Even further behind

Delivered on By Justin Pyvis

Good morning! Australia’s Defence Minister Peter Dutton warned that China will “do all they can now that they’ve got this agreement [with the Solomon Islands] signed”, and that:

“China operates by very different rules than Australia does. We’ve seen that in Africa. We’ve seen it in many other countries around the world.”

Defence analyst Malcolm Davis said that Australia will:

“Now have to think more about defending the east coast… there will likely be more focus on better surveillance by naval, space and air assets to monitor Chinese activities.”

It’s a good thing Australia has been improving its deterrence capabilities, which work by increasing the cost of any military offensive through relatively low-cost weapons such as missiles and expendable, unmanned drones.

Alas, we jest. Those are things Australia’s military doesn’t like all that much, preferring “massive purchase[s] of equipment just like the stuff cheap Turkish drones have been blowing up in droves”.

Have a great long weekend!

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 US S&P500 fell -1.48%, shedding early gains of as much as 1.2% after Fed chair Jerome Powell said that in terms of hiking interest rates, “It is appropriate in my view to be moving a little more quickly”:

“I also think there is something to be said for front-end loading any accommodation one thinks is appropriate… I would say 50 basis points will be on the table for the May meeting.”

A notable mover was Tesla (+3.2%), which avoided the rout after beating expectations with record profits “even though it said its factories continue to run below capacity due to supply-chain problems”.

Locally, the ASX200 added 0.31% despite a -1.60% decline to the index’s second largest sector, materials, after mining giant BHP (-3.1%) reported that it was hampered in the March quarter by “COVID-19 related absenteeism”, with copper and nickel output down -10% and -13% in the year-to-date, respectively.

BHP’s iron ore production was also disappointing, with no growth year-to-date, a small 1% improvement from the corresponding quarter last year and a -10% reduction from the December quarter, “reflecting temporary labour constraints due to COVID-19”.

Food for thought

Kiwiflation is growing at rates not seen for more than 30 years.
Kiwiflation is growing at rates not seen for more than 30 years. Source

StatsNZ released Kiwi consumer prices for the March quarter and they showed that the Reserve Bank of New Zealand’s (RBNZ) recent 50 basis point cash rate hike was very much needed:

“In the March 2022 quarter compared with the December 2021 quarter, the CPI rose 1.8 percent (1.7 percent with seasonal adjustment).

Food was the largest contributor to the 1.8 percent rise in the CPI in the March 2022 quarter, with prices up 3.1 percent from the previous quarter. The most significant drivers of this within the group were fruit (up 12 percent), vegetables (up 7.3 percent), and meat and poultry (up 3.8 percent).

The next largest contributor was housing and household utilities, which rose 1.8 percent. The greatest driver of this movement was purchase of housing, which was up 3.5 percent, with the second most significant driver being actual rentals for housing, up 1.1 percent.”

In annual terms inflation jumped at a rate of 6.9%, the largest increase since the 7.6% recorded in June 1990 after the GST was imposed (see chart above).

Rising inflation isn’t just a Putin or pandemic problem anymore, either. If it were, we probably wouldn’t have seen the trimmed mean measures – “which exclude extreme price movements” – also rising from between 5.2–6.5% annually and 1.6–1.9% quarterly.

The best example of a sector that should be relatively protected from tradable price pressures, i.e. imported inflation due to Putin/supply chains, is hairdressing and personal grooming services. Yet even that saw a 5.6% annual increase in prices (1.7% from the prior quarter).

Inflation will continue to be a problem until central banks do their jobs. Many governments, including the Kiwi (and Australian!) government, responded to the pandemic’s supply shock with deficit-financed demand stimulus. It’s the task of central banks to offset that additional demand with tighter monetary policy, but instead they almost uniformly kept it excessively easy.

The March inflation data mean that the RBNZ will almost certainly raise rates again at its May meeting. If you’re in Australia, watch what happens carefully: the Reserve Bank of Australia is even further behind.

Chewing the fat

Bits and bytes

🤒 Labor leader Anthony Albanese tested positive for COVID-19 but “plans to continue vying for votes while isolating at home for the next seven days”.

😓 According to NAB, small and medium enterprise business confidence fell in the March quarter, especially in hospitality “which has continued to face disruptions from the pandemic”.

🥝 New Zealand’s PM Jacinda Ardern said her government will continue to work with China in areas of “natural mutual interest”, rejecting calls to join the AUKUS alliance.

📣 Elon Musk outlined the financial plan for his potentially hostile takeover of Twitter, “a mix of debt and cash… Morgan Stanley and a group of other lenders are offering up $13 billion in debt financing and another $12.5 billion in loans against Mr. Musk’s Tesla stock. Mr. Musk is expected to add about $21 billion in equity financing.”

🕵️‍♂️ US intelligence reported that Russia’s President Vladimir Putin “believes he is winning the war in Ukraine and that Western resolve to isolate him would crack over time”.

🦥 Germany’s Finance Minister said “We are willing to stop all energy imports from Russia, it’s just a matter of time… We have to be patient,” contradicting the Foreign Minister who earlier said Germany would end oil imports by the end of the year.

🚢 Demand remains strong (outside China) – Korean “exports advanced 16.9% in the first 20 days of the month from a year earlier… Exports to China, the biggest buyer of Korean goods, rose just 1.8% while shipments to the US surged 29.1%.”

⚔️ China’s Minister of National Defence General Wei Fenghe told his US counterpart that Taiwan was part of China and “If the Taiwan issue were not handled properly, it would have a damaging impact on Sino-US relations.”

🐍 Ukraine’s new “Go F**k Yourselves” Snake Island stamp sold out within hours and is now selling on eBay for over 50x the original price.

🏒 The world’s largest ice hockey stick in Duncan, British Columbia “is about to become home to a persistent and pesky woodpecker… who has spent the last few days boring a hole in the side of the giant hockey stick.”

📰 The former editor of China’s state-run newspaper, the Global Times, asserted that there’s a “very high probability” of a “direct military confrontation” in Taiwan.

🌆 Vladimir Putin hailed the “successful liberation” of Mariupol, the southern Ukrainian port city that Russian forces have reduced to rubble.

🤪 The European Central Bank’s VP Luis de Guindos said “For the first rate hike we will have to see our projections, the different scenarios. [But] from today’s perspective, July is possible and September, or later, is also possible. We will look at the data and only then decide.”

📽️ Streaming is tough: “CNN Plus, the news network’s dedicated streaming service, is shutting down before even turning a month old.”