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Recovery to expansion

Good morning! The Australian Technical Advisory Group on Immunisations (ATAGI) yesterday changed its advice on the AstraZeneca vaccine, recommending that it should now only be administered to people aged 60 and above. Its previous advice, issued in April, was that it should be given to people aged over 50.

It's not clear what the change means for the vaccine rollout, except that in the short term it will probably slow the vaccination rate given AstraZeneca is plentiful but Pfizer is scarce. There are already rumours that WA – where the government recently made the Pfizer vaccine available to anyone aged between 30 and 49 – is considering "removing 30-39 year-olds from the cohort eligible for the Pfizer jab in favour of those in their 50s".

Markets

Daily % change

AUD/USD

75.5

-0.8%

10Y Bond

1.56

-1.9%

ASX200

7,359

-0.4%

Brent (bbl)

73.1

-1.2%

Gold (oz)

1,773

-2.1%

Iron ore (t)

209.1

0.9%

Bitcoin

37,792

-2.4%

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

The US S&P500 fell 0.044% after initial jobless claims increased to the highest level since 15 May. Separately, the Philadelphia Fed's manufacturing survey revealed some potential inflation threats, with the prices paid subcomponent rising to 80.7 – the highest since June 1979 – and the prices received subcomponent reaching 49.7, its highest since October 1980.

Back on track: Australia's unemployment rate fell for the seventh consecutive month, dropping to 5.1% in May from 5.5% in April. In terms of employment, there are now 130,000, or 1%, more people in jobs than there were prior to the pandemic (February 2020). Yet the foot remains firmly planted on the stimulus pedal...

The kiwis pipped us: The kiwi economy grew 1.6% in the first three months of the year, avoiding a technical recession and passing Australia for real GDP growth since the December quarter 2019, i.e. prior to the pandemic (0.818% versus 0.815%). The biggest driver was services (+1.6%), with the national economy completely open for all but 10 days during the quarter.


Analysis

Recovery to expansion

Higher house prices and rents, if sustained, could lead to "a stronger economic path than the one we have envisaged".
Higher house prices and rents, if sustained, could lead to "a stronger economic path than the one we have envisaged". RBA

In his first public appearance since March, Reserve Bank of Australia (RBA) governor Philip Lowe gave a speech in Toowoomba yesterday, talking "about how the economy is now transitioning from recovery mode to expansion mode". In the speech, Lowe reiterated his view that any inflation will be transitory:

"Year-ended CPI inflation will temporarily spike in the June quarter to around 3½ per cent due to the unwinding of some pandemic-related price reductions. There have also been price increases for some items due to pandemic-related interruptions to supply. But beyond this, inflation pressures remain subdued and are likely to remain so."

Why this matters: Central banks have a large influence on the markets and the economy. There's a lot of uncertainty as to when the RBA might start tightening monetary policy, with Lowe repeatedly stating that it's "unlikely to be until 2024 at the earliest".

Don't count on it: The RBA is engaging in so-called "open mouth operations", attempting to convince people that rates will remain low for a long period of time to encourage them to spend, undertake investment, and so on. But its statements are not binding – the RBA has a legislated mandate to control inflation, so if it starts to accelerate the bank will have no choice but to change its stance.

The precedent: The Bank of Canada and Reserve Bank of New Zealand both recently retreated from similar statements, namely that their respective cash rate increases will "not happen until into 2023", bringing them forward to "the second half of 2022". Economic data in Australia suggest that we are now well into expansionary territory (see the labour force data above), with the risks swinging to rate increases well before 2024.


The Wrap Up

  • From Iceland: "We find that vaccinating in order of ascending age or uniformly at random would have prevented more infections per vaccination than vaccinating in order of descending age." Vaccinate the vulnerable, then the socially active!
  • Another cloud-related outage: Several Australian banks including Westpac, St George, ANZ and the Commonwealth Bank were taken offline yesterday after content delivery network (CDN) provider Akamai ran into trouble with its distributed denial-of-service (DDoS) mitigation platform, Prolexic.
  • Awkward. 😬 Ahead of his summit with Russian President Vladimir Putin, US President Joe Biden stood up and, with a straight face, said: "How would it be if the United States were viewed by the rest of the world as interfering with the elections directly of other countries and everybody knew it? What would it be like if we engaged in activities that he engaged in? It diminishes the standing of a country."
  • Late state trials for Germany's CureVac coronavirus vaccine showed it was only 47% effective, well below existing vaccines from AstraZeneca, Pfizer and Moderna. The European Union was the company's only customer, which in November secured 405 million doses of the vaccine (180 million are optional).
  • Extreme incentives: "Pakistan's most populous province, Punjab, has decided to combat residents' COVID-19 vaccination hesitancy by threatening to block cell phone service to anyone who refuses inoculation."
  • The UK is considering allowing fully vaccinated Britons to travel to countries on the government's 'amber list' without quarantining when they return home.
  • Independent media in Hong Kong is dead: "Five editors and executives at pro-democracy Apple Daily newspaper were arrested Thursday under Hong Kong's [new] national security law".
  • Public schools in NSW can set their own start and finish times with decisions made by principals in consultation with school communities, as the government looks to overhaul the traditional 9am to 3pm school day.

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