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Panic mode

Good morning! Health Minister Greg Hunt yesterday outlined the three steps the government will take towards opening up Australia's border.

The first step is to create additional travel bubbles, as was already done with New Zealand. The second step is to offer the entire adult population a vaccine. The third and final step before a complete reopening is "the capacity for greater travel for those who have been vaccinated", with vaccinated Australians able to "travel earlier... [and] return with lesser restrictions".

Based on those timelines we're probably looking at the first half of 2022 as a best case scenario for vaccinated travel, given we won't have enough Pfizer doses for the entire adult population until the end of 2021 at the earliest.

Market Wrap

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

The ASX200 surged 1.3% yesterday to an all-time high on the back of iron ore, which jumped 8.5% to its own record (see the Econ Wrap below), sending the big mining companies such as FMG (+7.9%), RIO (+4.6%) and BHP (+3.1%) significantly higher.

Overnight, the US S&P500 (-1.0%) lost ground from its 26th record high of the year as rising bond yields hit the lofty valuations of big tech in particular (the Nasdaq was down 2.55%).

Retail rebound: Australian retail turnover rose 1.3% in March from the prior month (2.2% from March 2020), with big gains in Victoria (3.5%) and Western Australia (5.5%) as they rebounded from lockdowns in February.

NAB business survey: According to NAB, business conditions in Australia including profitability, forward orders, capacity utilisation and employment all reached fresh record highs in April. Business confidence also set a new record high.  So, perfect conditions for a big spending budget (it's out tonight, by the way) and continued monetary stimulus, right? 🙄

Econ Wrap

Panic mode

Global governments really splashed the cash.
Global governments really splashed the cash. Bloomberg

Many industrial commodities, such as copper and iron ore, hit fresh record highs on the back of surging demand and constrained supply. Iron ore jumped nearly 10% (~$US17 per tonne) yesterday, which will no doubt have pleased Josh Frydenberg as he prepares to announce a big spending, deficit-financed budget tonight. Iron ore is Australia's largest export and every $US1 increase in the price over the year adds about $370 million to the federal government's tax receipts.

Stepping back: When the coronavirus hit last year, many investment plans were cancelled or delayed as people fretted about a global recession and the potential for demand to remain subdued for many years. However, unprecedented stimulus in the world's largest economies and a swifter than expected recovery thanks to the development of effective vaccines caused demand to rebound in a big way. According to T-Commodity partner Gianclaudio Torilizzi, "The industrial players are in panic mode since there's not much supply."

Governments respond: Some governments, such as in Chile (the world's largest copper producer), have made matters worse by announcing new taxes on commodity sales, which will "at the very least delay any new capacity, extending the lengthy time-line to bring on a new mine". In other countries, such as China, they've tried to order "brokers and traders to refrain from making bullish statements on metal prices by government officials". Yeah, that ought to do it.

Temporary effect: Supply will eventually respond to record high prices, but it takes time. The big risk to the outlook is that the supply response comes online at the same time as these temporary, stimulus- and recovery-driven demand forces wane. But as we've seen in previous commodity booms, that can take quite a while to materialise.

The Wrap Up

  • Elon Musk must have received some serious hate mail after the weekend's Dogecoin fail. Yesterday he announced that SpaceX will send "satellite Doge-1 to the moon next year", paid for in... you guessed it, Dogecoin. The human race is literally sending a meme to the moon. What a time to be alive.
  • The US was hit with a ransomware attack yesterday, with the Colonial Pipeline – which carries 45% of the East Coast's supply of diesel, gasoline and jet fuel – taken offline after hackers breached their network. It's likely that an engineer's "account login details relating to remote desktop software" was compromised, allowing the hackers entry. Really?! In this day and age, they weren't using 2FA (two-factor authentication)? A free mobile authentication app could have prevented this.
  • Depending on the poll you use, 59-70% of Japanese citizens want the Olympic games cancelled.
  • Google's expensive and so far unremarkable DeepMind AI is being used by Liverpool. Might explain the drop down the table this year? 😄
  • There's a reason we don't build bridges out of glass: A 100-metre-high glass bridge near the Chinese city of Longjing shattered due to strong winds, leaving a tourist stranded in the middle. China has 60 glass bridges. 😣
  • The Federal Court ruled that the biosecurity order preventing people from returning to Australia overrides a citizen's common law right to return home, effectively upholding the government's ban on people who have been in India for the past 14 days.
  • Facebook will make WhatsApp all but useless if you refuse to accept its new data sharing policy. Simple: don't use WhatsApp.