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Bubble trouble?

Good morning! In response to the controversial use of SafeWA contact tracing data by the WA Police, the state's Police Commissioner Chris Dawson responded with: "Don't expect me to do my job half-baked... I make no apology for it."

That's one big problem with centralised storage of sensitive data: there will always be some justification to abuse it. While a decentralised approach from the outset is generally preferable, at least in this case the Commissioner's views are not shared by the government, which is currently "legislating to remove any capacity for this information to be used by any other agency, especially the police".

Markets

Daily % change

AUD/USD

76.1

-1.0%

10Y Bond

1.59

6.7%

ASX200

7,386

0.1%

Brent (bbl)

74.0

-0.4%

Gold (oz)

1,811

-2.7%

Iron ore (t)

207.2

-1.3%

Bitcoin

38,729

-3.2%

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

The US S&P500 fell 0.54% overnight after the Fed's latest projections 13 of 18 Fed officials now expect short-term rates to rise by the end of 2023, up from 7 in March. No change was made to the bond buying programme (quantitative easing), with the Fed maintaining its stance that it's waiting for "substantial further progress" in the recovery.

China slowing: More disappointing data from China yesterday (depending on your perspective), with industrial output in May up 8.8% from a year ago (down from 9.8% in April), retail sales grew 12.4% (from 17.7% in April) and year to date fixed asset investment increasing by 15.4% (from 19.9% January-April). All three were below analysts' expectations.

Talking down commodities: Iron ore prices were at one point down over 3% yesterday after China fired another shot across Australia's bow, with the AFR reporting that "people with knowledge of the matter" are claiming that China's "State-owned Assets Supervision and Administration Commission (SASAC) has ordered state enterprises to control risks and limit their exposure to overseas commodities markets."

Stronger growth: Global ratings agency Fitch's latest Global Economic Outlook expects world GDP to grow by 6.3% in 2021, revised up by 0.2 percentage points since the March, before slowing to 4.3% in 2022. It now expects the Fed to hike rates in the fourth quarter of 2023, one year earlier than its previous expectation, due to "significantly" higher US and global inflation forecasts.

Inflation watch: Consumer prices in the UK unexpectedly increased by 2.1% in May, above the Bank of England's target and well above April's 1.5%. One of the main drivers was energy prices, which may not be that 'transitory'. Similarly in Canada, inflation jumped to 3.6% in May – the fastest for a decade – with "the cost of just about everything going up at a much faster pace than usual".


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Analysis

Bubble trouble?

Australia's housing is unaffordable but prices have risen at a third of the pace of some countries.
Australia's housing is unaffordable but prices have risen at a third of the pace of some countries. Bloomberg

Bloomberg Economics updated its 'bubble ranking' of the world's housing markets. The rankings are based on price-to-rent and price-to-income ratios to "help assess the sustainability of price gains", annual credit growth and price growth to gauge "current momentum".

The results: Australia was ranked 15th in the OECD, despite our housing market cracking the top 5 in terms of lack of affordability (price-to-rent and price-to-income ratios). New Zealand, Canada and Sweden ranked as the world's frothiest housing markets, due to a lack of affordability and rapidly increasing house prices (nominal price growth of over 10%, compared to Australia's 3.6%).

Why this matters: Depending on whether or not rising 'frothiness' has coincided with a decline in lending standards and increased leverage, it exposes those countries to the increased risk of a sharp decline in asset prices causing a balance sheet recession, from which it can take a long time to recover.

Some countries are more worried than others. The world's frothiest market, New Zealand, yesterday added debt serviceability restrictions (e.g. a debt-to-income limit) to the Reserve Bank of New Zealand's suite of so-called macroprudential tools, in an "in-principle" agreement with the government.


The Wrap Up

  • NSW reported its first community COVID-19 case yesterday for 40 days, a man in his 60s who works as a driver transporting international air crew. A "household contact" of his also tested positive. Authorities are separately investigating an unrelated leak within a CBD quarantine hotel.
  • The Fair Work Commission announced a 2.5% increase in Australia's minimum wage and related award minimum wages to $20.33 an hour.
  • How technology helped save the world. "Not a single significant company engaged in service provision — whether banking, insurance, communications, media, healthcare, you name it — had any downtime at all. Every knowledge worker went home, fired up their laptops, jumped on Slack and Zoom and Gmail and Github, and kept on going."
  • Facebook approached Roger Waters about using the Pink Floyd classic "Another Brick in the Wall, Part 2" in an Instagram advert for "a huge, huge amount of money". The response: "F-ck You. No f-ckin' way".
  • New emails released by the House Oversight Committee revealed that former US President Donald Trump "repeatedly pressured the Justice Department to overturn Joe Biden ’s victory, at one point urging prosecutors to file a Supreme Court lawsuit to nullify the election".
  • Maybe the goal is 70%? New York is lifting all state-mandated coronavirus restrictions now that 70% of the state's adults have received at least one dose of a COVID-19 vaccine.
  • Microsoft's new operating system, Windows 11, was leaked online. It will have rounded corners, apps centred on the task bar and a modified 'Start' menu. Windows 11 will be announced at an event on 24 June (US time).
  • The US Senate approved a new public holiday, Juneteenth (19 June), to commemorate the end of slavery.

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