Removing the cone of uncertainty

Delivered on By Justin Pyvis

Good morning! For once it was a relatively quiet day on the pandemic front – we can only speculate that Australia’s state Premiers were all watching day one of the Ashes instead of talking to the media. And why not, given it started with a wicket from the very first ball before a clinical bowling display rolled England for just 147.

It should be a cracking series – provided the very wet La Niña weather pattern cooperates – although there’s still no word on where it will wrap up after the hermit state was stripped of the rights to the 5th test, with the favourites looking like one of Sydney/Melbourne for the money or Hobart for the spectacle.

Speaking of the hermit state, we should only be days away from WA’s government offering up a firm reopening date given it’s now barely a percentage point or so away* from being 80% fully vaxxed (people aged 12+).

When that eventually happens it will be with around 2,000 fewer front-line public servants, after they refused to be vaccinated by 1 December in-line with the state’s mandate. Another ~850 took long term leave, with the government “unable to determine their vaccination status”.

* The WA government uses slightly different population cohort estimates than the Commonwealth, meaning WA’s official 12+ figure (78.6%) actually aligns more closely (almost exactly) to the Commonwealth’s 16+ figure we report in the bubbles below.


Fully vaccinated (aged 16+)

ACT
NSW
VIC
TAS
SA
NT
QLD
WA

Reading the tea leaves

Daily % change

AUD/USD

71.8

+1.8%

AUD/CNY

4.54

+0.9%

AU Bond

1.67

+3.2%

US Bond

1.51

+2.0%

ASX200

7,405

+1.2%

S&P500

4,700

+0.3%

Brent (bbl)

76.0

+0.8%

Gold (oz)

1,787

+0.2%

Iron ore (t)

111.9

-0.3%

Bitcoin

50,596

-0.2%

Ethereum

4,406

+2.1%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries. The S&P500 is a snapshot 30 minutes before close.

At the time of writing the US S&P500 was up around 0.3% as travel and other ‘reopening’ stocks did well after Pfizer announced the results of preliminary laboratory studies showing that three doses of its vaccine “neutralize the Omicron variant… comparable to titers observed after two doses against the wild-type virus”, while the standard double-dose “show significantly reduced neutralization titers… [although] may still induce protection against severe disease”.

In other news the US labour market disequilibrium doesn’t appear to be going away after the JOLTs Job Openings report showed a record 11 million openings in October after another 4.2 million Americans quit, the third highest figure ever. Watch out for inflation – wages and prices, especially in sectors such as hospitality, will need to adjust upward.

Locally the ASX200 added another 1.25%, its fourth straight advancement, with all 11 sectors finishing in the black thanks to improved sentiment around Omicron, a slight shift towards policy easing in China and solid gains to key commodity prices such as iron ore (materials finished up 2.14%).


Food for thought

Australian fintech has been restricted by regulatory uncertainty.
Australian fintech has been restricted by regulatory uncertainty. Source

Australia’s Treasurer Josh Frydenberg yesterday unveiled the government’s response to recent recommendations in two separate financial reform reviews, announcing the first changes to Australia’s financial regulatory framework for 20 years.

Things that didn’t exist 20 years ago include smartphones, payWave/PayPass, buy now, pay never and of course, blockchain. Needless to say, Australia’s fintech rules were due for an upgrade.

In classic Morrison/Frydenberg prose, Josh started with the fear-invoking nationalistic line “If we do not reform the current framework, it will be Silicon Valley that determines the future of our payment system.”

Point taken, although that’s exactly what happened over the past two decades where financial innovation was “driven by companies outside of finance, and especially by US information technology firms”.

It hasn’t been all that bad, has it? What’s actually important for the country is that Australian innovators have clear rules within which to work, removing the cone of uncertainty so that the best and brightest aren’t forced to move to Silicon Valley but can either stay in, or move to, a more hospitable Australia.

Nothing will happen until next year after the election but there’s plenty on the table and importantly it has the support of the bureaucracy, with Treasury agreeing to the vast majority of the recommendations in the two most recent reviews of Australia’s payments system and report on fintech.

Reforms on the table include creating licenses for crypto exchanges, passing laws to recognise DAOs (decentralised autonomous organisations), taking action on the de-banking of blockchain-based businesses and reviewing tax settings.

Exciting stuff. Let’s just hope it gets the balance right and doesn’t simply replace the cone of uncertainty with the surety of being a nation governed by luddites.


Bits and bytes

🛢️ Germany’s government said it would “take action” against Russia if it invaded Ukraine, such as potentially halting the Nord Stream 2 pipeline, hours after the US government said “things we did not do in 2014 we are prepared to do now”.

🏅 Australia’s government followed the US and imposed its own diplomatic boycott on the Beijing Winter Olympic Games, citing “the human rights abuses in Xinjiang and many other issues that Australia has consistently raised”. The UK and Canada also joined the boycott.

🎷 Labour pressures: Cherry Bar, a live music venue in Melbourne, was forced to close its doors “because we don’t have any staff… Staffing is a real issue in hospitality at the moment… this has never happened ever before”.

🧒 Elon Musk warned “I can’t emphasise this enough, there are not enough people… If people don’t have more children, civilization is going to crumble. Mark my words.”

👶 Speaking of kids, Australia’s fertility rate fell 3.7% in 2020 to just 1.58 births per woman, a record low and well below replacement levels of around 2.1. The lowest rate was in locked-down Victoria, where just 1.43 babies per woman were recorded.

🦠 UK Prime Minister Boris Johnson triggered his winter “Plan B”, which involves the use of vaccine passports and a working from home guidance.

🍎 Apple CEO Tim Cook signed a “secret” deal with China’s government back in 2016 in which he pledged to spend $US275 billion in the country that would “help to develop China’s economy and technological capabilities”.

📈 Westpac hiked its fixed mortgage rates for the fourth time in two months, reflecting “an expected rise in the cost of funds on the bond market”.

💉 Australia’s drug regulator, the TGA, approved the Moderna vaccine for use as a booster shot in those aged over 18, joining Pfizer’s jab as an option for those who had their second jab at least six months ago.

🛑 Norway’s government reimposed restrictions ahead of Christmas, including social distancing, facemasks, limits on gatherings, a midnight curfew for venues with a liquor licence and no vertical drinking.

🎾 Novak Djokovic was included in the draw for the Australian Open despite refusing to disclose his vaccination status or produce an exemption, a requirement to play in the tournament.