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The lucky country

Good morning! ScoMo caved to pressure yesterday and banned all flights from India until at least 15 May, including indirect flights through cities such as Doha, Singapore and Kuala Lumpur. Australia will also send India 500 ventilators, 1 million surgical masks, 500,000 P2 and N95 masks, 100,000 goggles, 100,000 pairs of gloves and 20,000 face shields.

Market Wrap

Party at Elon's

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10Y Bond






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

Markets were flat (S&P500 -0.021%) ahead of the US Fed's Federal Open Market Committee (FOMC) decision and chair Jerome Powell's subsequent press conference. It's all about yields these days!

Party at Elon's: Tesla reported solid March quarter earnings of $US10.39 billion, up from just under $US6 billion the year before, despite making 89% fewer deliveries of the Model S and X than in the previous quarter. Environmental regulatory credits accounted for $US518 million of those earnings but that won't bother Elon Musk, who hit enough performance targets to qualify for two options payouts worth a combined $US11 billion. Tesla shares fell 4.5%.

Big tech earnings: Google (Alphabet) and Microsoft reported their respective March quarter earnings last night, with both exceeding Wall Street analysts' expectations. However, their shares moved in opposite directions – Google's rose due to strong advertising and cloud revenue, while Microsoft's sunk as its operating margin narrowed (it also didn't beat expectations by nearly as much as Google).

Econ Wrap

The lucky country

The iron ore price just hit a new record high.
The iron ore price just hit a new record high. LGMI

The price of iron ore hit an all-time record high yesterday (or at least since daily spot prices started being recorded in 2008), surging on the back of intense demand in China and weak Brazilian supply (the world's second largest producer).

China stimulus: The single biggest factor driving iron ore prices and consequently share prices for the likes of FMG, BHP and RIO is China's demand for steel. China's government is very keen on appearing economically strong given heightened trade tensions and the ongoing pandemic, which as you all know originated in China. So the government opted to stimulate its economy – particularly steel-intensive sectors such as construction and infrastructure – causing demand for iron ore to soar.

Steel prices remain very high and producers are doing extremely well (and thus able to pay more for iron ore), with China's biggest listed steel-maker, Baoshan Iron & Steel, reporting net profit growth of 247.8% in the March quarter due in large part "to robust steel consumption".

The lucky country: According to the now-infamous claim made by author Donald Horne, "Australia is a lucky country run mainly by second rate people who share its luck." Australia lucked out by avoiding the worst of the coronavirus due to its remoteness, and it's lucking out again through booming iron ore exports.

  • The WA government charges a royalty of 7.5% on every tonne of iron ore exported. Similarly, the Commonwealth government collects corporate tax on every dollar of iron ore mining income (which after deductions nets it about 2.5x as much as WA).

It's certainly a fortunate (lucky) time for iron ore prices to be soaring, given that the Commonwealth government sunk nearly 20% of GDP on COVID-19 relief measures. The longer prices stay elevated, the easier it will be to pay off that debt – provided those "second rate people" don't squander it all (as the chart above shows, iron ore prices can be quite volatile).

The Wrap Up

  • Kansas City Chiefs' Sean Culkin wants to become the first NFL player to receive his entire salary in bitcoin. Former Carolina Panther Russell Okung previously converted half of his salary from 2020 into bitcoin.
  • Queensland's 2032 Olympics bid received a commitment from the Commonwealth government to provide 50% of the required funding.
  • Did you catch the Oscars yesterday? Yeah, neither did we (viewership was down 58%).
  • The Victorian government submitted a proposal to the Commonwealth to safely return international students. It proposed a bubble system similar to that used for the Australian Open, with an additional 120 international travellers allowed to quarantine in the state each week, paid for by the industries and sectors involved.
  • Around 2,050 Australian athletes and officials heading to the Tokyo Olympics and Paralympics will be able to jump the queue and receive a Pfizer or AstraZeneca vaccine (based on their age).