China's bullheaded quest

Delivered on By Justin Pyvis

Good morning! It’s about three weeks ahead of schedule but Omicron may have all but forced Western Australia into re-joining the rest of the federation, with Premier Mark McGowan warning that:

“We need to get test numbers up so we can understand where Omicron is so we can take further action as we need to… We suspect there are more cases in the community."

His comments came after another few more people tested positive for the latest variant, including some that had travelled to “a range of locations in the Margaret River region” while infectious.

Other than for the optics, if Omicron has got loose in the state there’s not much point in waiting until 5 February to reopen, is there? WA’s fully vaccinated rate (aged 12+) is currently >88%, which if it were a country would place it somewhere around 30th in the world on a whole-of-population basis (just above Norway).

Whatever is decided, there’s no going back once Omicron takes hold. McGowan admitted as much when he said mask wearing is now likely to be a feature at least until the end of winter.

Expect more restrictions to follow!

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 S&P500 is a snapshot 30 minutes before close.

The ASX200 gained 0.32% due to increases in energy (+1.4%) after the price of Brent crude hit a 3-year high and consumer discretionary (+2.2%), thanks to a 2.6% rise for Wesfarmers which is by far the sector’s largest company.

Speaking of Wesfarmers, while the conglomerate confirmed it will deliver a profit for the first half of the financial year it also warned that the Omicron outbreak had “undermined both sales and the crucial supply of goods from the group’s warehouses… with almost 25% of store trading days [at Kmart and Target] lost due to government mandated store closures”.

The US S&P500 was unchanged due to the Martin Luther King Jr. Day public holiday.

Food for thought

The "Venice" development in Qidong, one of many undertaken by the now-bankrupt China Evergrande Group.
The "Venice" development in Qidong, one of many undertaken by the now-bankrupt China Evergrande Group. Source

China’s government released its growth figures for the December quarter 2021, showing an above-expectations rise of 4.0%, bringing full-year growth to 8.1% in 2021.

That’s quite the improvement from the 2.2% growth achieved in 2020 when much of the country was in full lockdown for several months amidst the start of the coronavirus pandemic. The government was targeting growth of “above 6.0%” in 2021, so mission accomplished.

While all Chinese data should be taken with a large grain of salt, the figure is probably close enough to the truth given that exports (which rose +29.9% in 2021 and are much harder to fudge) and industrial output performed well in 2021, thanks to insatiable global demand juiced by plenty of stimmy and deferred consumption.

But all is not well and times will be tough for the world’s second largest economy. Growth faded in the second half of 2021 as it grappled with still-unresolved property woes, and its bullheaded quest to stay ‘COVID-zero’, which will see continued lockdowns and their detrimental effect on domestic consumption (retail sales rose just 1.7% in December), will also slow things down in 2022.

The nation’s birth rate officially dropped for a fifth consecutive year to hit a new record low in 2021, with the natural growth rate now just 0.034% – and those figures are likely exaggerated to the upside.

Then there’s the issue that external demand might not hold up as well this year as it did in 2021, given that the rest of the world has or is about to enter a policy tightening cycle. China’s President Xi Jinping certainly appears to be worried about that scenario, warning that:

“If major economies slam on the brakes or make major U-turns in their monetary policies there will be serious negative spillovers. They would present challenges to global and economic financial stability and developing countries would bear the brunt."

That’s perhaps why China’s central bank just did the opposite, cutting rates by 10 basis points on medium-term loans for the first time since April 2020 and reduced the borrowing costs of seven-day reverse repurchase agreements by the same amount, resulting in a net 300 billion yuan (~$A65 billion) “of fresh fund injections into the banking system”.

While that should help to stabilise conditions in the short-term it doesn’t do anything to resolve the long-term issue of a structurally imbalanced economy (heavy on investment of questionable quality, light on household consumption), which will only get worse the longer it’s ignored.

Bits and bytes

🎾 “Novax” Djokovic looks set to be banned from participating in the French Open under the country’s new pandemic laws, provided they still apply when the tournament starts in May.

💉 Australia’s drug regulator, the TGA, approved Russia’s Sputnik V for the purpose of international travel.

🌋 Pictures from Tonga started to roll in yesterday showing the devastation a day after volcanic eruptions triggered a tsunami. Tonga’s government said it needs “immediate assistance to provide its citizens with fresh drinking water and food”.

🚂 Union Pacific reported a 160% increase since December 2020 in thefts along its railroad tracks in Los Angeles, estimating that about 90 cargo containers a day are compromised.

🥑 The demand for smashed avo on toast has driven prices to the point where “the fruit from just one tree can pay for the private education of a [Kenyan] secondary school student for a whole year… Organised criminal gangs have begun to target growers [and] vigilante groups are now being formed to protect the crop”.

👩‍🎓 Harvard University relaxed its COVID-19 protocols, only requiring those who test positive to self-isolate and conduct contact tracing themselves rather than move to University-provided quarantine facilities, as was previously the case.

🏡 According to property website Rightmove, “the average price of property put up for sale rose by 0.3% in January, taking the 12-month increase to 7.6%, the highest annual rate of price growth since May 2016”.

🚀 South Korea’s military said it believes North Korea fired two short-range ballistic missiles eastward from an airfield in Pyongyang on Monday, the fourth time it has happened this year.

😀 Eeesh, no thanks. Filled with rainbow-colored popcorn and shaped like a dragon, fans at Disney World waited “for upwards of six hours to get their hands on one” of the $US25 buckets.

🥽 US retail giant Walmart “appears to be venturing into the metaverse with plans to create its own cryptocurrency and collection of NFTs”.

🔌 Sales of electric vehicles in Europe overtook diesel for the first time in December. “More than a fifth of new cars sold in 18 European markets, including the UK, were powered by batteries.”