A good, hard look

Delivered on By Justin Pyvis

Good morning! Labor will form a majority government after securing its 76th seat in Macnamara, meaning it won’t have to seek the support of at least one of the 16 members of the crossbench “with an ideological spectrum that ranges from Queenslander Bob Katter on the right to the Greens on the left”.

Australia also officially has an opposition leader with Peter Dutton elected unopposed as leader of the Liberals, while David Littleproud sprung a bit of an upset by unseating Barnaby Joyce as leader of the Nationals.

Nine years without a stint in opposition is a long time and Peter Dutton has to rebuild not only the party but his own image, which … isn’t the best right now:

Peter Dutton's going to have to work on his image.
Peter Dutton's going to have to work on his image. Source

Reading the tea leaves

Daily % change

AUD/USD

72.0

+0.6%

AUD/CNY

4.79

-0.2%

AU Bond

3.27

+0.6%

US Bond

2.74

0.0%

ASX200

7,287

+1.5%

S&P500

4,158

0.0%

Brent (bbl)

121.3

+1.6%

Gold (oz)

1,857

+0.3%

Iron ore (t)

134.8

+1.3%

Bitcoin

31,156

+8.1%

Ethereum

1,939

+10.3%

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

The ASX200 added 1.45% following strong gains in the US on Friday and positive news out of China, where authorities in Shanghai announced that its lockdown will end on Wednesday, allowing all of its manufacturers to reopen. The Brent crude oil price hit two-month highs on the news.

But China’s government didn’t stop there – also announced was some fresh stimmy, including “accelerating the issuance and use of local government bonds, asking banks to renew loans for small and medium sized enterprises and establishing a green channel for approving real estate projects”.

A notable mover on the day was AGL Energy, which fell -1.7% after abandoning its plans to demerge its coal generation business and announcing the departure of half of its board.

The US S&P500 was closed for the Memorial Day long weekend.


Food for thought

The RBA made critical mistakes during and following the pandemic and is long overdue a review.
The RBA made critical mistakes during and following the pandemic and is long overdue a review. Source

It deserves a good, hard look: Twelve leading Australian economists signed a letter to new Treasurer Jim Chalmers calling for an independent review of the Reserve Bank of Australia (RBA):

“Full independence is crucial if the review is to make the most of this unique opportunity. No institution can be expected to independently or credibly review itself. A foreign perspective would bring valuable external scrutiny to the process and enable a benchmarking of the RBA against its overseas counterparts.

The review should not be seen as a performance appraisal of a particular regime or individual—rather, it speaks to the performance of the fundamental institutions governing the decision-making process.”

To his credit, Chalmers has already responded – it seems he’s already working “through the best model and terms of reference”. Let’s just hope it doesn’t get politicised…

Too hard the other way: The RBA may have finally woken up to the threat of inflation. But what if it fights it too hard, for too long? Alex Joiner writes:

“There is also the risk that aggressive tightening produces not just an economic downturn, but a more painful and prolonged ‘balance sheet’ recession. This is because there is more debt in the Australian economy now than ever before, and extreme interest rate settings have been capitalised into housing prices.”

This is why it’s important for central banks not to fall too far behind the curve – the best time to act on today’s inflation was in 2021. Tackling inflation without triggering a recession is now a much more difficult task.

No deal: China failed to convince enough Pacific nations to sign its leaked economic and security deal, with China’s ambassador conceding that:

“There has been general support from the… 10 countries [with] which we have diplomatic relations. But of course, there are some concerns on some specific issues.”

Fiji will hold an election in November this year and if former Prime Minister Sitiveni Rabuka gets the nod, it’s unlikely to please China:

“They’re trying to lure us into their camp. I think we should be very cautious. The Australian alliance had been tested and this one would be relatively new with a lot of unknowns.”

The President of Palau, Surangel Whipps, Jr, said he was happy with the decision because:

“…we don’t want to go through what we went through in World War II, so when we see these kinds of activities it does raise a concern for us. We’re small countries, and we want to live in a free and open Indo-Pacific where there is a respect for rule of law.”

All in all a positive for regional security, although China will keep pushing.


Chewing the fat


Bits and bytes

✈️ It’s everyone’s fault but ours! Rex lashed out at Qantas' “well-publicised predatory actions” as it cut five regional routes that Qantas doesn’t service.

🛒 Woolworths and Coles warned that prices are only going higher, especially for fresh produce due to “the cost of raw materials, energy price rises, freight costs, extreme weather events and ongoing Covid impacts”.

📈 Inflation in Germany hit yet another all-time (since reunification) high in May, rising 8.7% with food prices jumping 11.1% from a year ago.

🥽 No thank you: “A researcher entered the metaverse… But within an hour of her donning her Oculus virtual reality (VR) headset, she says she was raped in the virtual space.”

💉 The NSW government joined QLD, WA and SA in making this year’s flu shot free of charge.

🤷‍♂️ Remember those tanks Germany said it would send to Poland to replace the ones it was sending to Ukraine? They still haven’t arrived.

🦘 The Australian men’s rugby 7s team won the London tournament by defeating New Zealand in a final for the first time since 2002.

🔓 “North Korea has lifted movement restrictions imposed in the capital Pyongyang after its first admission of COVID-19 outbreak weeks ago, media reported, as the isolated country says the virus situation is now under control.”

🗳️ Good timing with upper house elections due within weeks: “Japan’s Prime Minister Fumio Kishida scored his highest approval ratings since taking office eight months ago.”