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Lowest in a decade

Good morning! The big news yesterday was that the entire state of Victoria has joined Greater Sydney in a "hard" 5-day lockdown. While only announced late in the afternoon, the secret was out as soon as Melbourne's footy teams quickly fled Victoria, no doubt tipped off by the government with players "told to prepare for the possibility of several weeks on the road".

National cabinet meets again later today, with a "streamlined set of financial support for states and territories going forward" expected to be proposed by the Prime Minister.


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

The US S&P500 fell 0.33% overnight despite weekly initial jobless claims falling to 360,000, in line with estimates, and strong manufacturing and hiring in the New York region, with the the Empire State Manufacturing Survey rising to a record for July. Locally, markets were flat until news leaked that Melbourne would enter a snap lockdown, leading to a sell-off with the ASX200 finishing down 0.26%.

China data dump: GDP, retail sales, industrial production, fixed asset investment, property investment and the jobless rate – you name it, China probably released it yesterday. It was all slightly weaker than the strong growth seen in May (or the March quarter for GDP) but there was nothing too alarming, to the extent that you can trust Chinese economic data.

Transitory: We read two stories yesterday about rising inflationary pressures that may be more than transitory. The first was from Japan, where a corporate survey showed that "two-thirds of Japanese firms are passing on rising raw materials costs to customers or planning to do so", up from just 8% last year. The second was in the US, with the world's largest asset manager, BlackRock, saying that it saw the coming inflation as bringing about an "epic change". To prepare, it decided to increase the base salaries of all staff at the director level and below by 8%, starting in September.

Oil rebound: Woodside reported a 67% increase in sales revenue in the second quarter, due to higher realised prices for natural gas and oil.


Lowest in a decade

Chart showing Australia's employment to population ratio.
This doesn't look like a labour market that needs recession-level stimulus. ABS

Australia's unemployment rate fell to 4.9% in June, the first time it has been below 5% for a decade. That's a very strong number, coming a year earlier than the May 2021 Commonwealth Budget predicted ("5 per cent in mid‑2022") and about 5 months before the RBA expected it to happen ("around 5 per cent by the end of this year").

Breaking it down: The June employment figures included the impact of Melbourne's two-week lockdown, with "with hours worked falling by 8.4 per cent in Victoria", while the state's employment fell just 0.3%. It's likely that Sydney's current lockdown will have a larger impact when it's included, given it's the first real lockdown in the state and will run at least 2.5x as long.

Why this matters: In more normal times figures like these would cause the RBA and government into an immediate rethink, given both monetary and fiscal policy are currently ultra-easy. But we're in the midst of a pandemic and our two largest cities are currently in lockdown, so no one wants to be blamed for removing the punch bowl too early – hence the newfound emphasis on "sustained progress... on employment and inflation".

Still, there's no denying that the risk profile has shifted. Asset prices (e.g. equities, houses) are in the stratosphere and the tight labour market combined with ongoing stimulus could lead to some not-so-transitory wage and price pressures once lockdowns ease. We can't be too far behind the kiwis, where on Wednesday the central bank began to tighten monetary policy to reduce the risk of overshooting its targets (unemployment there is 4.7%).

The Wrap Up

  • 💉 Australia won't be able to domestically produce mRNA vaccines until 2023, at the earliest.
  • 💻 Microsoft announced Windows 365, a cloud-based operating system you can sign into from anywhere.
  • 🔒 Spain's Constitutional Court ruled that the stay-at-home lockdowns enforced by the government last year were unconstitutional.
  • 🍷 A new study published in July's Mayo Clinic Proceedings found that all-source mortality risks are minimised by drinking alcohol with meals at least three times per week, with consumption between 5-30 standard drinks per week.
  • 🕵️ In a blow to Facebook, just 25% of Apple iPhone users are opting in to tracking, limiting the social network's ability to provide certain metrics to advertisers.
  • 🏅 Tokyo yesterday reported its highest number of new COVID-19 cases (1,149) in almost six months. There is also a COVID-19 cluster in the Brazilian Olympic team's hotel, a member of the US Olympic men's basketball team has been withdrawn due to COVID-19 protocols, and even more tennis players have pulled out. 7 days until the opening ceremony...
  • 🦗 Australia notched up its first win of the T20 series against the West Indies, winning by 4 runs thanks to a tight final over from Mitchell Starc.
  • 🌊 Germany and Belgium are flooding, with at least 67 people dead after rivers burst their banks, with more rain forecast.
  • ✈️ People flying into Australia now have to declare their vaccination status and if they have ever been diagnosed with COVID-19.
  • 🦈 No more shark attacks: Australian governments will now refer to them as "interactions" or "negative encounters".
  • 💩 ScoMo denied that he soiled himself in a McDonald's in 1997 after the Cronulla Sharks lost the NRL grand final.