Forced to play catch-up

Delivered on By Justin Pyvis

Good morning! Rustam Minnekaev, a Russian military commander, suggested that Putin’s ambitions may not end in Ukraine:

“Control over the south of Ukraine is another way out to Transnistria, where there are also facts of oppression of the Russian-speaking population.”

Formed in 1991 as a pro-Soviet breakaway state from Moldova, Transnistria sits on Ukraine’s southwestern border. It’s an odd place to say the least:

“Russian troops have been stationed in the area for decades as “peacekeepers,” with an estimated 1,500 there today. Moldovans make fun of the sliver of land as a backwater stuck in the Soviet era, where Lenin statues remain, international bank cards don’t work and a monopolistic company, Sheriff, controls virtually everything.”

While it’s unlikely that Russia is capable of ‘liberating’ Transnistria in the near-term, its leadership has shown that it’s prepared to wait. If Russia manages to secure the south of Ukraine it would effectively leave the door open for another offensive within the next decade.

Introductory image.

Reading the tea leaves

Daily % change







AU Bond



US Bond









Brent (bbl)



Gold (oz)



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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 US S&P500 gained 0.57% last night despite being in the red for most of the day, with its fortunes reversing after Twitter’s board ignited the tech sector (+1.4%) by accepting Elon Musk’s offer to buy the company for $US44 billion, agreeing that it “will deliver a substantial cash premium, and we believe it is the best path forward for Twitter’s stockholders”.

Locally the ASX200 was closed for the ANZAC day public holiday.

Elsewhere in the region, China’s CSI300 plunged -4.9% to a 24-month low and iron ore futures were smashed as the government’s “dynamic zero-COVID” policy continues to drag on growth.

The falls came after reports emerged of metal barriers being erected in multiple Shanghai districts to keep people trapped in their apartments, and that mass testing had commenced in the main business district of Chaoyang, Beijing amid fears the virus had spread.

Food for thought

The Reserve Bank of Australia has been running the economy hot for over a year, with nominal GDP already above the pre-pandemic trend in Dec 2021.
The Reserve Bank of Australia has been running the economy hot for over a year, with nominal GDP already above the pre-pandemic trend in Dec 2021. Source

The former chair of Barack Obama’s Council of Economic Advisers, Jason Furman, last week wrote that:

“Although inflation has risen sharply for multiple reasons, increased demand is by far the most important factor. The common argument about strangled ports, microchip shortages, and other supply-side issues simply cannot explain why advanced economies grew so briskly in 2021.

Furman points to monetary policy as the culprit, which “remains accommodative, suggesting that demand will continue to be strong”:

“By definition, price growth equals the growth of nominal output minus the growth of real output (with a small difference due to compounding). Over the course of 2021, US real GDP grew by 5.5%, nominal GDP grew by around 11.5%, and GDP price growth thus came in at around 5.9%. For the OECD as a whole, real GDP growth was slightly lower, at 4.9%, and nominal GDP growth was 10.4%, yielding 5.2% GDP price inflation.”

The same mistakes were made in Australia, with a lag due to the timing of our stimulus packages and various lockdowns. The chart above shows that Australia’s nominal GDP in the December quarter 2021 was already well above its pre-pandemic trend. GDP price growth over 2021 was around 5.7%, even with no change in the December quarter due to the largest decline in the terms of trade (-5.1%) since the June quarter 2009.

That all suggests that the Reserve Bank of Australia (RBA) should have at least been open to the idea of tightening monetary policy by September last year, which was the first meeting at which it would have had the data for the June quarter. Instead we got this:

“It [the RBA board] will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. The central scenario for the economy is that this condition will not be met before 2024.”

The RBA’s errors mean we’re probably in store for some fairly rapid rate hikes this year as it’s forced to play catch-up.

Chewing the fat

Bits and bytes

🏨 Queensland’s government will follow NSW and VIC by removing all of its close contact and unvaccinated traveller quarantine requirements from 28 April.

🗳️ The latest Newspoll showed Labor still ahead of the Coalition 53-47 on a two-party-preferred basis, with both parties gaining a point in support “at the expense of both left- and right-wing minor parties”.

🕵️‍♀️ “Sources” say that “the Australian government was aware of the proposed [Solomon Islands] agreement weeks before it was mysteriously posted online… [and] Australian intelligence agencies played a role in leaking the document”.

📝 “Two newspapers - one Swedish, the other one Finnish - are reporting that the governments of Sweden and Finland have agreed to submit NATO applications at the same time and that it will happen in the middle of next month.”

🗾 Japan’s government “will send a vice foreign minister to the Solomon Islands possibly later this month due to concerns that a security pact between the southwest Pacific nation and China will increase Beijing’s military influence in the region”.

🤨 The most recent Reserve Bank of New Zealand annual report “mentioned climate change more often than inflation”.

🥐 Emmanuel Macron secured a comfortable re-election in France, although his opponent Marine Le Pen “won more votes than any far-right candidate in the history of the French Republic”, with protests held across the country.

📈 Singapore’s core inflation rate (which excludes accommodation and private transport) shot up to a 10-year high 2.9% in March, with the headline rate also hitting near decade-highs of 5.4%.

📺 Anything for views: The US Federal Aviation Administration found that a YouTuber purposely staged a plane crash, parachuting out of it before it smashed into a Californian forest.

🛢️ “Oil companies are blending Russian oil with oil sourced elsewhere, so that only 49.99% of a barrel comes from Russia, allowing them to call it something else.”

🛒 Whiffs of stagflation: UK retail sales volumes fell -1.4% in March from the prior month as inflation strains disposable income. Consumer confidence also fell “to the lowest level since the 2008-09 financial crisis, as the fall of households' real incomes due to high inflation intensifies”.

💰 The Coalition has spent less on advertising than many of the Climate 200-funded ‘teal’ independents running in their blue-ribbon seats.

📽️ “Netflix co-CEO Reed Hastings finally acknowledged what most people outside of the company have been saying for years: In order to keep growing, the company will need to incorporate ads.”

🚢 This sets a worrying precedent: Indonesia’s government “announced plans to ban exports of the most widely used vegetable oil [Palm oil] on Friday, in a shock move that could further inflame surging global food inflation”.

💉 A new study published in The Lancet found that Pfizer booster doses reduce Omicron hospitalisations but “that protection seems to wane [to 55%] after 3 months”.

❌ Elon Musk refused to discuss “philanthropy on climate change” with Bill Gates after the latter confirmed he still had a $500m short position on Tesla, “the company doing the most to solve climate change”.

⚔️ The US secretaries of state and defence flew to Kyiv to meet with Ukraine’s President Zelenskyy, “the highest-level visit to the country’s capital by an American delegation since the start of Russia’s invasion”.

🛳️ That didn’t take long: “COVID has struck a Kimberley cruise ship just days after recreational interstate cruising was given the greenlight to resume in WA.”