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Shrouded by a dark cloud

Good morning! Vietnam detected another new coronavirus variant that combines all the nastiness of the UK strain with the Indian strain and apparently "spreads quickly by air". Vietnam – which, like Australia, managed to keep the virus out for over a year – has linked the new variant to a recent surge in cases in 30 of the country's 63 municipalities and provinces.

Great. Australia recognised that hotel quarantine was an issue for airborne transmission back in October 2020 and thankfully spent the better part of the past several months developing purpose-built facilities but then did nothing about it. If this variant becomes dominant then even our 99.99% hotel quarantine success rate (i.e. a failure every ~2 weeks) is in jeopardy.

Markets

Daily % change

AUD/USD

77.1

-0.4%

10Y Bond

1.64

3.6%

ASX200

7,180

1.2%

Brent (bbl)

69.6

0.3%

Gold (oz)

1,905

0.4%

Iron ore (t)

182.1

-0.3%

Bitcoin

36,163

-5.9%

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

The US S&P500 edged up 0.08% on Friday to close higher for the fourth consecutive month ahead of today's Memorial Day public holiday.

Inflation watch: The US personal consumption expenditures index – a key inflation indicator tracked by the Fed – rose above expectations to 3.1% in April (3.6% including food and energy), but inflation fears were likely offset by a large decline in personal income (-13.1%) as stimulus payments faded.

The Biden Budget: Released on Friday, the first comprehensive budget offered by US President Joe Biden asked Congress for $US6.01 trillion in spending (+36.6% on 2019, pre-coronavirus) on estimated revenues of $US4.17 trillion. Deficits are forecast to continue out until 2030, when tax increases are due to "chip away at deficits" (assuming they're not delayed).

Against consensus: According to Politico's sources, Larry Summers' concerns about Biden's American Rescue Plan (that it's too large) and that the Fed is too doveish "is what everyone is saying over coffee... [and is] within a consensus view in the economics profession".


Analysis

Shrouded by a dark cloud

A modified WW2 advert used by Japan's newspapers earlier this month.
A modified WW2 advert used by Japan's newspapers earlier this month. "No vaccines. No medications. Are we supposed to fight with bamboo spears? If this goes on, we will be killed by politics." Asahi

Will the Tokyo Olympics go ahead as planned in 53 days? If so, what form will it take? We read two articles over the weekend breaking down the current situation.

The Games will go on: According to David Mark in the ABC, "on the balance of probabilities, it seems highly likely" that the games will go ahead. The key reason is that the International Olympic Committee "has Japan over a barrel given the government could be up for billions of dollars if it breaches its contract to stage the Games".

Fair play: Mark is right if politics wasn't involved, but in the past month public opinion has seriously turned against the Olympics. Ultimately, politicians care about being re-elected above all else, even if it costs a heavily indebted nation a few additional billion in cancellation fees.

Repeated inaction: According to Yoshihiro Sakai in the SCMP, 60-80% of Japan's population wants the Olympics cancelled and nearly 20 local newspapers have run critical editorials against the Games in recent weeks.

He notes that the Japanese government messed up repeatedly through the pandemic, from delaying its first state of emergency to launching and persisting with its "Go-To Travel" campaign – subsidised domestic travel – for several months, which helped to seed the virus across the country.

The Games are cursed: Less than 3% of the eligible population are fully vaccinated. Japan is currently in its third state of emergency (its version of a lockdown), with a combined cost of 14.6 trillion yen (~$A170 billion). The Olympics has already cost Japan $US15.4 billion and cancelling it would cost another $US4.6 billion. But if public opinion remains heavily against hosting the Olympics, that might prove to be the cheaper political option for Prime Minister Yoshihide Suga, whose approval rating fell to a record low 31% last week (down 9 percentage points from mid-April). Sakai concludes:

"Unfortunately, there have been problems with the handling of many issues related to the Olympics from the very start. Some people say the Tokyo Olympics is cursed. It seems like Japan's Olympic dream is shrouded by a dark cloud."

The Wrap Up

  • South Australia will use existing buildings at its Parafield Airport in Adelaide's north to quarantine international students for two weeks, on top of the state's existing arrival cap. The plan still needs to be endorsed by the federal government.
  • British intelligence agencies have added support to the Wuhan lab leak theory, with a recent reassessment deeming the theory "feasible".
  • If you use an Amazon device (e.g. Alexa, Echo) it will soon start sharing your bandwidth with neighbours, unless you opt-out.
  • A new genetic study published in JAMA Psychiatry found that going to bed and waking up earlier (i.e. an unchanged total sleep time) can reduce the risk of depression by 23-40%.
  • WhatsApp will (for now) no longer limit functionality for people who refuse to accept its controversial new privacy policy (where all your data are shared with Facebook).
  • The UK's biggest builder's merchant, Travis Perkins, warned that from Tuesday the price of bagged cement will rise by 15%, chipboard by 10% and paint by 5%, citing surging demand and supply chain issues for the price rise.

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