Transitory vibes

Delivered on By Justin Pyvis

Good morning! ScoMo was out west yet again (his third trip to Perth in five weeks), committing $140 million towards two new hydrogen hubs, $67 million for two carbon capture and storage hubs, $50 million for Curtin University to investigate critical mineral supply chains and another $8 million for WA’s critical minerals sector:

“Western Australia is a world leader in critical minerals and these investments are just the beginning of our commitment to the sector.

These investments will also turbocharge the development of Australia’s critical minerals and clean hydrogen industries, helping achieve the government’s vision to make Australia a global producer and exporter of clean hydrogen by 2030.”

By our count that’s around a quarter billion dollar’s worth of industrial policy. And it’s just the beginning, apparently. Taxpayers had better hope that these will actually be the industries of the future!


Reading the tea leaves

Daily % change

AUD/USD

73.8

+0.4%

AUD/CNY

4.71

+0.6%

AU Bond

3.10

+4.4%

US Bond

2.91

+1.8%

ASX200

7,565

+0.6%

S&P500

4,462

+1.6%

Brent (bbl)

107.2

-5.3%

Gold (oz)

1,951

-1.6%

Iron ore (t)

150.6

-2.8%

Bitcoin

41,304

+1.2%

Ethereum

3,095

+1.2%

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

TheΒ US S&P500Β gained 1.61% overnight, its best day in a month as a flurry of earnings reports surprised to the upside – “of the 49 companies in the S&P 500 index that have reported quarterly earnings so far, 79.6% have exceeded profit estimates”.

Locally, theΒ ASX200 added 0.56% with every sector gaining except for healthcare (-0.66%), tech (-0.55%) and telecoms (-0.03%). The big winners for the day were energy (+1.26%) and materials (+1.03%), which benefitted from higher oil and commodity prices over the weekend.

A notable mover was graphite miner Syrah Resources (+14.7%), which surged following an announcement from the US government that it had provided it with a $US107 million loan “to help fund the expansion of a Louisiana plant that will process graphite mined from Mozambique into anodes”.

Elsewhere in the region, the Japanese yen fell to a 20-year low against the US dollar, “as the dovish BOJ [Bank of Japan] keeps local yields anchored to the floor while their US equivalents surge on expectations for aggressive Fed hikes”.


Food for thought

The RBA is sending out transitory vibes reminiscent of the Fed's big gaffe last year.
The RBA is sending out transitory vibes reminiscent of the Fed's big gaffe last year. Source

The minutes from the latest Reserve Bank of Australia (RBA) meeting were released yesterday, offering some insight into the board’s thinking about the economy, inflation and world events:

  • Inflation was mentioned 38 times, a record for a month without an official consumer price index release prior to the meeting.
  • Russia’s invasion of Ukraine will “further boost global inflation in the period ahead”.
  • The outlook for global growth has been “clouded” by “the combination of high inflation, declining real wages, rising interest rates and falling consumer sentiment”.
  • The “inflationary pressures associated with supply-side issues were likely to wane over the longer term”, although remain “key sources of uncertainty about the inflation outlook”.
  • Domestic prices have been rising but “there was uncertainty about whether these price adjustments had represented a one-off shift in the level of prices or the start of a period of ongoing price increases”.
  • Inflation in the March quarter is expected to be above 3%, but wages growth “had been below rates likely to be consistent with inflation being sustainably at the target”.

We’re still getting plenty of “transitory” vibes from that, almost as if the RBA hasn’t yet come to the realisation that inflation is going to be a big problem this year.

Perhaps that’s why it’s still willing to wait for “important additional evidence” over the “coming months” before it makes a decision, conveniently providing it with cover to avoid hiking rates in an election month (the March quarter wage price index isn’t due out until 18 May, two weeks after the RBA’s May meeting).

But waiting that long is a risky move that could make life much more difficult in the future. As we wrote last week, the “RBA has all the data it needs; it just chooses to look elsewhere. At this late stage it would be a purely political decision not to increase rates before the election!”


Chewing the fat


Bits and bytes

πŸ—³οΈ The leaders of both major parties appeared to rule out forming a coalition with “independents and crossbenchers”, meaning people would have to go back to the polls if neither achieved a majority.

πŸ‘Ž The latest Newspoll found support for both major parties had fallen by a point each over the past week, to 36% for Labor and 35% for the Coalition, creating “the prospect of being forced to negotiate with an expanded crossbench”.

πŸ“‰ The International Monetary Fund believes global growth will “slow significantly” this year due to Russia’s invasion of Ukraine, downgrading its forecast for this year to 3.6% (from 4.4% in January).

🍩 Responding to a comment that the interests of Twitter’s board aren’t aligned with shareholders, Elon Musk tweeted : “Board salary will be $0 if my bid succeeds, so that’s ~$3M/year saved right there.”

πŸ“£ Sources “familiar with the matter” said that private equity firm Apollo Global Management “has held discussions about financing a potential takeover for Twitter”.

πŸ“ˆ US Fed board member Jim Bullard said inflation is “far too high”, and that the federal funds rate needs to hit 3.5% by the end of the year to slow it.

🐰 US President Joe Biden was “quickly interrupted by the Easter Bunny after he starts to comment on Afghanistan and Pakistan at the White House”.

😷 The US government will no longer enforce mask wearing on airplanes and public transport after a judge ruled that it “had exceeded its authority”. All major US airlines have now made masks optional.

⛏️ Mexico’s government will nationalise its lithium sector in favour of a state-owned enterprise “to extract, process, and sell lithium”. Mexico currently produces no lithium but has one mine in development, owned by China’s Ganfeng.

πŸ–ŠοΈ China’s government confirmed that it had officially signed a security pact with the Solomon Islands, potentially allowing Chinese warships, police and armed forces to be stationed there “to assist in maintaining social order”.

πŸ‘‰ The US government warned that China’s link-up with the Solomon Islands creates a “concerning precedent”, and “could increase destabilisation within the Solomon Islands”.

πŸ“ David Speirs is the new leader of the South Australian Liberal Party, replacing Steven Marshall who resigned following last month’s election loss.

πŸ₯ Australian cricket star Mitchell Marsh was admitted to hospital in Delhi after he “tested positive for COVID-19”.