reserve Bank of Australia, US Federal Reserve, European Central Bank, Bank of Japan... basically every central bank or authority outside of China and New Zealand (where politicians got involved) – any response to rapidly rising asset prices is going to come more slowly than it has in past cycles. Why? Because no bureaucrat wants to be blamed for potentially pulling the pin too early in the middle of a global pandemic.

Don't be fooled: The political pressure to do something will grow exponentially with house prices. We still expect some kind of 'macroprudential' intervention this year, given the monetary demand impulse and how long it takes housing supply to respond – if at all.

Tech Wrap

Neo-banking as a service

How banking-as-a-service (BaaS) works.
Business Insider Intelligence

NAB's takeover of so-called 'neobank' (i.e. online-only) 86 400 was approved by the Australian Competition and Consumer Commission.

Not disruptive: Almost all recent non-crypto innovation in banking has been regulatory arbitrage, effectively the act of finding loopholes through which to run a business (which is the tl;dr summary of the buy now, pay later business model).

Neobanks were never a serious threat to the Australian banking oligopoly, given they're essentially identical but with fewer overheads. Now it's looking as though they'll all be gobbled up or simply fade away, as happened to neobank Xinja late last year.

Neo-banking as a service: The hardest part about starting a bank is getting the regulatory approvals. A development that has flowed from the neobank fad is that some discovered they could leverage their licence to become platforms, allowing "a non-banking business to offer banking products such as transaction accounts under their own brand, but using the bank’s licence and infrastructure".

Real estate agencies, insurance companies, airlines – essentially any organisation large enough – could potentially offer their customers tailored bank accounts and loans through a shared neobank licence.