Tilted to the upside
By Justin Pyvis – Delivered on 17 Nov 2021

Good morning! Some positive news first up today with Victoria's Premier Daniel Andrews confirming that when the state hits the 90% fully vaccinated mark sometime later this week, masks will only be required in "high-risk settings" and capacity limits will be eliminated almost entirely. 👏

Elsewhere, South Australia's government ventured down the COVID-19 vaccine mandate road again, this time requiring all staff and volunteers at schools, preschools and early childhood facilities to have had their first dose by 10 December. It had previously only mandated vaccination for workers in healthcare, aged care and police.

Speaking of mandates, the NSW government will be free to enact them for at least another few months after it extended "the state's extraordinary Covid-19 emergency powers until March 2023, prompting a heated backlash from the Coalition party room where MPs branded the decision an unacceptable overreach likely to be rejected by their communities".

How long do "emergency powers" need to be in force for them to no longer be considered "emergency" (asking for a friend)? 🧐 Even the NSW Police Minister questioned the extension:

"It is very appropriate for members of the government, members of the Parliament and indeed members of the community to push the envelope, push back.

If they think this is an overreach, they need to let the government know that. I get the anxiety; Australians are just sick of governments telling them what to do. We've been to hell and back in the last 18 months.

Any changes of these laws, any changes or any extension of authority to ministers or indeed to the bureaucracy needs to be challenged, that's appropriate and I encourage that."

Finally, the lockdown of greater Katherine in the NT was extended to 6pm on Monday, 22 November after nine new cases were discovered, all close household contacts of the two cases announced on Monday. A mask mandate was also implemented for the entire territory, "whenever you leave the home".

Fully vaccinated population (aged 12+)


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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.

At the time of writing the US S&P500 was trading 0.52% higher following a jump in retail sales to 1.7% in October, above expectations for a 1.4% increase and still running ahead of inflation (0.9% in October), indicating higher prices haven't deterred households just yet.

Locally, the ASX200 closed down 0.67% with declines in every sector except tech (+0.19%) after the Reserve Bank of Australia signalled it had become increasingly detached from reality, dismissing calls for a rate hike in 2022 despite growing inflation concerns and rising domestic bond and mortgage rates (see Economy below).


More demand: US President Joe Biden signed his bipartisan $US1 trillion infrastructure bill into law, remarking that "America is moving again, and your life is going to change for the better".

Cooling tensions: Speaking of Biden, he held a virtual meeting with China's President Xi Jinping yesterday, during which the latter "expressed his readiness to work with President Biden to build consensus and take active steps to move China-US relations forward in a positive direction", with Biden pledging "to ensure that the competition between our countries does not veer into conflict, whether intended or unintended".

Cashed up: The value of physical banknotes in circulation in Australia increased by about 20% between February 2020 and October 2021, with the RBA estimating that around 50-75% of them are being hoarded for precautionary or store-of-wealth purposes.

Running hot: Employment in the UK was "well above" where it was pre-pandemic in October, with the unemployment rate just 4.3% in the three months to September as job vacancies hit a new record high. The positive figures came despite the expiry of a wage subsidy scheme that was supporting more than a million jobs in its final weeks.

Higher demand, limited supply: Rents across the UK are rising at the fastest rate since 2008, increasing 4.6% in September from a year ago as people "are back in the market after consecutive lockdowns affected demand levels in major cities".

Volatile: Bitcoin and many other cryptos plunged nearly 10% just a day after the so-called Taproot upgrade, which unlocked the potential for smart contracts. How long until Elon tweets about it? 😉

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Tilted to the upside

The governor of the Reserve Bank of Australia (RBA), Philip Lowe, delivered a 3,300-word speech yesterday on the "recent trends in inflation". If you were after a lesson in confirmation bias, this was chocked full of it.

Breaking it down: Lowe started his speech by reaffirming his long-held view that inflation in Australia "is only transitory", because "Most central banks and international organisations have concluded that the increase in inflation is likely to be only temporary."

Yes, because the politically sensitive forecasts produced by organisations such as the International Monetary Fund (which expects inflation "to be much lower next year") are so reliable 🙄.

In all seriousness, Lowe did eventually move on and cite some more plausible evidence for his forecast, such as the "surge in demand for goods" that could reasonably be expected to normalise as societies reopen and spend more on services.

He also noted that that non-oil energy prices and wages in Australia haven't been affected to the same extent as they have in Europe or the US (for now!), due to "increased capacity from wind and solar generators" and "a strong cost control mindset".

Why this matters: Lowe may be right. But there's also a reasonable risk that he's wrong, the consequences of which would be (and already are, to some extent) devastating to Australians that don't own property, are dependent upon relatively fixed incomes or rely on cash savings.

In the longer term, higher inflation increases the risks of financial instability if the RBA is forced into inflation-busting mode, tightening policy above and beyond what it would have had to do otherwise. That's because many individuals and businesses took on additional debt under the assumption that the RBA would continue suppressing interest rates, a reversal of which could trigger asset price deflation and a collapse of wealth.

It could also lead to a fiscal crisis, forcing the government (all levels) to spend less as interest payments on its record-high debt start to ratchet up.

Looking forward: At its most recent meeting, the RBA acknowledged that the "risks to inflation forecasts were tilted to the upside". That's somewhat of an understatement – consumption is still rising faster than production (driving prices higher), in no small part because of the unprecedented deficit spending by the world's governments, much of which has been monetised by central banks such as the RBA.

We hope Lowe is right and inflation quickly subsides, as the RBA is forecasting. But if he's wrong then we could be in store for a bumpy landing.

The Wrap Up
    👩‍💻Google will invest $A1 billion over 5 years in its new 'Australian Digital Future Initiative', which is designed to build "Australia's technology talent, digital infrastructure, and developing tech partnerships".
    📣"TV personality Ernie Dingo will drive from Perth to the Pilbara this week as part of a federal government campaign to boost vaccination rates among Indigenous communities in remote parts of Western Australia."
    The Socceroos were held to a controversial 1-1 draw with China, dropping them out of a crucial World Cup automatic qualification spot.
    Ah, bureaucracy. The Queensland government cancelled "some long-running applications for compassionate and medical exemptions to enter the state", because "their cases had taken so long to assess".
    🦈Beaches at popular WA holiday destination Rottnest Island were closed after several sharks "spent the morning feasting on a decomposing whale carcass... about 100 metres offshore".
    🌊Residents of Forbes in the NSW Central West were ordered to evacuate their homes, with authorities warning those who remain "you will be trapped and it may be too dangerous for SES to rescue you".
    🚁A Perth family had to be rescued by helicopter from the Simpson Desert in South Australia after their self-made camper truck became heavily bogged in the outback.
    🎾Australian tennis player Nick Kyrgios called for the Australian Open (scheduled for 17 January) to be cancelled because of Victoria's "morally wrong" vaccine mandate.
    🏭The smog is so bad in New Delhi that India's Supreme Court is calling for the city to be locked down over health concerns.
    ⛈️Heavy rainfall in Canada has cut Vancouver off from the rest of Canada, with floods and mudslides wiping out most routes between the coast and the interior over the past 24 hours.
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