Powering down
By Justin Pyvis – Delivered on 01 Oct 2021

Good morning! Queensland recorded six new locally acquired cases yesterday, two of which are yet to be linked. As a result, the government reintroduced restrictions from 4pm yesterday in Brisbane, Gold Coast, Morteon Bay, Logan, Townsville and Palm Island. That means stadium capacity is capped at 75%, a huge blow to the NRL which is planning to play its grand final somewhere in the state on Sunday.

Responding to a media question about whether the event will even take place, Premier Annastacia Palaszczuk said "It will depend each day how things progress in this state... It will be very critical the next 24 to 48 hours about whether or not we see any seeding into the community." 🀞

Moving south, cases in Victoria surged to 1,438 with a third of them directly linked to illegal AFL "Grand final parties. Other social gatherings, barbecues, backyard visits".

According to Victoria's COVID-19 commander Jeroen Weimar, 60% of those cases were in new households and "the map is [now] far more diverse than before. We have a far greater scattering into new suburbs, new communities, new households, that haven’t been touched by coronavirus before in this or any of our recent outbreaks".

So the grand final long weekend was an almighty COVID-19 seeding event. 🀦 Good luck, Victoria.

Please note that due to Labour Day in the ACT, NSW and SA we won't be back until Tuesday. Have a great weekend!

Fully vaccinated population (aged over 16)

NSW
ACT
TAS
NT
VIC
SA
QLD
WA
Markets

Daily % change

AUD/USD

72.3

+0.7%

10Y Bond

1.48

0.0%

ASX200

7,332

+1.9%

Brent (bbl)

78.7

+0.1%

Gold (oz)

1,758

+1.9%

Iron ore (t)

117.3

+1.4%

Bitcoin

43,250

+5.4%

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

The US S&P500 shed 1.19% overnight, with the index posting its first monthly loss since January. Investors are likely worried about not-to-transitory inflation (see below) putting pressure on the Fed to taper sooner than expected and a stuttering US labour market recovery – initial jobless claims rose for a third straight week to 362,000.

Locally the ASX200 had its best day of 2021, adding 1.88% with solid gains across every sector. Banking and mining stocks were the standouts, with BHP (+3.35%) and Rio (+3.40%) both performing well in-line with rising iron ore futures prices during the day (which faded after the ASX closed).

Economy

Supply woes: Industrial output in Japan declined 3.2% in August from the prior month, with the Ministry of Economy, Trade and Industry declaring the recovery "paused" only one month after claiming it was "picking up". Production was also down in Korea (-0.2%), "in the latest sign that economic recovery momentum slowed".

Pressure rising: Australian housing credit for owner-occupiers grew by 0.8% in August to an annual rate of 8.4%, the fastest since October 2016. Even building approvals, which were expected to decline following the wind-up of various government stimulus, rose 6.8% to 18,716. ABS director of construction statistics Daniel Rossi said the increases were "Driven by record low interest rates, increased household savings and confidence in the housing market."

Hanging in there: Australian job vacancies fell by a huge 10% between May and August but were still 46% higher than at the start of the pandemic, with the ABS noting that the fall "coincided with lockdowns in place in New South Wales, Victoria and the Australian Capital Territory, and followed lockdowns in Queensland and South Australia".

Multi-decade highs: Inflation in France (+2.7%, the highest since December 2011), Germany (+4.1%, the highest since 1992) and Spain (+4%, the highest since 2008) all surged in September, "prompting some economists to question whether central bankers are right to assume the surge in prices is only temporary and will disappear next year".

Stimulus fading: According to mortgage lender Nationwide, UK house prices increased just 0.1% from the month prior in September, putting them 10% higher than a year ago. The tax incentive stimulus was scaled back in July and the burst of purchasing power from declining interest rates may have peaked.

Feature
Powering down

China's manufacturing sector is going nowhere, with yesterday's Caixin China General Manufacturing Purchasing Managers' Index (PMI) coming in at a flat 50 (unchanged), while the government's manufacturing PMI – which tracks larger, mostly state-owned enterprises – showed a contraction in activity (49.6).

Breaking it down: According to Caixin, "a power shortage and rising raw material prices dampened factory production" during the month, with the slight recovery from August still the second-lowest in 17 months. The increase was entirely due to stronger demand, as "supply in the manufacturing sector continued to shrink".

China is in the midst of a somewhat self-inflicted power crunch (Australian thermal coal was unofficially banned last October), with thermal coal prices at decade-highs and inventories at historical lows as the country heads into a winter that's expected to be particularly cool. Certain policy decisions, such as banning Bitcoin (a large consumer of electricity) and restricting factory activity in the name of meeting carbon reduction targets suddenly make a lot of sense when viewed through that lens.

Why this matters: These PMIs can be decent leading indicators of how China's manufacturing sector is tracking, which in turn provides some idea of what China's demand for steel might be. Australia, of course, exports a craptonne of iron ore to China – a key steelmaking ingredient – and it used to export a lot of coal prior to the government's boycott.

Looking forward: The energy crisis gripping China and Europe will likely depress output through winter, delaying the supply response to stimulus-driven demand, much of which may be inflationary (i.e. due to monetary policy).

As that effect flows through to consumer goods it may force central bankers into admitting that the relative price variability they've been noticing was not transitory and was in fact a symptom of the continuous and sustained increase in the general price level they've been trying to achieve for so long.

The Wrap Up
πŸ’‰All Australians aged over 12 will be able to get an mRNA vaccine from their GP or pharmacist from 1 October.
πŸ₯KiwiCoin? The Reserve Bank of New Zealand is formally looking into "the potential for a Central Bank Digital Currency (CBDC) to work alongside cash as government-backed money".
🏑In the month after the US eviction moratorium was struck down by the courts, the number of eviction filings has actually dropped or remained flat.
πŸ‰Eight members of the Argentinian rugby squad took a trip to Byron Bay and were denied re-entry into Queensland, ruling them out of the match against the Wallabies tomorrow.
πŸ›‚Australia's overseas vaccine passport will be ready within weeks. It will use the internationally-recognised visible digital seal (VDS) developed by the International Civil Aviation Organisation.
πŸŽ’Clearly the next logical step is just to stop kids going to school? Rigby, Idaho banned backpacks four months after a school shooting.
😢This seems like it will only fuel antivax sentiment. "YouTube is banning prominent anti-vaccine activists and blocking all anti-vaccine content."
πŸ€‘Can you say commodities? Josh Frydenberg reported there had been an $A80 billion improvement to the budget's bottom line, "$A20.1 billion in higher receipts and a $A6.7 billion in lower payments". He still racked up a deficit of $A134.2 billion.
🀝The US Senate reached a deal on a stopgap funding measure to prevent a government shutdown, keeping it open through 3 December.
😁Hacker group Anonymous placed the Taiwanese flag and national anthem on an official Chinese government tourism promotion site.
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