That fella down under
By Justin Pyvis – Delivered on 17 Sep 2021

Good morning! Unsurprisingly there was a bit less news on the pandemic reopening front yesterday given the torrent of announcements made on Wednesday. It was really all about nuclear subs and Australia's link-up with the US and UK to form "AUKUS", which we've covered in more detail in today's Feature. 👇

There was, however, quite a bit of action in Victoria, which hit its 70% first vaccination dose target. Premier Daniel Andrews announced an easing of restrictions for those in regional Victoria (excluding Ballarat) from midnight tonight, allowing for the reopening of gyms, pools, saunas and steam rooms (with density limits).

Those in Melbourne will also get some minor relief, able to travel 10km from their home (up from 5km), have outdoor picnics with one other person or gather with five adults from two households if all are fully vaccinated.

The Victorian government also made it mandatory for construction workers to get vaccinated, with evidence of a first dose required by 11:59pm on 23 September. As far as we're aware 'no jab, no job' policies have only been used for front-line workers, such as health and police, so this represents a potentially controversial change in policy.

Elsewhere, NSW Premier Gladys Berejiklian skipped another presser, leaving it up to Health Minister Brad Hazzard to break the news that Albury and Lismore would be re-entering lockdown at 6pm last night due to "positive cases in both areas".

With all that out of the way, we leave you with this GIF of Minister for Defence Peter Dutton – recently in South Korea talking military ties – somehow not knowing how to do an elbow bump nearly two years into a global pandemic:

Markets

Daily % change

 

AUD/USD

72.9

-0.7%

 

 

10Y Bond

1.30

+4.8%

 

 

ASX200

7,460

+0.6%

 

 

Brent (bbl)

75.7

+0.3%

 

 

Gold (oz)

1,754

-2.3%

 

 

Iron ore (t)

107.3

-6.1%

 

 

Bitcoin

47,341

-1.4%

 

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

The US S&P500 fell 0.16% overnight, recovering from being down nearly 1% in early trade as retail sales jumped a stronger-than-expected 0.7% in August, "likely boosted by back-to-school shopping and child tax credit payments from the government". Initial jobless claims rose slightly, snapping a two-week streak of declines, but Hurricane Ida likely played a temporary role in keeping people out of work.

Locally, the ASX200 added 0.58% with strong gains in the energy sector (+1.32%) following a rise in oil prices on Wednesday night. The iron ore price (-6.1%) continued to sink as fresh data showed declining steel production and Evergrande's woes worsen (see below), fuelling doubts about the resilience of its hugely important property sector.

Economy

Short-lived: Kiwi GDP soared 2.8% in the June quarter, well above expectations for a 1.3% rise. The growth was flattering as it was largely due to strong goods exports, with services exports understandably in the doldrums (-43%) and consumption and investment activity both slipping from the previous quarter. It will also be completely wiped out in the current quarter due to the ongoing lockdowns.

Misleading statistics: Australia's unemployment rate fell to 4.5% in August (from 4.6% in July), the lowest rate since November 2008 despite over half the country's population being in lockdown. The reason was because people stopped trying – Australia's participation rate plummeted 0.8 percentage points to 65.2%, more than offsetting the 1.1% fall in employment and 3.7% decline in hours worked.

Wither Victoria: It turns out people don't like being locked down for extended periods. The ABS released Australia's population figures for the March quarter, with "population growth slowing to a near stand-still in the year to March 2021". Every state and territory managed to eke out a little bit of growth except for Victoria, which lost 0.6% of its population (42,900 people).

Contagion risks rise: China's embattled property developer, Evergrande ($US300 billion in debt with declining sales), suspended trading of its onshore corporate bonds until further notice.

Feature
That fella down under

Yesterday morning US President Joe Biden, UK Prime Minister Boris Johnson and our very own ScoMo – together known as "AUKUS" – released a joint statement announcing that their respective countries would share technology covering cyber security, artificial intelligence, underwater systems and long-range strike capabilities.

There were two important takeaways. One, Joe Biden forgot ScoMo's name, calling him "that fella down under". Two, Australia will ditch its $A90 billion order for a dozen diesel submarines from France, to be replaced with eight nuclear-powered subs from either the UK or US.

Stepping back: The subs on order from France have been plagued with issues from the get-go. For whatever reason, then-PM Malcolm Turnbull decided not to purchase 'off the rack', instead opting for a customised, scaled-down diesel version of France's nuclear-powered Barracuda sub, which the French military procures for about $A2.3 billion a pop.

Originally slated to cost $A40 billion (so ~50% more than an off-the-rack Barracuda), the Commonwealth recently estimated the true cost at closer to $A90 billion.

Asked yesterday about how much the yet-to-be started French subs had cost so far, ScoMo said taxpayers had already paid a whopping $A2.4 billion. Compensation will also have to be paid to the French for breaking the deal.

Why this matters: One word – China. Tensions in the Indo-Pacific have been heating up of late, whether it be trade disputes, North Korean rockets or the several artificial islands China has created with runways long enough to handle Chinese military aircraft. Modern nuclear subs can theoretically remain underwater for up to 25 years, making them well-suited for long-range military exercises in the Indo-Pacific.

Looking forward: Australia will get access to UK and US technology to build a new fleet of nuclear-powered submarines in Australia, making it only the seventh country in the world to possess the efficient, long-range subs.

They should be considerably cheaper than the French subs, given that the designs will be purchased off-the-rack but assembled in Adelaide, in much the same way that breweries make their beer in Australia "under supervision of" or "under license from" the intellectual property owner.

But don't expect to see them anytime soon. ScoMo confirmed that it will be at least 12-18 months before Australia even decides which subs it wants (likely the US Virginia class). Then, of course, they have to be produced.

The Wrap Up
  • 🔨 China's three biggest publicly traded medical aesthetics companies have lost a third of their value ($US17 billion) purely from the fear of being the next target of Xi Jinping's "common prosperity" drive.
  • 🚀 SpaceX successfully launched four civilians into space, the first ever space flight without a professional astronaut on board.
  • 🥝 New Zealand's Prime Minister Jacinda Ardern confirmed that Australia's nuclear submarines will be banned from New Zealand waters.
  • 💉 Moderna's President Stephen Hoge said its vaccine is "great" for the first six months, "but you can't count on that being stable out to a year and beyond". A third dose will "significantly" extend immunity "throughout much of next year".
  • 🪓 Former Attorney General and current Industry Minister Christian Porter's position on the front bench is at risk after he accepted anonymous donations to cover his legal fees.
  • ⛓️ A 64-year-old fugitive turned himself in after almost 30 years on the run, because Sydney's COVID-19 lockdown made it impossible for him to find work.
  • 🐱‍💻 The Scottish government gave prisoners "unhackable" phones (at a cost of $A5.7 million), which were promptly hacked and used to buy drugs.
  • 🏆 Tickets to next week's AFL Grand Final in Perth sold out in under 10 minutes, with the queue five times bigger than the one for last year's final, held at The Gabba in Brisbane.
  • 👷‍♂️ Companies around the world are finding it difficult to hire people, leading to "9% of employers worldwide... eliminating job screenings or drug tests in order to attract and retain talent".
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