The precautionary principle
By Justin Pyvis – Delivered on 29 Nov 2021

Good morning! Tens of thousands of protestors hit the streets of Melbourne and Sydney yet again over the weekend, drumming out the now-familiar slogans of "kill the bill", "my body, my choice" and "leave our children alone". By all accounts the protests were once again peaceful, with police in NSW and VIC reporting no arrests.

Elsewhere, WA's government raised its border wall with SA, classifying the state as "low-risk" meaning arrivals will now have to self-isolate for two weeks. WA Premier Mark McGowan said the precaution was needed because of the emergence of Omicron (see the Feature below) and SA's decision to open its borders. McGowan also warned that when QLD and TAS reopen in the coming weeks, "we'll do the same... if we have to".

Other states also tightened their border rules, with VIC's government mandating 72 hours of self-isolation for all international arrivals and QLD walking back its pledge to reopen at 80% fully vaccinated if "there's evidence available that needs a change in position".

NSW's government also threatened to tighten up, stating "We will take the necessary measures, including restarting quarantine if required, to protect our community and our economy."

Finally, Katherine's lockdown was eased for the fully vaccinated on Saturday due to "the promising results in recent days". Those unvaccinated will remain 'locked out' until at least 7 December.

Fully vaccinated population (aged 16+)

ACT
NSW
VIC
TAS
SA
NT
QLD
WA
Markets

Daily % change

AUD/USD

71.7

-0.4%

AUD/CNY

4.58

-0.4%

AU Yield (%)

1.67

-10.8%

US Yield (%)

1.48

-10.0%

ASX200

7,279

-1.7%

S&P500

4,595

-2.3%

Brent (bbl)

72.7

-11.7%

Gold (oz)

1,792

+0.4%

Iron ore (t)

95.5

-5.0%

Bitcoin

54,846

+0.1%

Ethereum

4,120

+0.6%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries. The S&P500 is a snapshot 30 minutes before close.

The US S&P500 tanked 2.27% on Friday, its worst day of the year after markets were spooked by the discovery of a new SARS-CoV-2 variant in South Africa (see the Feature below for more). Oil tumbled and bond prices shot up as people flocked to safety, sending yields on 10-year Treasuries down a full 15 basis points.

Locally, the ASX200 fell 1.73% for essentially the same reason, with travel (e.g. Qantas -5.5%, Flight Centre -7.5%) and energy (-4.6%) stocks punished.

Economy

Strong demand: Australian retail sales in October surged 4.9% in just one month, in no small part because of the liberation of NSW (+13.3%). With Victoria's lockdown ending on 22 October it also rose (+3.0%), although the ABS noted that overall sales were still down slightly from the level of May 2021 just prior to the Delta outbreak.

Old faithful: Profits at China's large industrial firms grew 24.6% from a year earlier in October, an acceleration from the 16.3% gain in September as "government efforts to ensure supply and stabilise prices helped companies mitigate difficulties".

Still transitory: European Central Bank (ECB) President Christine Lagarde is staying put in Team Transitory, telling a German newspaper that she expects "inflation rates to start falling as early as January". However, if the forecast turns out to be wrong Lagarde said the bank "must serve to fulfil our mandate of price stability".

Buy now, pay never: Spend a fortune acquiring customers with poor financial literacy and load them up with unsecured loans. What could possible go wrong? This – the buy now, pay later sector lost a cumulative $A1 billion in 2021 "as sales growth declined, credit losses increased and cash burn increased", causing their shares to plunge "by an average of about 80% compared to peak prices within the past year".

More rate hikes: CommBank, Suncorp and ME Bank all hiked their fixed interest rate offerings by up to 62 basis points, reflecting raising funding costs and tighter margins due to a jump in bond yields amid higher global inflation.

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Feature
The precautionary principle

Here we go again. The World Health Organisation declared that the SARS-CoV-2 variant known as B.1.1.529 is now officially "of concern", granting it the Greek letter 'Omicron' (it skipped over Nu and Xi... can't imagine why 🙄).

Global markets dive bombed on the news and the European Union, Britain and several other countries promptly closed their borders to the affected parts of Africa. At the most extreme, Israel banned all non-citizens from travelling for two weeks and will force vaccinated arrivals into 72 hours of quarantine (168 hours for the unvaccinated).

In terms of Australia's position, Health Minister Greg Hunt initially downplayed Omicron's threat before performing a sharp U-Turn on Saturday, slamming shut Australia's border to nine African countries and cancelling all flights for at least the next fortnight. NSW Health reported two Omicron-positive cases on Sunday afternoon, both travellers from southern Africa (via Doha) who arrived on Saturday and have been isolating.

Breaking it down: There are still a lot of unknowns. Omicron is riddled with mutations (over 30) in its spike protein – the part that binds to a human cell – meaning it could both be more transmissible and better at evading immunity already conferred by vaccines or prior infection.

While Omicron has been spreading rapidly and is already dominant in South Africa's Gauteng province, suggesting improved transmissibility, it could also be that the absence of the Delta strain (daily case numbers had bottomed out prior to the discovery of Omicron) and low vaccination rates in South Africa created the ideal conditions for Omicron to take hold.

The good news is that so far there's no evidence this variant is any more severe than the previous strains. Most patients have only reported mild symptoms, although they've all been aged under 40 and hospitalisations and death are lagged outcomes.

Why this matters: No one knows, yet. But the precautionary principle in a pandemic suggests that even if there's a small chance of a catastrophic outbreak, the smart public health move is to go at it hard and early to buy some time. That strategy comes with short-term costs but when dealing with fat tails (probability distributions with extreme outcomes), the uncertainty needs to be treated with respect.

Looking forward: It's still early days but with any luck this variant – which is still in its infancy (~100 known cases globally) – will fizzle out like so many of the others, or even turn out to be more benign than the older strains. Pfizer said that it will know within two weeks how effective its vaccine is against Omicron and that if required it would take around 100 days to ship a booster tailored to target it.

In the meantime, Australia should use its natural advantage (remote island) to prevent it from getting here in the first place, just in case Omicron really is 'the big one'. That's why we constructed all those purpose-build quarantine facilities, right?

The Wrap Up
    🍁Due to "surging demand for syrup", Canada's government-sponsored maple syrup cartel released 50 million pounds of the good stuff from its strategic reserve, about half the total stockpile.
    🔨China's government has asked (ordered?) rideshare giant DiDi to "come up with a plan to delist from the New York Stock Exchange... because of concerns about leakage of sensitive data".
    🚉Another light rail system in NSW was suspended "after a mechanical issue was identified in the trams, which were built by the same Spanish manufacturer behind the cracked inner western Sydney fleet".
    🏅Australia's government is considering a 'diplomatic boycott' of the Beijing Winter Olympics, "as concern grows over the welfare of Chinese tennis player Peng Shuai".
    🦗Tim Paine took an indefinite leave of absence from all forms of cricket as the 'sexting' scandal escalated, with messages from his brother-in-law published and a sexual harassment application lodged in the Federal Court.
    💊Merck said its experimental COVID-19 pill was significantly less effective (just 30%) in cutting hospitalisations and deaths than previously reported. Australia has an order for 300,000 courses.
    ⚱️WA's Cricket Association backtracked comments that Tasmania's government was "wasting ink" in trying to claim the 5th Ashes test, with its CEO saying "at the moment I'm 50-50" [as to whether WA can host the event].
    💸Inflation? "More than 90% of Black Friday deals were the same price or cheaper in the six months before the sales event last year".
    🦹Publisher or platform? In Australia platforms will soon no longer exist, with new "anti-troll" social media legislation to make the likes of Facebook liable for comments published on their service.
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