The global financial crisis for commodities
By Justin Pyvis – Delivered on 24 Sep 2021

Good morning! Queensland's government got on the incentive train yesterday, offering up 3,000 NRL double passes for the preliminary finals this weekend as part of a quick vaccination lottery.

Great – except the plan was thwarted at the last minute by good ol' bureaucratic rigidity, after Australia's medicines regulator the TGA said it should be suspended as under TGA guidelines "the giveaway should only be given to people who are fully vaccinated". 🤦‍♂️

While we're talking Queensland, Premier Annastacia Palaszczuk refused to commit to a reopening, saying that "80% will mean different things to different states", and that "the national plan has not been finalised".

How odd. Has anyone told ScoMo? According to the PM's website, "the National Cabinet agreed to adopt in full an updated National Plan, based on the Doherty Institute's findings".

What's the point of a national cabinet if the things it agrees to "adopt in full" aren't actually binding? 🤔

Moving south, there was finally some good news for Victorians after the government agreed to allow those stranded in NSW to return from 30 September, provided they are fully vaccinated, test negative and quarantine at home for 14 days on arrival. The state also notched up a record 766 local cases for the day, officially surpassing the peak of last year's second wave.

Please note that there will be no Brekky Wrap on Monday on account of the Queen's second birthday of the year. 🥳

Fully vaccinated population (aged over 16)


Daily % change




10Y Bond






Brent (bbl)



Gold (oz)



Iron ore (t)






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

The US S&P500 (+1.21%) increased for the second day in a row on optimism out of China following the Evergrande resolution, despite a much worse than expected jobless report, with 351,000 initial claims reported versus the 320,000 Dow Jones estimate.

Locally, the ASX200 (+1.00%) gained ground for the third straight day in what was a broad-based rise, with all 11 sectors improving. A notable gainer was News Corp (+8.42%), which announced a whopping $US1 billion share buyback.

Elsewhere in the region, China Evergrande's Hong Kong-listed shares jumped 17.6% from an extremely low base following the news that it wouldn't technically default on a local bond. Hong Kong's markets were closed on Wednesday when the announcement was made, hence the delayed reaction.


Slow growth, high prices: The eurozone Composite Purchasing Managers' Index (PMI) fell to 56.1 in September, its weakest growth for five months and well below a Reuters poll estimating 58.5 (a reading over 50 indicates expansion). According to IHS Markit, the dip was caused by "an unwelcome combination of sharply slower economic growth and steeply rising prices". The input cost sub-index hit 70.5, the highest for over two decades.

Keep pumping: The Bank of England kept its Bank Rate on hold at 0.1% but again upgraded its inflation forecast, which it now believes will "rise temporarily in the near term, to 4% in 2021 Q4, owing largely to developments in energy and goods prices".

However, there were early signs of dissent – two of the bank's members "preferred to stop the current asset purchase programme as soon as practical after this meeting rather than continuing it until around the end of the year", as "continuing with asset purchases when CPI inflation was above 3% and the output gap was closed might cause medium-term inflation expectations to drift up further".

Winter is coming: Norway's central bank, the Norges Bank, raised its cash rate from 0% to 0.25%, becoming the first major Western central bank to raise interest rates. According to Governor Oystein Olsen, "a normalising economy now suggests that it is appropriate to begin a gradual normalisation of the policy rate... The reopening of society has led to a marked upswing in the Norwegian economy, and activity is now higher than its pre-pandemic level".

Powering away: Sun Cable, the ambitious $A30 billion plan to export power from the world's biggest solar farm in the Northern Territory to Singapore via Indonesia, has secured "support from Indonesia for early work on preparing to lay the cable".

The global financial crisis for commodities

Energy prices from coal to natural gas have soared in recent weeks, raising doubts as to how "transitory" inflationary pressures will be as the northern hemisphere enters winter, traditionally a period of strong energy demand.

Breaking it down: Natural gas prices in Europe are up over 250% this year (see chart above), 175% in Asia and have risen by two thirds over the past month in the United States, with traders reporting "it is like the global financial crisis for commodities".

Provinces in China are "experiencing the worst power shortages the country has seen in a decade", as the price of thermal coal is near a record high and power plants are legally prohibited from passing on the full costs, restricting supply instead.

Moves to reduce emissions in many countries have only intensified the tightness, with restrictions and reduced investment in oil and coal having already led to greater demand for other energy sources, making substitution more difficult.

Why this matters: Rising energy costs flow through to the price of just about everything. Firms can only wear higher input costs for so long before they either shut down or pass the costs further along the supply chain, at the end of which are consumer goods.

If demand continues to outpace supply and energy prices remain elevated then inflation may become entrenched, making it more difficult for central banks to rein it back in when they eventually react.

Looking forward: Additional supply can ease some of the pressure but it's not a quick fix, given the long time it takes from project conception to delivery. That means this crisis is mostly a demand story (thank you, stimulus!), with the resulting higher power costs threatening the production of various goods, further intensifying price pressures.

For example, just this week UK meat processors and soft drink manufacturers warned about stopping production to a CO2 shortage, steelmakers in Europe had to suspend operations and Chinese fertiliser, ceramic, chemical, aluminium and glass makers "have reduced production to avoid losses".

If higher energy prices prove not to be "transitory", inflation and inflation expectations could quickly spiral upwards even as total output declines.

The Wrap Up
    🧒England's Chief Medical Officer said "the age group we're talking about [12-15 year-olds] is the one in which the highest rate of transmission is currently occurring".
    💰Germany's government will no longer pay compensation to unvaxxed individuals forced to isolate due to its coronavirus restrictions.
    ☢️Regarding the submarine deal, UK Prime Minister Boris Johnson said to the French "Prenez un grip and donnez-moi un break", which loosely translates to "Get a grip and give me a break".
    🐸Someone's not happy! ScoMo said he tried to contact French President Emmanuel Macron after cancelling the submarine deal but he's still not answering his calls.
    🍎Apple "has exercised its discretion not to reinstate Epic's developer program account... until the district court's judgment becomes final", meaning Fortnite's return to iPhone could be delayed "by several years".
    💉WA Premier Mark McGowan said his state is considering mandatory vaccinations for "port workers, miners and construction workers, as well as people who worked in Indigenous communities".
    🐹A crypto trading hamster known as Mr Goxx "is up nearly 30% since they started buying and selling digital assets [on 12 June]".
    🔌The European Union will force manufacturers "to create a universal charging solution for phones and small electronic devices [USB-C]", dealing a massive blow to Apple's "Lightning" charger.
    🐱‍💻Twitter will allow anyone using its new tipping feature to send and receive tips in bitcoin.
    The 60-year-old President of Suriname picked himself to play up front in a professional soccer match. They lost 6-0.
    🦗ScoMo told the English Cricket Board that England's players would receive "no special deals" for the Ashes, meaning they may have to travel without their families.
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