Prepared to be patient

Delivered on By Justin Pyvis

Good morning! ScoMo was in election mode yesterday without actually calling an election, defending his legacy while announcing two new spending items during a National Press Club speech:

We’ve probably missed some other announcements but the above combined with last week’s billion for the Great Barrier Reef means we’re now around $3 billion into the pre-election spending spree, with $13 billion still to come (the mid-year budget update in December included $16 billion for “decisions taken but not yet announced”).

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.

At the time of writing the US S&P500 was up 0.56% after a late rally buoyed by gains in energy producers (+3.5%) after ExxonMobil reported its highest fourth-quarter profit since 2014, easily beating Wall Street’s expectations.

In terms of notable data releases the JOLTs report showed a renewed jump in job openings in December, which “all but confirms the labour shortage lasted into 2022 as hiring slowed into the winter”, while the ISM PMI showed that the US manufacturing sector is growing “in a demand-driven, supply chain-constrained environment”.

Locally the ASX200 finished up +0.49%, with tech (+2.4%) performing well after strong gains in the US on Monday and another “patient” decision by the Reserve Bank of Australia, which helped to kick equities up another notch in the afternoon session.

Food for thought

Already a year too late, the RBA is still "prepared to be patient".
Already a year too late, the RBA is still "prepared to be patient". Source

The Reserve Bank of Australia (RBA) finally ended its quantitative easing programme at yesterday’s meeting, having more than tripled its balance sheet since the start of the pandemic to around $A640 billion.

The programme accomplished two things: it monetised around a third of the government’s debt and provided a subsidy (below-market funding) to the big banks through the so-called term funding facility.

Or as the RBA calls it, “support to the economy”. 🙄

As we’ve noted before, the bond buying programme in particular was not without risk:

“If the bureaucrats at the RBA are wrong and yields continue to rise, as markets currently expect – unlike the RBNZ, the RBA has pledged to hold its purchases to maturity – the government (taxpayer) will be on the hook for billions of dollars in losses in the form of reduced dividend payments, for at least a decade (the longest-dated bond the RBA owns matures in 2032).”

Moving to the cash rate, the RBA still hopes inflation is transitory – it expects “underlying inflation to increase further in coming quarters to around 3.25%, before declining to around 2.75% over 2023 as the supply-side problems are resolved and consumption patterns normalise”.

Possibly. In our view, there are two ways the RBA can get out of its current predicament. One, it’s spot on and the inflation we’re seeing around the world was never a demand/monetary issue, meaning price growth will quickly stabilise as the RBA expects.

Two, global central banks – including the RBA – were wrong, and are eventually forced to tame inflation through tighter monetary policy. The longer they wait the more difficult it becomes to execute a soft landing, increasing the chances of a severe asset price correction and painful recession (which would quickly flip the balance of risks to deflation).

We’re not confident enough in either scenario to place a bet, although the evidence to date – consumer prices were already running at an annualised rate of 5.3% in the lockdown-affected December quarter, and as for asset prices… they, ahem, speak for themselves (see below) – suggests we haven’t seen the last of inflation yet.

Bits and bytes

🏡 According to CoreLogic, Australian home prices increased another 1.1% in January (up 22.4% from a year ago), although conditions are softening due to “less government stimulus, worsening affordability, rising fixed term mortgage rates and, more recently, a slight tightening in credit conditions”.

😬 Meanwhile, new loans for housing rose 4.4% in December to a record $A32.8 billion (26.5% higher than a year ago). Lending for “personal investment” was up 17.4%.

🕵️‍♂️ Former Australian Treasurer Peter Costello said the RBA’s monetary policy settings were “plainly not tenable”, adding it was “well worth” holding an inquiry into the RBA’s performance.

📱 Leaked text messages allegedly showed former NSW Premier Gladys Berejiklian describing ScoMo as a “horrible, horrible person”, to which Berejiklian said she had “no recollection”.

🛒 Australian retail sales fell 4.4% in December from the prior month “with consumers becoming more cautious, holding back spending as Omicron cases rapidly rose around the country”. However, spending was still up 4.8% on the prior year and “remain elevated compared to pre pandemic levels”.

🧐 “Since 1922 there have never been so few [Russian] forces on the border with Mongolia & China.”

🙈 The BBC has been censoring its own archives to make them “suitable” for modern listeners.

👩‍⚕️ The NSW government will permit non-urgent elective surgeries to resume from 7 February.

🔬 Japanese pharmaceutical company Kowa released a statement saying anti-parasite drug Ivermectin showed an “antiviral effect” against Omicron and other variants, but did not elaborate.

💱 Facebook’s stablecoin, Diem (formerly Libra), has officially collapsed. Its assets will be sold off to Silvergate, a bank that had previously partnered with the group.

🚢 Australia’s largest warship, the HMAS Adelaide, remains stranded in Tonga. Now pictures are starting to appear.

🔠 The New York Times purchased the daily word game Wordle, which will “initially remain free to new and existing players”.

🙇‍♂️ UK Prime Minister Boris Johnson said “I get it, and I will fix it” after interim findings concluded that Downing Street hosted several parties in 2020-2021 “while the UK was under government-imposed restrictions to curb the spread of the coronavirus”.

👩‍💻 India’s central bank will launch a “digital rupee” using blockchain technology sometime during the 2022-23 financial year.

🤝 Poland became the latest country to offer defensive weapons to Ukraine, as Russian troops move into Belarus.

🏃‍♂️ Ollie Hoare and Jessica Hull both broke the Australian indoor mile records, with Hoare winning the men’s Wanamaker Mile – the first time an Aussie has done so for 96 years.

⚽ The Socceroos were held to a 2-2 draw by Oman, dealing their hopes of automatically qualifying for this year’s World Cup a “huge blow”.