The big questions

Delivered on By Justin Pyvis

Good morning! Today marks the annual “Victory Day” holiday in Russia, commemorating the anniversary of the defeat of the Nazis during World War II. Festivities kick off at 10am local time (5pm AEST) with a speech by President Putin, which “is among the most-watched programmes of the entire year in Russia”.

Needless to say, it’s an important day for Putin. Last week the UK Ministry of Defence claimed that the holiday was the reason for the recent “renewed effort by Russia to secure Azovstal and complete the capture of Mariupol”, so that Putin would be able to claim “a symbolic success in Ukraine” in time for his speech.

While it appears that Putin will get that victory, it has come at a price:

“This effort has come at personnel, equipment and munitions cost to Russia. Whilst Ukrainian resistance continues in Azovstal, Russian losses will continue to build and frustrate their operational plans in southern Donbas.”


Reading the tea leaves

Daily % change

AUD/USD

70.8

-2.3%

AUD/CNY

4.72

-1.7%

AU Bond

3.56

+2.5%

US Bond

3.12

+1.9%

ASX200

7,206

-2.2%

S&P500

4,123

-0.6%

Brent (bbl)

113.2

+2.1%

Gold (oz)

1,883

+0.5%

Iron ore (t)

137.9

-5.0%

Bitcoin

34,570

-2.6%

Ethereum

2,559

-2.9%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries.

TheΒ US S&P500Β declined -0.57% on Friday as a relatively positive jobs report, which showed that nonfarm payrolls grew by an above-expectations 428,000 for April, increased the likelihood that the US Federal Reserve will continue to aggressively hike interest rates in the coming months (see Food for thought below for more).

Locally theΒ ASX200 fell -2.16%, tracking large declines on Wall Street the night before on fears that belated central bank monetary tightening could trigger a recession. All 11 sectors finished lower led by the interest rate-sensitive tech sector (-4.47%).

Elsewhere, the spread between Italian and German bond yields reached the highest level since the depths of the coronavirus crisis in May 2020, raising the prospects of another European debt crisis.


Food for thought

The US labour market is strong but could already be slowing, and the Fed has barely started hiking interest rates.
The US labour market is strong but could already be slowing, and the Fed has barely started hiking interest rates. Source

The Peterson Institute for International Economics (PIIE) published a decent report diving into the US labour force numbers on Friday night, concluding that:

“The labor market has been remarkably strong from the perspective of employment. It has been remarkably weak from the perspective of real wages. The big questions going forward are how sustainable this is and whether nominal wage growth is, indeed, slowing down.”

The authors note that real wages in the US – that is, wages growth minus the rate of inflation – are falling at their fastest rate in “at least 40 years”.

Worse, average hourly earnings only grew 0.3% in April, “considerably slower than the pace of nominal wage growth in 2021 and, if it holds up, would indicate that labor markets may be considerably cooler than previously appreciated”.

While that will reduce inflation pressures – the PIIE estimates that wages growing at that rate means underlying inflation is currently only about 3.5% (“still above the Federal Reserve’s target”) – a cooling labour market does raise questions about whether the well-behind-the-curve US Federal Reserve will be able to successfully engineer a soft landing at this late stage of the cycle.

Do read the whole thing.


Chewing the fat


Bits and bytes

πŸ—Ύ Japan’s Prime Minister Fumio Kishida “warned that the invasion of Ukraine could be replicated in Taiwan by China if leading powers do not respond as one”.

πŸ“‰ Stagflation: Germany’s industrial output fell -3.9% from the month prior in March, the biggest monthly decline since “the beginning of the coronavirus crisis in April 2020”.

πŸ‘Ž Time for an overhaul? The Reserve Bank of Australia released its Statement on Monetary Policy for May, forecasting inflation to remain above its 2-3% target until June 2024.

πŸ—³οΈ This week’s Newspoll showed Labor holding a 54-46 lead, a one-point gain from the previous week. Primary votes were 39% Labor (up one), 35% Coalition (down one).

🚒 Putin officially earns a salary of $US140,000 per year: Italian officials seized a 140-metre, six-deck superyacht that has “been linked by some media organisations to Russian President Vladimir Putin”.

πŸ›’οΈ The US government has already started buying oil to replenish its strategic reserves, looking to buy 60 million barrels to be delivered “in unspecified future years”.

πŸ‘©β€πŸŒΎ Sri Lanka’s President Gotabaya Rajapaksa declared a state of emergency “following a day of anti-government strikes and protests over a worsening economic crisis”, largely caused by his own failed organic farming experiment.

πŸ’‰ The US government “strictly limited who can receive Johnson & Johnson’s COVID-19 vaccine due to the ongoing risk of rare but serious blood clots”.

⛑️ This is quite the upgrade from the initial response of 5,000 helmets: “Germany will supply Ukraine with seven self-propelled armoured howitzers… a track-mounted vehicle with a cannon that can fire shells up to 40 kilometres”.

🍎 Apple’s director of machine learning, Ian Goodfellow, resigned “in part due to Apple’s plan to return to in-person work, which required employees to work from the office at least one day per week by April 11, at least two days per week by May 2, and at least three days per week by May 23”.

πŸ’Έ Russia’s invasion of Ukraine is reportedly costing the country $US900 million per day, and that doesn’t “take into consideration how much Russia may have lost financially because of the severe economic sanctions imposed”.

⚽ A cool Β£4.25 billion: “Premier League heavyweights Chelsea will be sold [by Russian billionaire Roman Abramovich] to a consortium led by LA Dodgers part-owner Todd Boehly.”

πŸ“ˆ “Core consumer prices in Tokyo, considered a leading indicator of Japanese price trends, rose 1.9% in April from a year earlier, marking the fastest annual pace in seven years.”

πŸ“£ That’s… ambitious: Elon Musk told potential investors that after he takes over he expects Twitter’s userbase to grow from 217 million to 600 million by 2025, then to 931 million by 2028.

πŸ—» Kami Rita, a 52-year-old Nepalese Sherpa, successfully scaled Mount Everest for a record 26th time.

πŸ† Democracy: Former police officer and Beijing supporter John Lee will become the new Chief Executive of Hong Kong after “a committee stacked with pro-Beijing loyalists… [granted] him the majority required”.