Inflation is here
By Justin Pyvis – Delivered on 28 Oct 2021

Good morning! Victoria's parliament got heated yesterday as debate began on Premier Andrews' controversial plan to make his government's unprecedented but temporary pandemic powers permanent.

Liberal MP Tim Smith said the bill was a "disgraceful mistreatment of our democratic traditions giving the dictator dictatorial powers and you think that's great", while opposition leader Louise Staley criticised the short turnaround, saying "to be brought into this place and then be told they will be debating it later this day is a complete and utter assault on democracy".

The Victorian government is trying to rush the bill through in two days after only revealing it at 6pm the night before tabling it, despite the usual practice being for two weeks of debate. Nonetheless, it's expected to pass as the votes of three independent MPs needed to pass legislation have already been bought secured.

Elsewhere, ScoMo confirmed that the requirement to seek an exemption to leave Australia will be scrapped from Monday, although only for the fully vaccinated. One week later the travel bubble with Singapore will open, after its government added fully vaccinated Australians to its approved quarantine-free list.

Unless something's announced in the next few days, people in NSW and VIC will be able to holiday in Singapore quarantine-free before those in WA even have so much as a reopening plan. Not just that, but according to ScoMo "By the end of the year I fully anticipate that we'll be able to achieve seeing international visitors, including backpackers, who are double-vaccinated being able to come back to Australia". 🤦‍♂️

Fully vaccinated population (aged 12+)

ACT
NSW
VIC
TAS
SA
NT
QLD
WA
Markets

Daily % change

AUD/USD

75.2

+0.3%

AU Yield (%)

1.79

-0.1%

US Yield (%)

1.53

-5.6%

ASX200

7,449

+0.1%

S&P500

4,552

-0.5%

Brent (bbl)

84.1

-2.7%

Gold (oz)

1,799

+0.2%

Iron ore (t)

116.6

-4.2%

Bitcoin

58,727

-5.7%

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

The US S&P500 fell 0.51% overnight despite Microsoft (+4.2%) and Alphabet (Google, +5.0%) both hitting record highs after reporting better-than-expected earnings results. A notable mover was retail trading app Robinhood, which shed 10.4% after its quarterly report missed expectations and showed just how reliant it is on crypto trading, specifically Dogecoin.

Locally, the ASX200 (+0.07%) finished slightly stronger despite getting whacked by higher than expected consumer price inflation figures (see the Feature below).

Of note was the trading halt placed on aspiring zero carbon lithium producer Vulcan Energy, which is partially backed by iron ore billionaire Gini Rinehart and has soared over 400% since the start of 2021.

The halt was requested after a report titled "Vulcan: God of Empty Promises" was released by J Capital, a firm specialising in short selling, alleging "the project may never actually get underway as the costs are higher than the company claims, output will be lower, [and] the environmental impact is brutal enough that public outcry will block permits".

Economy

Kiwis downbeat: The latest ANZ business confidence survey for October showed a fall in sentiment as "cost and inflation pressures intensified".

Consumers watch out: Industrial profits at large Chinese firms with annual revenues of over 20 million yuan (~$US3.1 million) jumped 16.3% from the year before in September. However, the rise was entirely due to mining and raw materials industries, while downstream firms struggled as their margins were eroded by higher input costs. How long until those costs are passed through to consumers? 🤔

Rental pressures: According to CoreLogic, property rental prices in Australia increased 8.9% in the past year, "the fastest annual rate since July 2008".

German resilience: Consumer confidence in Germany increased for a second straight month, even as "citizens seem to be expecting even more price hikes, which is why they consider it prudent to make purchases now to avoid even higher prices".

Tightening time: The Bank of Canada announced that it had ended its bond buying programme and pulled forward its expected timeline for interest rate rises to "the middle quarters of 2022" now that "robust economic growth has resumed".

Billionaire tax: US Democrats tabled a slightly watered down version of the wealth tax discussed earlier this week. The new version would affect roughly 700 billionaires that either earnt above $US100 million in annual income or held at least $US1 billion in assets for three years, taxing them "23.8% on the increased value of unsold assets like stocks and bonds".

However, pivotal Democrat Joe Manchin is sceptical, saying "I don't like it. I don't like the connotation that we're targeting different people. There's people that basically, that contribute to society, that create a lot of jobs, and invest a lot of money, and give a lot to philanthropic pursuits."

Feature
Inflation is here

Australia's latest consumer price index numbers for the September quarter were released yesterday and surprised to the upside, rising 0.8% from the June quarter and 3.0% from a year ago. Both measures of 'core' inflation – which strip out prices for things like petrol and is what the Reserve Bank of Australia (RBA) focuses on – rose 2.1%, the highest in five years.

Why this matters: The RBA has been trying to jawbone markets into believing it will wait until 2024 before it commences a monetary tightening cycle. Markets have been testing its resolve of late, selling bonds and buying the Aussie dollar under the belief that there's no way it holds out that long.

These data will put further pressure on the RBA to do something about rising prices, which erode the standard of living for those who don't own financial assets, real estate, or are on fixed incomes.

Immediately following the data release the Australian dollar jumped 0.4%, 3-year bond yields climbed 10 basis points (nearly 20%!) and the ASX200 dropped half a percent – all signs that people are increasingly expecting the RBA to turn less dovish.

Looking forward: In the past year the RBA's balance sheet has doubled in size. The year prior, it increased 80%. Before that? Just a 2% annual increase. To say the RBA responded to the pandemic in a big way is an understatement – it went at it all guns blazing, monetising about a quarter of the federal government's debt in the process.

Provided people aren't demanding more money in preference to other assets (which they may well have during parts of last year given elevated uncertainty), that's a huge demand stimulus.

The problem is there's a lot of sand in the gears of supply, not just in Australia but all around the world. If supply is constrained for whatever reason – be it container stacking limits in Los Angeles, or an accelerated green energy transition in Europe – prices have to rise as a rationing mechanism (or you get shortages), and it won't be transitory until central banks start to do something about demand.

The Wrap Up
    🧒The US FDA's advisors voted 17-0 to recommend authorising the Pfizer COVID-19 vaccine for children aged 5-11, determining that the benefits outweighed the risks of adverse side effects.
    Australia's drug regulator, the TGA, approved booster shots of the Pfizer COVID-19 vaccine for people aged over 18 years "at least six months after the completion of a COVID-19 vaccine primary series... [which] can be of any of the COVID-19 vaccines registered for use in Australia".
    🐊Only in Florida: After refusing to wear a mask when meeting a state senator being treated for cancer, Surgeon General Joseph Ladapo refused to apologise and said by wearing a mask he couldn't "communicate clearly".
    🙄Only in America: A woman is suing Kellogg's for $US5 million because its strawberry Pop-Tarts also contain pears and apples as fruit filling.
    🦇Controversy! A bat is currently leading New Zealand's annual bird of the year competition "by a considerable margin", despite being a mammal.
    🎾The Victorian government will not let unvaccinated tennis players attend the Australian Open in February by refusing to support their travel exemption applications.
    🦗According to Johannesburg journalist Lungani Zama, South African cricketer Quinton de Kock withdrew because he believes by forcing players to 'take a knee', it is reduced to a "token gesture which has been watered down to almost mean nothing".
    💉According to a new paper, a fully vaccinated person is 40% less likely to catch COVID-19 from an infected person who is also vaccinated than an infected person who has not been vaccinated.
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