A deep hole of its own making

Delivered on By Justin Pyvis

Good morning! ScoMo flew to Western Australia yesterday in an attempt to bribe convince voters into giving him another term, announcing a:

“$A4.3 billion investment in the development of the first large-vessel dry docking facility at Henderson Shipyard in Western Australia.”

WA could be critical to ScoMo’s re-election hopes, which probably explains why he has been so chummy with the country’s most popular Premier, Mark McGowan, despite claiming he was acting “against the country’s interests” as recently as August last year.

It’s amazing what an election can do to repair political relationships!

Reading the tea leaves

Daily % change







AU Bond



US Bond









Brent (bbl)



Gold (oz)



Iron ore (t)









Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries.

The rollercoaster that is the US S&P500 saw it jump 2.14% overnight as every sector except energy (-3.73%) finished higher. The price of Brent crude fell below $US100 per barrel and is now back to roughly where it was before Russia’s invasion of Ukraine, remaining largely unaffected by sanctions (the only nations that sanctioned Russian oil/gas didn’t use much of it to begin with).

The tech-heavy Nasdaq index rose an even greater 2.92% as US producer prices for final demand came in below expectations at 0.8% in February (down from 1.2% in January), reducing the odds that Fed chair Jerome Powell will opt for “bold actions” at today’s meeting (see Food for thought below).

Locally, the ASX200 fell -0.73% with materials (-3.74%) leading the descent following a large falls in iron ore prices after China’s government locked down all 24 million people in Jilin province, “the first provincial lockdown since Wuhan and Hubei in January 2020”.

51 million people in China are now locked down and rising Omicron cases, even in major cities such as Shanghai, suggests that China’s stubborn COVID-zero policy still has room to inflict plenty more damage on the country’s economy and global supply chains.

Food for thought

Even if US inflation returns to the Fed's target next month, prices in 2022 will rise by nearly 4%. On the current course, inflation would exceed 8% in 2022.
Even if US inflation returns to the Fed's target next month, prices in 2022 will rise by nearly 4%. On the current course, inflation would exceed 8% in 2022. Source

The US Federal Reserve will tonight raise the federal funds rate – “the interest rate depository institutions charge each other for overnight loans of funds” – for the first time since 2018.

It will likely be a 25 basis point increase following Russia’s invasion of Ukraine, which probably ended any thoughts of a more aggressive, 50 basis point move. But no matter what the Fed does it finds itself “in a deep hole of its own making”:

Inflation is at a 40-year high and still accelerating, the Fed’s inflation-fighting credibility is damaged, and it has lost control of the monetary policy narrative.

That’s according to Mohamed El-Erian writing in Bloomberg, who noted that the Fed should “have started easing its foot off the stimulus accelerator last summer [Australian winter]”, and by waiting too long it now finds itself with options that are “far from straightforward and satisfactory”:

  1. Take bold actions upfront, even if “it risks sending the U.S. economy into recession”.
  2. Announce a “dovish tightening” cycle, doing “little to contain inflationary expectations”.

El-Erian expects the Fed to roll with “some perceived middle ground”, involving a dovish 25-basis point move “accompanied by highly conditional language about what comes next”.

Whatever the Fed decides, the “one certainty in this is that”:

“…even after the FOMC (Federal Open Market Committee) meeting concludes on Wednesday, the Fed will continue to find itself in the deep hole it has dug for itself.”


Chewing the fat

Bits and bytes

🗣️ The latest RBA minutes warned that “further disruptions to global supply chains would lead to higher global inflation in the period ahead… [But] the Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve”.

✋ China’s foreign minister told his Spanish counterpart that “China is not a party to the [Ukraine] crisis… China has no wish to be impacted by the sanctions.”

🏭 China’s industrial production (7.5%), fixed asset investment (12.2%) and retail sales (6.7%) for January and February all came in above expectations, although it’s unlikely to be sustained with tens of millions of people currently locked down.

📺 Marina Ovsyannikova, a Russian state TV employee, was arrested after she “interrupted Russian state TV’s live broadcast with a sign that says: ‘Stop the war. Don’t believe propaganda. They’re lying to you here.’ It was signed: ‘Russians against war’.”

🟩 The forthcoming federal budget will include $A62.3 million to establish “10 new regional plans… removing the need for a project-by-project approval under national environment law”.

🛳️ Floating Petri dishes, also known as cruise ships, are back! Australia’s ban on international cruise ships arriving and departing from local ports will be lifted on 17 April.

🤥 Giant turd or douche sandwich? According to the latest Newspoll, ScoMo is “the least trusted prime minister in more than a decade but Anthony Albanese is running a very close second”.

❌ Alas, the “women’s network logo widely mocked for its phallic shape has been withdrawn by the Australian prime minister’s department”.

✈️ Korean Air “will reroute its flights to Europe and eastern North America that used Russian airspace… [adding] up to 2 hours and 45 minutes per one-way trip”.

💸 Germany’s government will purchase US-made F-35A Lightning II aircraft capable of carrying nuclear weapons, its first major purchase since creating a special fund of 100 billion euros to bolster its military.

🏡 Australian capital city property prices rose another 4.7% in the December quarter, bringing the total increase across the eight capital cities to 23.7% over the last 12 months.

🏌️‍♂️ Aussie golfer Cameron Smith won the Players Championship – the biggest event on the PGA Tour – winning a massive $US3.6 million after a risky, “fearless approach” on the final few holes.

🚢 Ever Forward, a container ship owned by the same company as the infamous Suez Canal-blocking Ever Given, ran aground in Baltimore. Thankfully it’s not blocking a major shipping channel!

🚘 Due to the microchip shortage Ford will deliver new cars “without rear-seat controls for the air conditioner and heat… as a way to get our customers their vehicles sooner”. The feature will eventually be added at dealerships at no cost.

🏗️ Another Aussie construction company, Gold Coast’s Condev, has gone broke due to “increasingly challenging market conditions including the exponential rise in material costs”.

🤝 The prime ministers of Poland, the Czech Republic and Slovenia travelled to Kyiv to meet President Volodymyr Zelensky “to confirm the unequivocal support of the entire European Union for the sovereignty and independence of Ukraine”.