The Big Biden Stimulus
Good morning and welcome to the first ever Brekky Wrap! We hope it will be just as satisfying as the real thing, minus the calories of course.
The major news over the weekend was the election result in Western Australia, another COVID-19 outbreak in Brisbane and Sydney (no lockdowns required though, phew 😌) and of course, the Big Biden Stimulus.
Market Wrap: Equities reach another record high
Daily % change
Note: Brent oil, gold bullion and iron ore prices are the front month future contracts.
The Dow Jones and S&P500 both set new record highs on Friday following US Congressional approval of the Big Biden Stimulus, with the President finally signing the $US1.9 trillion package into law. Bitcoin briefly broke $US60,000 for the first time. The only laggard is the ASX200, which is still a fair way off the record high of 7199.8, set before the coronavirus hit our shores in February 2020.
The Big Biden Stimulus: According to the Centre for Economic Policy Research, total US government COVID-19 related spending is now at 27.1% of GDP, making the US the third highest spender globally. That compares to spending of about 4.9% of GDP in response to the 2008 global financial crisis.
Explainer: Markets love stimulus of any kind, as in the short term it results in more dollars chasing the same number of goods and services. When demand increases but supply stays relatively stable, prices have to rise. The US economy is the world's largest, with activity in the 'States having a flow-on effect to the rest of the world, including Australia, hence the local market positivity.
The Wrap: The Big Biden Stimulus will send another large fiscal impulse through the US economy, helping to support asset prices in the short term. However, it is not without risks: some prominent economists worry it may overheat the economy and trigger inflationary pressures, given that unemployment is already falling and monetary conditions remain very loose.
Poli Wrap: It's a Markslide
Mark McGowan, the incumbent Premier of Western Australia, led his Labor party to a record victory in the local election held on Saturday. Labor is expected to pick up 52 (+11) of the state's 59 seats, with the Nationals holding 4 (-1) and the Liberals just 3 (-10).
Records smashed: This is likely the worst election result for a major party in any Australian state, at any time. Embarrassingly for the Liberal party, the outcome was called just 34 minutes after polls closed. Its 34-year old leader, Zac Kirkup, became the first party leader to lose his seat in 88 years. Even so-called 'blue ribbon' seats such as Nedlands, South Perth and possibly Churchlands flipped to Labor for the first time ever. It's also the first time in WA's history that Labor will have a majority in the upper house, meaning it will control both Houses of Parliament in its own right.
In terms of the opposition, the country-based Nationals may replace the Liberals until the next election, although there is still some uncertainty as to how that will play out (5 seats are required to form an opposition).
The Wrap: This was effectively a single-issue election: COVID-19. Mark McGowan's hard borders and resistance to the 'East coast Liberals' who threatened the coronavirus-free life was enough to fuel him to a comfortable victory. The federal Liberal party's decision to side with the billionaire who tried to undermine that, Clive Palmer, served to further solidify McGowan's support.
That's not to say the WA Liberal Party was blameless. It flip-flopped on the border. Its Shadow Treasurer, Sean L'Estrange, could not recall many of his key policy costings two days before the election. Ultimately it had no ideas, refusing for the past 4 years to clear out the dead wood left over from the Barnett government.
Elsewhere: Former Australian Treasurer Matthias Cormann has won his bid to become the next Secretary-General of the Organisation for Economic Cooperation and Development (OECD). Will he now reimburse the taxpayer for the $4,000 per hour RAAF Dassault 7X he commandeered while jet-setting across the world during the campaign? 🤔🤣
Econ Wrap: China's conservative growth target
China's 'Two Sessions' – where policymakers set the agenda for the year – concluded on Friday, with the country's growth target for 2021 set at "more than 6%". There were no major announcements, although slowing the growth in debt was emphasised, with the People's Bank of China governor Yi Gang saying China's total debt hit about 280% of GDP at the end of 2020, up 20 percentage points from 2019.
Explainer: China stimulated hard in 2020 in an effort to keep its economy in positive territory following the outbreak of COVID-19. Given full-year growth of just 2.3% in 2020, its "more than 6%" target is considered conservative, with the lower base effect (at least a full quarter of 2020 was heavily impacted by pandemic shutdowns) making higher year-on-year growth more achievable.
The Wrap: This is a game that will be very familiar to China's Premier Li Keqiang and President Xi Jinping. They inherited the mess that followed the enormous post-financial crisis stimulus in 2008, and ended up tightening the fiscal and monetary spigots too hard, too quickly. The goal, again, is to 'rebalance' the Chinese economy away from the steel-intensive secondary sector, but they'll be taking baby steps this time around. Setting a conservative growth target gives them some room to manoeuvrer.
What that means for Australia's public finances remains to be seen. Iron ore – a key ingredient in steel making – contributes billions of dollars in annual revenue via company tax and royalties for the Commonwealth and Western Australian state governments, respectively.
Tech Wrap: NFThe What?
Beeple – the alias of artist Mike Winkelmann – auctioned a piece of art last week that eventually sold for $69 million. Sums of that magnitude are not unusual in the art world, although this certainly was. You see, no art was actually sold: what was exchanged was a non-fungible token – or NFT – on the Ethereum blockchain.
Explainer: Remember CryptoKitties? This is basically the same concept, with people buying and selling "a digital certificate of the tweet, unique because it has been signed and verified by the creator". CryptoKitties are back, by the way: a flying Pop-Tart meme cat token recently sold for $US600,000.
The Wrap: Beeple retains the original piece of art and the copyright to it. The buyer, an anonymous crypto investor who goes by the pseudonym MetaKovan, now owns a digitally autographed version of it. Maybe one day someone will pay us several million dollars for the NFT of this post...
Corona Wrap: Two separate community outbreaks
A doctor in Brisbane and a quarantine worker in Sydney tested positive for COVID-19 over the weekend.
Brisbane: The doctor had not been vaccinated but no breach has been discovered. Hospitals, prisons, aged care and disability services in the Greater Brisbane area were sent into a 72-hour lockdown on Saturday. All close contacts have, so far, tested negative. A lockdown in Brisbane is also a low risk at this stage, as it was reported that the infected doctor only spent a small amount of time in the community and got tested quickly.
Sydney: The hotel quarantine worker that tested positive for COVID-19 on Saturday night had recently been vaccinated. However, vaccines take weeks to become fully efficacious. Contact tracing and genome sequencing are underway. It's unlikely that Sydney will go into a lockdown, given the government's confidence in its contact tracing regime and the known source of this infection.
The Wrap: The most immediate risk is that state borders go up again. Unfortunately, COVID-19 outbreaks and restrictions are going to be a part of our lives at least until early 2022, as Australian governments will err on the side of caution as the world emerges from the pandemic. While Canberra may be 'pretty confident' that we'll all have at least our first dose of the vaccine by the end of October, as with all government programmes, it will likely run over time and over budget.
Elsewhere: Singapore is shaping up as one of the first Australian 'travel bubble' destinations. "Under the proposals, Australians would be allowed to travel to Singapore without approval from the home affairs department provided they have been vaccinated for coronavirus."
Random Wrap: Twins!
"The study found that the rise of assisted reproductive technology in developed countries since the 1970s contributed to the rise in multiple births, as did mothers giving birth at an older age, when twinning rates are higher.
Increased use of contraception, women choosing to start families later in life, and lower overall fertility were also contributing factors."
The increase is entirely due to a higher incidence of fraternal twins (two separate fertilised eggs), with the number of identical twins remaining flat.