Peak global growth?
By Justin Pyvis – Delivered on 02 Sep 2021

Good morning! Hold onto your coffee because the governments of both Victoria and New South Wales announced a few bombshells yesterday.

First up Victoria, which reported an outbreak-high 120 new cases with just 64 of them linked to known cases. According to Premier Daniel Andrews, "we will not see these case numbers go down... What we must do is suppress case numbers sufficient to buy us time, to buy us time, to get people vaccinated."

Yep – no more COVID-zero. Having adopted a suppression rather than elimination strategy, playgrounds were allowed to reopen along with "some of the in-home child care arrangements that had been disrupted by rule changes". Andrews also revealed his own "freedom day": lockdown will only ease when the state hits a "70% first dose target on or about 23 September", at which point:

  • • the 5km travel radius for shopping and for exercise will be doubled;
  • • outdoor time will be extended from two hours to three hours per day;
  • • outdoor communal gym equipment, skate parks, personal training and "things of that nature" will reopen;
  • • child-minding for school-aged children will be permitted;
  • • construction sites will be able to increase to 50% of their capacity; and
  • • private real estate inspections of unoccupied premises will be permitted.

Moving to NSW, Premier Gladys Berejiklian went even further, revealing that "at 70%, if you are double vaccinated, expect to do everything that you miss doing. Whether it's having a meal at your favourite cafe or restaurant, whether it's attending a public event, whether it's having a drink."

Berejiklian also committed NSW to opening international borders to citizens once an 80% vaccination rate is reached:

"If they're double dose vaccinated I think home quarantine is a definite. The traditional hotel quarantine system is no longer relevant when you have 80% of your population double vaccinated. If other states aren't ready to welcome home Aussies at 80% double-dose, NSW will be. And if it means more citizens come through Sydney Airport, so be it, the more flights the better."

So there you have it. A gradual reopening in Australia's two most populous states, living with COVID, while the rest of Australia sits back and observes what happens.

Markets

Daily % change

 

AUD/USD

73.7

+0.7%

 

 

10Y Bond

1.21

+0.8%

 

 

ASX200

7,527

-0.1%

 

 

Brent (bbl)

73.0

+0.1%

 

 

Gold (oz)

1,817

-0.1%

 

 

Iron ore (t)

140.6

-6.0%

 

 

Bitcoin

48,295

+2.2%

 

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

US stocks were mixed overnight as the S&P500 gained 0.03%, the tech-heavy Nasdaq added 0.33% to finish at a new record high and the Dow Jones Industrial Average slipped -0.14%%. The Dow is more exposed to the economic reopening than tech, so was likely dragged down due to ADP private payrolls data showing 374,000 new jobs in August, well below the consensus estimate of 500,000.

Locally, the ASX200 (-0.10%) finished flat yesterday, staging somewhat of a recovery following the release of better than expected GDP figures after being down nearly 1% in early trading.

Economy

China's slowing: The private sector Caixin/Markit manufacturing purchasing managers' index showed a contraction in activity for the first time since April 2020, falling to 49.2 in August from 50.3 the previous month. According to Wang Zhe, a senior economist at Caixin, "Both supply and demand in the manufacturing sector shrank as the COVID-19 outbreaks disrupted production."

Meanwhile, Evergrande – China's second largest residential property developer with $US300 billion in total liabilities – warned of default risks and legal action from creditors, raising fears of financial contagion if it were to fail and rip through China's banking system.

Calm before the storm: Australia's June quarter GDP growth surprised to the upside, coming in at 0.7%. That means Australia will narrowly avoid a technical recession (contracting for two consecutive quarters), but these data are old – good luck convincing those in locked-down New South Wales and Victoria that they're not yet in a recession. The September quarter will be heavily negative, so whether or not Australia avoids a double-dip recession will come down to how 'free' we are between October and December.

Nothing to see, move along: According to CoreLogic, Australia's median property price increased 1.5% in August, with only Darwin (-0.1%) not posting a rise of at least 1.2%. Red-hot Western Australia wasn't even included in these data, due to "a divergence from other housing market measures in WA".

CoreLogic research director Tim Lawless remarked that "housing prices have risen almost 11 times faster than wages growth over the past year". Good thing the RBA is keeping monetary policy ultra-easy... 😬

Safe as houses: UK house prices jumped 2.1% in August from the prior month (11.0% from a year ago), "despite the phasing-out of a tax break". Economists had expected a slowdown to 8.6%

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Feature
Peak global growth?

US consumer confidence tanked in August. The heart of China's economy, its manufacturing sector, is shrinking and its government is actively beating down the most vibrant (read: profitable) parts of the private sector. Canada's economy contracted in June in defiance of forecasts for solid growth. Europe is, well, Europe.

Could global growth have peaked? So suggests IFM Investors chief economist Alex Joiner:

"The narrative of peak growth is upon us. The expectation that growth will peak in the third quarter is gathering steam, and we're starting to see that in the data, in both emerging markets and developed markets."

Why this matters: Monetary and fiscal policy around the world remains ultra-easy, despite solid economic growth through 2020-21 and soaring asset prices. If global growth peaks before authorities have had a chance to reverse their supposedly counter-cyclical support measures, it means they'll face pressure to keep stimulating for longer.

Markets tend to enjoy that "goldilocks situation because it doesn't hurry the central banks to introduce stimulus but it's also not weak enough to weigh on earnings yet".

Looking forward: Throughout history the "goldilocks situation" has never persisted for long. The economic porridge could easily become too hot, for instance if inflation proves to be more lasting than central banks expect. Or it might get too cold, say if growth were to slow to a point where the debt taken on during the crisis becomes difficult for governments, households and firms to service.

The Wrap Up
  • 🌀 After Hurricane Katrina, "the 911 system had undergone a major overhaul". But when Hurrican Ida hit, "the 911 call center crashed... for 13 hours. The Orleans Parish Communication District, which runs the dispatch center, was forced to take to Facebook".
  • ✊ Xi Jinping cleaning up shop ahead of next year's leadership reshuffle: Nearly 180,000 Chinese Communist Party cadres have been "reprimanded or punished for violating party discipline and the law".
  • ❌ Former Collingwood President Eddie McGuire was denied entry into WA for the AFL grand final, having been deemed "not essential to the game".
  • 🏉 Collingwood officially appointed three-time Brisbane Lions premiership player Craig McRae as its new head coach.
  • 😷 A new study published in the European Respiratory Journal did not find evidence for "asthma, COPD and other respiratory diseases as an impediment to wear a face mask".
  • 🛂 Queensland Premier Annastacia Palaszczuk caved to public pressure and removed the travel ban on residents from interstate COVID-19 hotspots, having been blasted in Parliament on Tuesday for "waving through" an exemption for 100 rugby league WAGS.
  • 👩‍💻 South Korea's government passed a bill preventing Google and Apple from restricting app developers to their built-in payment systems, through which they charge a 30% commission.
  • 🩸 The criminal fraud trial of former Theranos CEO, Elizabeth Holmes, got underway last night and is expected to last 13 weeks.
  • 🤦‍♀️ A US woman was arrested in Hawaii after being caught using a fake vaccination card to fly to the islands. "Moderna" was misspelled as "Maderna".
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