Going backwards

Delivered on By Justin Pyvis

Good morning! Following an emergency National Security Committee meeting, ScoMo stated that Australia would be “standing up to Russia, along with all of our partners… who believe that it is absolutely unacceptable that Russia could invade its neighbour”.

After warning that “Russia is at peak readiness to now complete a full scale invasion of Ukraine, and that is likely to occur within the next 24 hours”, ScoMo then went on to announce sanctions “in lockstep with the United States and the United Kingdom”.

Those sanctions were comprised of banning several oligarchs from traveling to Australia, cutting off a few small Russian banks and “targeting” sectors including “transport, energy, telecommunications, oil, gas, and mineral reserves”, whatever that means.

Given Australia’s small size (economically speaking) and non-existent trading relationship with Russia, these are largely symbolic sanctions.

But even if Australia was more important to Russia it’s unlikely the sanctions would have worried President Vladimir Putin all that much – if anything, the West’s response so far has probably been more tepid than what he was expecting.

For those who may have missed them, be sure to check out the last two Wraps [pre-invasion, post-invasion] that dove into the Russia/Ukraine situation a bit deeper.

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.

After rising for around the first hour of trade the US S&P500 promptly reversed course, turning sharply lower to be down -1.39% at the time of writing after Ukrainian government websites were taken offline by a suspected cyber attack. The Ukrainian government promptly declared a nationwide state of emergency amid fears of a deeper Russian invasion.

US officials also turned up the rhetoric against Russia. House Speaker Nancy Pelosi said “There will be a price to pay for Vladimir Putin,” while President Joe Biden imposed “sanctions on Nord Stream 2 AG and its corporate officers”, the company the built the now-infamous pipeline, warning that “we will not hesitate to take further steps if Russia continues to escalate”.

Locally, the ASX200 gained +0.62% with all but two sectors – real estate (-0.3%) and utilities (-0.7%) – finishing in the black after the initial sanctions imposed on Russia by Western nations, particularly the UK and US, appeared to be less severe than many had been expecting.

Food for thought

Ultra-easy monetary policy is sending wage earners backwards.
Ultra-easy monetary policy is sending wage earners backwards. Source

Australia’s real wages – that is, wages growth minus consumer price growth – fell -0.7% in the December quarter of 2021, the third consecutive quarterly decline that means real wages are now -0.8% lower than they were in March 2020 (see chart above).

The -0.7% loss of purchasing power in the December quarter was the third largest decline in real wages on record, with the only two quarters where wage earners fared worse being in September 2000 and 2020.

However, those quarters were marked by data anomalies: due to lags, the pandemic caused real wages to spike then fall between June and September 2020, while September 2000 was the first quarter of data after the GST was introduced.

If you exclude those two outliers then the decline in December 2021 was the largest on record.

The belated data release (we’re more than halfway into the March quarter already) certainly puts the Reserve Bank of Australia (RBA) in a spot of bother. Its relatively easy monetary policy has allowed inflation (3.5% in the December quarter) to creep up above its target of 2-3%, while wages remain well below its stated desire of 3% growth (2.3% in the December quarter) despite a red-hot labour market.

We’ve said before that the RBA is already behind the curve in terms of monetary tightening. This latest data point is unlikely to force its hand because its models say that sustained inflation shouldn’t be possible without pressure from rising wages, but you can only ignore reality for so long.

In the meantime, wage earners who don’t earn bonuses (which aren’t included in the wage price index) will likely continue going backwards.

Chewing the fat

Bits and bytes

📈 The Reserve Bank of New Zealand raised its cash rate by 25 basis points to 1%, warning that “further removal of monetary policy stimulus is expected over time”.

🤒 Hong Kong’s government will require its entire population of 7.5 million people to get tested three times for COVID-19 in March, as it desperately attempts to get back to COVID-zero.

👩‍💻 Speaking of Hong Kong, asked if test samples (containing the DNA of residents) would be sent to mainland China, leader Carrie Lam said that “In this wartime environment, this emergency, we cannot let existing laws stop us from doing something we should do.”

🧒 The NSW government is scrapping masks for students by the end of February, with teachers to follow by 7 March. Students will also be allowed to mingle with those from other grades.

💉 The Australian government approved the Moderna vaccine (half of the adult primary dose) for children aged 6-11, joining Pfizer as an option for kids in that age bracket.

🛂 WA has entered the “exponential phase” of its Omicron wave, with yesterday’s 645 new local cases leading the government to immediately impose new gathering restrictions.

🔬 Two new papers using UK data found that AstraZeneca causes between 0.9 and 3 extra cases of blood clots “for every million people vaccinated”. However, the risk of clotting after vaccination was between 3% and 42% lower compared with before vaccination, because catching COVID-19 “can itself cause thromboses”.

🌍 Members of the UN Security Council unanimously condemned Russia’s ‘liberation’ of Donetsk and Luhansk. Kenya’s ambassador said that using Putin’s logic, every country in Africa would have claims to land in neighbouring countries but that instead of waging wars, African nations “chose to look forward”.

🛢️ US President Joe Biden said his government would use “every tool at our disposal” to limit rising petrol prices as tensions with Russia, which produces over 10% of the world’s oil, escalate.

🗺️ Interested in where conflicts are taking place in and around Ukraine? There are already two real-time, interactive, crowd-sourced maps available here and here.

⛈️ Sydney surpassed its February monthly rainfall average in the span of just 24 hours yesterday.

🗳️ “Just 26% of Americans say [the] US should play a major role in the Russia-Ukraine conflict.”

🤑 “A rare moment of bipartisanship in a divided America”: politicians support stock-trading for politicians.