June 23, 2022 Edition
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The news globally continues to get worse with rising fears of inflation fuelled recessions seemingly becoming more likely in the US, UK and the EU. Hard to know but Aus does not seem to be in much better shape. Elsewhere China is still fisting the COVID and finding it pretty hard to get rid of while slowing its economy in the battle.
In OZ it is hard to avoid the feeling that things are pretty rocky with a real energy crisis, share market near collapse, rising inflation, huge debt, fiscal strains and geopolitical stresses and no obvious plan to get things back on the rails any time soon! I bet Albo is glad he can still blame the previous Government for a few weeks more!
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Major Issues.
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https://thenewdaily.com.au/opinion/2022/06/13/alan-kohler-ndis-labor-government/
6:03am, Jun 13, 2022 Updated: 7:17pm, Jun 12
Alan Kohler: The NDIS could crush the Labor government
Last Thursday Treasury Secretary Stephen Kennedy more or less told the government that NDIS Minister Bill Shorten has the most important fiscal job in cabinet.
And yesterday Shorten laid out the beginnings of a plan to carry it out, but after nine years of poor administration and outright neglect of the NDIS by the Coalition, it’s just the beginning of a very big task.
Kennedy sounded an alarm about the budget in general in a speech to economists, saying that government spending will increase from an average of 24.8 per cent of GDP before the pandemic to 26.4 per cent in future, forever.
The massive cost of a burgeoning NDIS
He didn’t spell it out, but that is an expansion in the size of government over three years of $50 billion a year, rising with the growth in GDP from now on.
That is, if they’re lucky to keep it that – the growth in spending could be much more.
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Marles, Wei break Australia-China meeting drought
Emma Connors and Michael Smith
Updated Jun 12, 2022 – 5.33pm, first published at 1.19pm
Singapore/Tokyo | Australia’s deputy prime minister and defence minister Richard Marles has had a “very full and frank exchange” with China’s defence chief, breaking an almost three-year drought in ministerial dialogue.
Mr Marles described the hour-long meeting with Defence Minister Wei Fenghe on the sidelines of the Shangri-La Dialogue in Singapore as a “critical first step”. It was the first face-to-face meeting of its type between Canberra and Beijing since late-2019.
“I raised a number of issues of concern to Australia, including the incident involving Australia’s PA aircraft on May 26, Australia’s abiding interest in the Pacific, and our concern to ensure the countries of the Pacific are not put in a position of increased militarisation,” Mr Marles said.
“This was an important meeting between two countries of consequence in the Indo-Pacific region.
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Australia braces for a week of economic carnage as ominous clouds hang over global economy
There are now fears the world is teetering on the brink of a recession after horror new data from the US sent chills around the globe.
June 13, 2022 - 7:46AM
There are now fears the world is teetering on the brink of a global recession, after horror new inflation data from the US that has sent a chill through stock markets around the globe.
Australians who own stocks are probably glad it’s a public holiday today and the markets are closed after a difficult enough week last week.
But the pain is set to get even worse for the Australian economy after the US recorded the highest rate of inflation since 1981 — stoking fears the global economy is slowly falling into a recession.
While there may be a recess for Australia’s pain because of the Queen’s Birthday holiday today, it is anticipated the market will be hammered in the days that follow.
Investors Mutual portfolio manager Daniel Moore told The Australian he expects “significant falls” when the market reopens this week.
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ASX 200: Investors brace for market carnage as inflation spikes
4:23PM June 12, 2022
Equity markets are bracing for retreats this week after the US recorded the highest rate of inflation since 1981, spooking investors on Wall Street as fears grow of soft corporate earnings and a possible stumble into a global recession.
Strong falls in US markets fuelled by the inflation spike and felt across blue-chip industrials and technology stocks will have a delayed impact on the Australian sharemarket – closed for the Queen’s Birthday holiday on Monday – but will likely land with a thud on Tuesday.
Investors Mutual portfolio manager Daniel Moore said the futures market pointed to a significant fall by equities when the market opens this week.
“The US market was down to 2.73 per cent on Friday, so the Australian futures are currently down 1.6 per cent and if you looked at the sector breakdown, nearly all sectors were down, on fears higher inflation will lead to higher interest rates which will cause a recession,” said Mr Moore, who looks after $5bn in funds.
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Australia’s biggest investor warns a ‘material downturn’ is coming
Michael Read Reporter
Jun 13, 2022 – 5.36pm
The chief investment officer of the country’s largest pool of capital, AustralianSuper’s Mark Delaney, says Australia is heading for a “material downturn” as the global economy nears the end of a 13-year bull market.
His forecast is backed by leading economists, who expect a sharp slowdown in the economy from next year, amid headwinds from rising interest rates and falling real wages.
Mr Delaney’s predictions come amid market expectations the Reserve Bank of Australia will raise rates to 3.1 per cent by the end of the year to tame soaring inflation, caused by a combination of global supply chain issues, the war in Ukraine, and demand-side pressures from Australia’s tight labour market.
The $261 billion mega fund is on track to post its first financial year loss in 13 years, with AustralianSuper’s balanced investment option down 0.83 per cent in the financial year to June 9.
Mr Delaney said global financial markets were navigating a difficult period characterised by short-term challenges owing to the end of COVID-19 stimulus and longer-term pressures from the end of a 13-year economic cycle.
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Retailers and consumers are facing the worst economic outlook in 15 years, and retail profits will fall
June 14, 2022
Australia’s retailers are facing the worst economic outlook in 15 years, due to a potent mix of soaring inflation, higher borrowing costs and flatlining wages, plunging consumer confidence back to levels not seen since the global financial crisis and threatening to trigger a string of profit warnings across the sector.
And while some consumers might have stashed away money for a rainy day during the Covid-19 lockdowns, that reservoir of savings could be quickly soaked up by the cost of living per household which currently sits at $45,000 and is estimated to jump 13 per cent in 2023. Low and middle income households are likely to struggle as they look to thinning savings.
Barrenjoey analyst Tom Kierath has penned a grim report into the expected slowdown for the $360bn retail industry and announced he has made significant earnings cuts to discretionary retailers to reconcile with the fragile state of the economy and consumers.
Mr Kierath said he has reviewed earnings forecasts across the 12 non-food retailers he covers leading the analyst to downgrade 2023 earnings per share by as much as 34 per cent for some stocks with the most earnings risk for consumer electronics giant JB Hi-Fi and online marketplace Kogan.com.
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https://www.theguardian.com/commentisfree/2022/jun/14/heres-why-australias-reliance-on-commodities
Here’s why Australia’s reliance on commodities is unhealthy
Our dependency on resources and failure to use mining income to secure a post-mineral future is
Tue 14 Jun 2022 03.30 AESTLast modified on Tue 14 Jun 2022 11.00 AEST
Of the four engines driving Australia’s post-pandemic recovery, all but commodity prices are spluttering. Government spending, which has more than offset the losses from the Covid-19 recession, is likely to be reined in to repair public finances. Consumption, which has been driven by a combination of pent-up demand and excess savings during lockdowns, is affected by inflation pressures and uncertainty.
Housing – both construction activity and the wealth effect of higher property prices encouraging spending – is now slowing because of the end of subsidies and higher interest rates.
This leaves Australia largely dependent on the remaining motor – commodity exports – for economic propulsion. Australia’s terms of trade (the ratio of export prices to import prices) reached record highs in the first quarter of 2022, benefiting from Chinese infrastructure spending and supply shortages created by the war in Ukraine.
But this reliance on commodities is unhealthy, for a number of reasons.
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Tips for riding out current market turmoil
Lex is holding to its expectation of a long, grinding market correction amid extempore monetary policymaking. Here are some defensive strategies for the months ahead.
The Lex Column
Jun 14, 2022 – 3.48pm
As one contagion ends, another begins. The symptoms of a stagflationary slowdown are pronounced. About two-thirds of economists polled by the Financial Times expect a US recession. UK gross domestic product fell unexpectedly in April. Cryptocurrencies, a prime indicator of speculative exuberance, are slumping.
As equities and bonds lurch downward, investors are rushing for safety. The MSCI All-Country index (ACWI) has already lost about 20 per cent in dollar terms this year.
Lex is holding to its expectation of a long, grinding market correction amid extempore monetary policymaking. Here are some defensive strategies for the months ahead.
Bonds deserve attention, especially those denominated in the strong US dollar. Any bet on fixed income is dependent on where you think inflation will peak. In corporate credit, favour businesses with strong balance sheets and cash flows. A zero weighting to high-yield bonds makes sense.
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Labor gives its one-word reason for poll success: Morrison
7:21PM June 14, 2022
Labor capitalised on the unpopularity of Scott Morrison to prevent swaths of undecided voters from sticking with the Coalition at the May election.
ALP national secretary Paul Erickson will use a speech at the National Press Club in Canberra on Wednesday to outline the strategy that delivered Anthony Albanese victory.
Mr Erickson will say a key part of the campaign was accounting for a group of voters who “held out until the very end, those who would describe themselves … as sitting on the fence”.
He will say the Labor machine targeted undecided voters by ensuring they were “haunted” by the prospect of three more years of Mr Morrison as prime minister.
“The biggest barrier Labor had to overcome was not voters’ evaluation of our proposition, or a counter offer from the Coalition, it was a widespread and deep sense of fatigue, anxiety, and aversion to risk after some of the most difficult years we’ve endured,” Mr Erickson will say.
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Trust in journalism drops as ‘fatigued’ readers return to print
Julie Hare Education editor
Jun 15, 2022 – 9.01am
The pandemic-induced boost in Australians’ interest and trust in news and media is waning, and social media is the biggest loser as readers return to print editions of newspapers.
Consumption of news in print has increased for the first time in six years, largely in regional and rural areas, according to the 2022 Digital News Report, compiled by the News & Media Research Centre.
However, the number of Australians avoiding or reducing their consumption of news is growing as feelings of being overwhelmed and fatigue hit home.
“The top reason why people avoid news is because they are sick of politics and coronavirus,” said Sora Park, the report’s lead author.
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Five ways to help your share portfolio beat market carnage, inflation
By John Collett
June 15, 2022 — 5.05am
Things are looking dire on sharemarkets as the war in Ukraine acerbates surging inflation and a resultant global rise in interest rates.
The benchmark S&P/ASX 200 Index fell more than 5 per cent at one point on Tuesday on the back of a big dive in US equity markets. The heavy losses took its decline so far this year to 10 per cent – a technical correction.
However, investors who remain calm and do not submit to panic selling are seeing opportunities. By looking beyond the doom and gloom – and taking a longer-term view – they could be rewarded with some good returns.
David Bassanese, chief economist at exchange-traded fund (ETF) provider BetaShares, says the outlook for the energy, agriculture and banking sectors remains positive.
Oil and food prices were already rising before Russia invaded Ukraine, but the conflict has accelerated the trend, Bassanese says.
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Consumer confidence plunges to recessionary levels: Westpac
June 15, 2022
Surging inflation and the prospect of an aggressive series of rate hikes has hammered consumer confidence down to recessionary levels, Westpac’s latest monthly survey has revealed.
Westpac chief economist Bill Evans said “over the 46-year history of the survey, we have only seen index reads at or below this level during major economic dislocations”: during the height of the pandemic, the GFC, and in the severe downturns of the early 1990s, and in the mid-and early 1980s.
“Those last three episodes were associated with high inflation; rising interest rates; and a contracting economy – a mix that may be threatening to repeat,” Mr Evans said.
The survey of 1200 households was conducted from June 6-9, and so largely included the Reserve Bank’s 0.5 percentage point rate hike on June 7. Westpac’s consumer sentiment gauge fell 4.5 per cent from to 86.4 points, from 90.4 in May. A reading below 100 points indicates more pessimists than optimists.
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Largest house price correction since 1980 to hit, warns Jarden
June 15, 2022
Australian house prices could suffer a peak to trough decline of up to 20 per cent with falls in Sydney and Melbourne tipped to be larger and hit sooner, according to economists at investment bank Jarden.
The bank has downgraded its expectations for residential property and warned that the country is facing the largest house price correction in four decades.
It is blaming a cocktail of interest rate hikes, which will eat into borrowing capacity, and the more hawkish Reserve Bank cracking down on lending, with material falls expected in home loans, credit growth, and building approvals.
The bank’s chief economist Carlos Cacho warned the softer housing outlook would drag on economic activity through 2023 but is tipping that regulators could ease off from the middle of next year.
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https://www.afr.com/politics/federal/an-important-early-win-for-albanese-20220615-p5atu0
An early win for Albanese, not so flash for small biz
From a sheer political perspective, the Commission delivered the Albanese government a win. The PM can say that he has delivered for the workers.
Phillip Coorey Political editor
Jun 15, 2022 – 11.21am
One of Labor’s most potent lines of the election campaign was “everything is going up except your wages”.
Not any more. Not for minimum wage earners at least.
In a decision that took even the government by surprise, the Fair Work Commission surpassed Anthony Albanese’s call to increase the minimum wage by 5.1 per cent, which was the headline inflation rate when he made it, and opted for 5.2 per cent.
Another 2.6 million award workers received 4.6 per cent, or a guaranteed $40 a week if they earn less than $869.60 a week.
It could have been higher, as the commission alluded, had it not been for “moderating factors” such as the 0.5 per cent increase to the superannuation guarantee on July 1, and the one-off, post-July 1 tax rebate of up to $1400 for 10 million low and middle income earners, a parting cost-of-living gift from Josh Frydenberg and Scott Morrison.
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https://thenewdaily.com.au/opinion/2022/06/16/kohler-recession-albanese-crises/
6:00am, Jun 16, 2022 Updated: 9:06pm, Jun 15
Alan Kohler: Albanese’s note to self – Don’t get blamed for the Morrison crises
Governments usually change after recessions, not before them, so the job is a nice one – to manage the recovery.
But not only is the new Labor government facing a sharp economic slowdown, and possibly a Whitlam-style recession, it’s dealing with multiple crises from the failures of its predecessor.
Tuesday’s suspension of the National Electricity Market by the Australian Energy Market Operator is the latest, and worst, of many. It’s hard to imagine a worse legacy than the collapse of the national energy system.
I suggested in this column before the election that the Morrison government was going to lose despite presiding over a strong economy, mainly over its failures on climate change, and as we are now discovering there was more to it than that.
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Turnbull is the shadow figure in Morrison’s downfall
The 29th prime minister turned himself into a quasi opposition leader – and channelled wavering inner-city Liberals towards the independents, Labor and Greens.
Aaron Patrick Senior correspondent
Jun 16, 2022 – 5.00am
Analyses of the Morrison government’s downfall – an administration removed more for personal resentment towards its leading figures than administrative or economic incompetence – have failed to recognise the contribution of one man: Malcolm Turnbull.
More than any other person outside of parliamentary politics – even more so than the teal independents’ financier Simon Holmes à Court – Turnbull used his eloquence, fame and media connections to define his successor government as amoral and unworthy of office.
The 29th prime minister, who remains a Liberal Party member, turned himself into a quasi opposition leader – one who represented and channelled wavering inner-city Liberals towards the independents, Labor and the Greens.
Turnbull involved himself in every significant scandal and challenge of the Morrison government.
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https://www.afr.com/policy/economy/soft-landing-hopes-falter-as-inflation-takes-off-20220614-p5atih
‘Soft landing’ hopes falter as inflation takes off
John Kehoe Economics editor
Jun 18, 2022 – 5.00am
Australians are living through a series of remarkable and historic economic disruptions.
Post-pandemic forces are colliding to bring into sharp focus the challenges facing central banks, business, investors, households and the new Albanese government.
Economies appear to be overheating, so engineering a soft landing and avoiding recession will be a delicate balancing act.
This week, the world’s most powerful financial institution that sets the price of money – the US Federal Reserve – imposed its largest interest rate rise since 1994, lifting rates by 0.75 of a percentage point. It also admitted jobs may be lost to cool the economy.
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Attack of the hawks: seven days that killed the easy money era
Around the world, central banks that flooded the money with cheap funds for over a decade are in a rapid, uncomfortable and dramatic retreat.
Jonathan Shapiro Senior reporter
Jun 17, 2022 – 3.59pm
Only twice previously in 40 years had a Reserve Bank of Australia governor made an unscheduled appearance on national television to discuss the economy.
In October 1988, Bob Johnston appeared on Channel Nine’s Business Today to defend his institution from slurs it was holding back rate rises to favour the then-Labor government. It was not until April 2010 that Glenn Stevens showed up on Seven’s Sunrise to warn property speculators to cool it, as interest rates were heading higher.
So, when Phil Lowe’s interview with the ABC’s Leigh Sales was beamed into the living rooms of more than 500,000 households on Tuesday evening, the gravity of the situation could not be ignored.
Lowe’s message was of a similar tone. He would do “what’s necessary” to stem an inflationary outbreak that he did not predict and bring the rate back within his target.
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Aussie house prices could fall more than 30pc
New research shows that house prices could fall more than 30 per cent if the Reserve bank of Australia meets the market’s interest rate expectations.
Christopher Joye Columnist
Jun 17, 2022 – 11.35am
Aussie house prices could fall by more than 30 per cent if the Reserve Bank of Australia fulfils uber-aggressive market expectations for an increase in its cash rate from the post-pandemic nadir of 0.10 per cent all the way to 4.25 per cent.
This would translate into an increase in the cheapest discounted variable mortgage rate from around 2.25 per cent to 6.50 per cent, or possibly higher given bank credit spreads (or funding costs) have widened sharply.
This newly published research represents an effort to further refine our Australian house price forecasts, which since October 2021 have anticipated a 15-25 per cent decline in dwelling values if the RBA lifts rates by more than 100 basis points.
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Markets are in meltdown. Here’s why you shouldn’t be
Crashing sharemarkets and rising interest rates are a bitter concoction, but the lessons of history provide a sweetening tonic.
Lucy Dean Wealth reporter
Jun 17, 2022 – 5.00am
It’s the sort of cocktail no one wants to drink. Take one shot of high inflation, another of slowing growth, add one more of increasing interest rate expectations, and you get widespread carnage.
The S&P500 entered a bear market on Monday for the first time since March 2020, having fallen 21 per cent from its January peak.
Markets had already been limping along for a while as a mass tech sell-off dragged. However, worsening supply chain challenges caused first by the COVID-19 pandemic and then by Russia’s invasion of Ukraine have seen inflation go through the roof, domestically and abroad. The US is currently battling an annual inflation rate of 8.6 per cent, a 40-year high.
Spooked by concerns the US Federal Reserve would act aggressively this week to curb inflation by hiking rates 75 basis points – in turn delivering higher borrowing costs and added pressures on households – Wall Street began to sell. And sell. And sell.
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Marles has some hardware headaches left on his desk
Australia’s huge defence spend will demand yet more difficult decisons for the new defence minister in coming months.
Andrew Tillett Political correspondent
Jun 17, 2022 – 1.43pm
When he went to cast his ballot on election day, Peter Dutton engaged in a bit of blink- and-you’ll-miss-it trolling of Scott Morrison.
With Morrison’s support for the Cronulla Sharks well-known, Dutton wore a Dolphins cap, the National Rugby League’s expansion team based around Redcliffe near Dutton’s electorate north of Brisbane.
More subtle was the charcoal jacket Dutton was wearing. The logo was hard to make out but on closer inspection, the jacket was provided by Rheinmetall, a German defence company that has set up shop near Ipswich to build vehicles for the army.
Rheinmetall already is building the Boxer combat vehicle, a contract worth more than $5 billion.
But it is the running with Korean rival Hanwha for a much bigger prize, a contract worth up to $27 billion to build hundreds of armoured infantry fighting vehicles, used to carry troops into battle.
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https://www.afr.com/markets/equity-markets/asx-to-plunge-amid-renewed-global-rout-20220617-p5auet
ASX suffers worst week since the pandemic onset
Cecile Lefort Markets reporter
Jun 17, 2022 – 4.33pm
Australian shares suffered their worst week since the pandemic-induced meltdown in 2020, tracking Wall Street on fears that aggressive policy tightening will induce a recession.
The S&P/ASX 200 index fell 1.8 per cent to 6474.8 points on Friday, its lowest in 18 months. It has dropped 6.6 per cent for the week, the biggest such tumble since March 2020 and follows a steep 4.2 per cent slide last week. the All Ordinaries lost 1.8 per cent to 6663.3 points.
The mood was already somber after Wall Street tumbled overnight with the Dow Jones Industrial Average off 2.5 per cent, the S&P 500 3.3 per cent lower and the Nasdaq 4.1 per cent down. The rout continued in Asia with MSCI’s broadest index of Asia-Pacific shares and Japan’s Nikkei also under water.
World stocks were on course for the steepest weekly percentage drop in more than two years.
Out of the index’s 11 sectors, consumer staples was the only category in the black with a gain of 0.6 per cent. Materials was the hardest-hit, dropping 2.8 per cent, followed by tech stocks, off 2.4 percent.
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Labor and the curse of the global shocks: Can Albanese defy history?
Columnist
June 18, 2022 — 5.00am
Every new Labor government is accompanied by the drumbeat of global crisis. It is a one-sided curse in our system which began in 1929, when James Scullin took Labor to power on the eve of the Great Depression. Every Labor leader since Scullin who took power from opposition has faced an economic upheaval within 12 months of their election.
This week, Anthony Albanese had some of his burdens clarified with an energy crisis at home, and an interest rate shock from the United States. The combination of the two has revived fears of the economic condition we thought had been buried by deregulation: stagflation. For Albanese and his ministers, the word brings back memories of Gough Whitlam’s doomed government.
But the 1970s we are reliving now look nothing like the original. This reboot follows the upside-down script of Stranger Things, where all the key players in the federation and the wider economy have their positions inverted.
In Whitlam’s day, the premiers were wreckers, not reformers. And the industrial chaos was triggered by the trade unions, not big business. The reversal of roles could be seen in two surprises this week.
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‘Perfect storm’: Is the Australian economy heading back to the 1970s?
June 18, 2022 — 6.00am
As a noted political historian, Paul Strangio is wary of oversimplified comparisons to the past. But as he surveys the diabolical challenges facing Anthony Albanese at the start of his prime ministership, he sees unmistakable parallels to Gough Whitlam and the tumultuous 1970s.
“In both cases you see a Labor government coming into power with the spectre of escalating energy prices and the risk of stagflation,” says the Monash University politics professor.
Recalling the spirit of the times five decades ago, Strangio says: “When Whitlam came to power Australia had gone through 1950s and ’60s with a sense of confidence and even complacency – themes Donald Horne famously explored in his book The Lucky Country. There was a sense that prosperity would continue uninterrupted.”
Then came the oil price shock triggered by an embargo by Arab members of the Organisation of Petroleum Exporting Countries. The price of oil quadrupled and the confounding new phenomenon of stagflation emerged. In Australia, inflation jumped from 6.5 per cent in 1972 to 15.3 per cent in 1975. Unemployment doubled from 2.6 to 4.9 per cent.
“What was going on was not supposed to happen – you were not supposed to have rising
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Worst hit to superannuation since Global Financial Crisis as market losses mount
6:18AM June 18, 2022
Australian workers face losses on their superannuation funds this financial year for only the fifth time in three decades, as fears about rising US interest rates took losses on the Australian sharemarket to more than $270bn since the Reserve Bank’s rate hike on June 7.
The All Ordinaries sharemarket index fell a further 1.8 per cent on Friday, its sixth consecutive day of losses, as shockwaves from the US Federal Reserve’s decision to raise rates by 0.75 percentage points on Thursday spooked international markets.
Global investors have become increasingly convinced that the US Federal Reserve’s “do whatever it takes” approach to taming 40-year highs in inflation will drive a global downturn next year.
NAB chief economist Alan Oster said the world’s largest economy could plunge into recession next year.
“Very rarely does a boom kill itself; nearly always it gets killed by the Fed,” Mr Oster said.
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https://www.afr.com/policy/economy/the-economy-is-too-hot-like-the-1970s-20220616-p5au3u
The economy is too hot like the 1970s
A record 13.5 million people are working, but there is chatter about a global recession and Australia’s economy is testing the speed limit.
John Kehoe Economics editor
Jun 16, 2022 – 3.57pm
Jobs are booming, but there is increasing chatter about the Australian economy being dragged into a possible global recession.
Why the nervousness, when a record 13.5 million people are working and the 3.9 per cent jobless rate is close to full employment?
The economy is running hot, probably too hot. The speed limit is being tested.
We are living through a confluence of historic global disruptions with deep parallels to the 1970s: an energy price crisis, war, bulging budget deficits, high inflation, interest rate rises and large wage claims.
The challenge for governments, central banks, business and trade unions is to avoid repeating the devastating stagflation bust.
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https://www.afr.com/companies/financial-services/is-it-finally-time-to-buy-bonds-20220616-p5au5f
Is it finally time to buy bonds?
An almighty market crash and a system full of cash may finally mean there’s merit for everyday investors to tip-toe back to the bond market.
Jonathan Shapiro Senior reporter
Jun 16, 2022 – 3.26pm
One of the occupational hazards of being a fixed income reporter over the past decade has been covering the many doomed attempts to breathe life into the dormant retail bond market.
The case for individual investors to own bonds has been well-made by those advocating for its growth.
Australians’ portfolios are more overweight stocks than those of any other nation. We are also the second-largest equity investors in the world when measured by total assets. And, as more of us approach retirement, it makes sense that we should de-risk and own safer fixed income investments.
But, the reality is that for most individual investors, bonds simply haven’t been compelling at all.
In the years following the global financial crisis Australia’s banks were under pressure to boost retail deposits and responded by paying over the odds – and over the bond rate – to attract savings.
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COVID-19 Information.
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COVID is making flu and other common viruses act in unfamiliar ways
By Frances Stead Sellers
June 14, 2022 — 11.26am
Washington: At one point last month, children were admitted to Yale New Haven Children’s Hospital with a startling range of seven respiratory viruses.
They had adenovirus and rhinovirus, respiratory syncytial virus and human metapneumovirus, influenza and parainfluenza, as well as the coronavirus – which many specialists say is to blame for the unusual surges.
“That’s not typical for any time of year and certainly not typical in May and June,” said Thomas Murray, an infection-control expert and associate professor of pediatrics at Yale. Some children admitted to the hospital were co-infected with two viruses and a few with three, he said.
More than two years into the coronavirus pandemic, familiar viruses are acting in unfamiliar ways. Respiratory syncytial virus, known as RSV, typically limits its suffocating assaults to the winter months.
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Climate Change.
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Energy market operator caps Qld power price as crisis builds
Angela Macdonald-Smith Senior resources writer
Jun 12, 2022 – 8.31pm
Australia’s national energy market operator has intervened to cap electricity wholesale prices in Queensland for what is thought to be the first time ever after a sustained period of extreme prices in the east coast’s building energy crisis.
Wholesale prices in Queensland were controlled at $300 a megawatt-hour at 6.55pm after the cumulative total of seven days of prices topped the set limit of $1.3591 million, the Australian Energy Market Operator said.
About 30 minutes later, the prices the wholesale prices in all the other main states in the National Electricity Market were all trading over $1000/MWh, signalling the tight supply market seeking to meet evening winter demand amid multiple outages of coal power units along the east coast.
Gas prices in two states are already being controlled by AEMO at $40 a gigajoule for similar reasons amid a jump in demand for gas for electricity generation and for heating during the cold snap, and high international prices for LNG.
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Shock report reveals 95.7 per cent of Australia’s gas profits are going to foreign owners
NCA NewsWire
6:00AM June 13, 2022
While most Australians are preparing to be hit with skyrocketing gas prices, a shocking report has revealed most of the profits will be going to foreign owners.
Researchers have conducted a deep-dive analysis of companies on the Australian Stock Exchange and found 95.7 per cent are foreign owned.
With 80 per cent of Australia’s gas being exported out of the country, households and businesses are experiencing price shock with “apocalyptic” rises in energy prices nationwide.
The Australian Energy Market Operator (AEMO) has been forced to step in and cap gas prices in Sydney, Melbourne and Brisbane to $40 per gigajoule, but it is still five times higher than last year’s prices.
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https://www.afr.com/companies/energy/aemo-calls-for-more-supply-to-avoid-blackouts-20220615-p5atrt
AEMO suspends electricity market
Mark Ludlow Queensland bureau chief
Updated Jun 15, 2022 – 2.59pm, first published at 9.33am
The Australian Energy Market Operator has taken the unprecedented step of closing down the spot electricity market to deal with the national energy crisis.
After days of asking and then directing energy companies to put in more supply, AEMO had obviously had enough.
Just after 2pm, AEMO issued a notification saying it had suspended the spot market in NSW, Victoria, Queensland, South Australia and Tasmania.
“AEMO has determined that it is necessary to suspend the spot market in all regions under NER clause 3.14.3(s)3) because it has become impossible to operate the spot market in accordance with the provisions of the rules,” it said in a statement.
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The electricity market failed, so the operator suspended it
If LNG exporters refuse to make enough gas at available domestically at a fair price, the government should introduce a windfall profits tax.
Tony Wood Contributor
Jun 16, 2022 – 5.20pm
Australia’s east coast energy market operator (AEMO) has made the right decision in the circumstances to suspend the market – but the path to recovery will be rocky.
The wholesale electricity market is the financial engine of the National Electricity Market, designed by governments in the late 1990s to match power generation with demand at lowest cost. It has been largely a success since then.
From today, the focus of AEMO, the power industry and governments will be to address the immediate issues with offline generators and restore the normal operations of the NEM. David Rowe
The wholesale spot price varies to reflect the lowest cost supply combination of coal, gas, hydro, and renewables. Various contracts outside the spot market enable generators and customers – retailers and large users – to manage their financial risks.
Several physical problems emerged over the past six to nine months that led to more than a quarter of the coal-fired plants in the NEM being offline. Some of these problems were technical or mechanical, and some related to external factors such as coal mines being flooded.
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‘Impossible to operate’: How the energy crisis unfolded
The collapse of the 33-year-old National Electricity Market this week has raised big questions around the management of the energy transition.
Angela Macdonald-Smith Senior resources writer
Jun 17, 2022 – 3.58pm
The dramatic breakdown of the National Electricity Market this week has inevitably raised big questions about the future of the country’s transition to low-carbon energy.
By the time Australian Energy Market Operator chief executive Daniel Westerman took the unprecedented step on Wednesday afternoon of suspending the NEM in favour of directly controlling the output of power plants, the job of keeping electricity supplies secure had become just too tricky.
With as much as 30 per cent of coal generators offline for one reason or another, runaway prices for natural gas and coal, low renewables generation, and plenty of demand during an early winter cold snap, Australia’s power grid was in trouble.
“These are just incredibly challenging and unprecedented times, with the combination of significant plant outages, getting fuel supply to key plants, but also with the backdrop of the higher commodity prices,” Origin Energy chief executive Frank Calabria told AFR Weekend. ”So they’ve all come together, and it’s clearly been very challenging.”
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How to rouse a sleeping giant? The burning question for energy-rich Australia
Political and international editor
June 18, 2022 — 5.00am
Australia is a global energy giant. It ships to the world such vast tonnages of coal and LNG that it’s the third-biggest energy exporter on the planet, after Russia and Saudi Arabia. Yet the giant has been brought to its knees. This week millions of Australians living in NSW, Victoria, Queensland and South Australia were urged to turn off their electric appliances during times of peak demand to avoid blackouts.
Even as the coal and gas companies loaded record volumes of energy onto ships to be sold abroad. Two-thirds of Australia’s energy production goes overseas, according to the federal government’s Australian Energy Statistics.
“It’s not the energy that’s short,” observes the former chair of the Energy Security Board, Kerry Schott, an authority on the industry.
Yet this week the government entity that co-ordinates the national energy market, the Australian Energy Market Operator (AMEO), had to suspend the market for the first time since its creation in 1998. It ran the system by direct fiat.
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Royal Commissions And The Like.
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How to avoid ‘shocking’ elder abuse in your family
Inheritance impatience, rising costs of living and COVID-19 are contributing to an increase in violent attempts to extort cash, shares and property from elders.
Duncan Hughes Reporter
Jun 15, 2022 – 5.00am
Older Australians are being threatened with guns, cheated, having essential medicine withheld and even physically harmed in desperate attempts to force them to hand over their assets, usually to family members, say lawyers.
Darryl Browne, a specialist in elder legal issues and principal of Browne Linkenbagh Legal Services, warns the “shocking litany of abuse is just the tip of the iceberg” and likely to worsen as the financial impact of COVID-19 and tighter economic conditions force inheritance impatience.
Kay Patterson, Age Discrimination commissioner and a former federal government minister, warns abuse ranges from violent extortion through to “benevolent ageism”, where family members effectively mothball elders by reducing their autonomy in the guise of protection.
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National Budget Issues.
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Philip Lowe says higher rates ‘necessary’ to slay 7pc inflation
John Kehoe Economics editor
Jun 14, 2022 – 9.00pm
Reserve Bank of Australia governor Philip Lowe says inflation will peak at a “very high” 7 per cent late this year, but an extra $250 billion of savings will help households contend with cost of living pressures and falling house prices.
Dr Lowe said it was “reasonable” to expect the cash rate to eventually reach 2.5 per cent, in line with the midpoint of the inflation target, but he admitted it was “unclear” how high rates would go and how quickly.
He said higher interest rates were required because there was too much “spending pressure” and the time for emergency pandemic settings was over.
“When there’s a lot of pressure on capacity, prices go up and higher interest rates will establish a better balance between spending and the ability of the economy to produce goods and services,” Dr Lowe said in an interview on Tuesday night with the ABC’s 7.30 television program.
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Minimum wage for lowest paid increased by 5.2pc
David Marin-Guzman Workplace correspondent
Jun 15, 2022 – 10.28am
The Fair Work Commission has increased the national minimum wage for more than 180,000 workers by more than a dollar an hour or 5.2 per cent but awarded a lower increase to millions of workers on higher-award rates.
The wage panel’s decision handed on Wednesday will mean the lowest paid workers’ hourly rates will increase from $20.33 an hour to $21.38 from July 1 and their weekly rates will rise by $40 a week to $812.60.
The increases will also be delayed for the industries hardest hit by the pandemic - aviation, tourism and hospitality - until October 1.
However, the more than 2 million workers on higher award rates will get a lower 4.6 per cent increase as long as it equates to at least a $40 a week increase for a full-time employee.
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Jobless rate steady at 3.9pc
June 16, 2022
Unemployment was steady at 3.9 per cent in May, despite the economy adding 61,000 jobs in the month amid climbing fears the Reserve Bank will be forced to slow the economy to tame runaway inflation.
The number of full-time jobs jumped by 69,400, while part-time jobs fell by 8700, according to the seasonally adjusted figures from the Australian Bureau of Statistics.
ABS head of labour statistics Bjorn Jarvis said the average pace of employment growth of 30,000 people over the past three months remained above the pre-Covid monthly trend of 20,000.
“The increase in May 2022 was the seventh consecutive increase in employment, following the easing of lockdown restrictions in late 2021,” Mr Jarvis said.
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https://www.afr.com/politics/federal/chalmers-signals-tougher-budget-cuts-ahead-20220617-p5augu
Chalmers signals tougher budget cuts ahead
Jun 18, 2022 – 5.00am
The Albanese government will cut harder than first flagged when it hands down a budget in October, and then build public support for a second-term agenda of tough revenue and spending measures needed to repair the nation’s finances.
In an exclusive interview with AFR Weekend, Treasurer Jim Chalmers said that in the short term, there was a “case for a more substantial look at trimming and cutting back some of this wasteful spending that we’ve inherited”.
In the longer term, the current fiscal settings were not adequate to deal with the structural challenges in a budget riven by debt and deficit, he said. On the path to the next election, the Labor government needed to make the case for hard decisions.
As inflation smashes global markets and talk of recession emerges, Dr Chalmers warned the states and anyone else coming cap in hand to the Commonwealth to look elsewhere because the $1 trillion federal debt was worse than that of the states, and the federal budget was “not a bottomless pit”.
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Health Issues.
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Monkeypox outbreak ‘poses real risk’, WHO warns
Hans van Leeuwen Europe correspondent
Jun 16, 2022 – 3.56am
Geneva | The worldwide monkeypox outbreak “poses a real risk”, the World Health Organisation has warned, after flagging an emergency meeting next week to decide whether to put the virus on a par with COVID-19.
A special WHO committee will assess whether to declare monkeypox a “public health emergency of international concern”, the label given to COVID-19 in January 2020, as the number of cases outside west Africa reaches 1900, spread across 30-plus countries.
“The magnitude of the outbreak poses a real risk,” said Hans Kluge, WHO’s regional director for Europe, where almost nine in 10 of the cases have been detected.
“The longer the virus circulates, the more it will extend its reach, and the stronger the disease’s foothold will get in non-endemic countries.”
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$760m extra for hospitals while health system fixes are found
June 17, 2022 — 3.54pm
The states will keep pandemic-era funding levels for their hospitals for an extra three months, costing the Commonwealth another $760 million, while they look at ways to improve the overall health system.
Priority will be given to getting aged care residents and National Disability Insurance Scheme participants out of hospital beds and into more appropriate facilities.
The federal government is paying half of COVID-19 state health costs under a temporary arrangement that was due to end on September 30.
Prime Minister Anthony Albanese said the new arrangement was not just about more money but looking more broadly at pressures on the system.
“What it’s about is a recognition that our hospital system at the moment has people who should be being looked after by their local GP, but GPs just aren’t available; that the lack of nurses and health professionals in the aged care system means that many people who should be either looked after at home or looked after as aged care residents end up in the hospital system as well, putting further pressure on the system,” he said.
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International Issues.
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https://www.afr.com/world/europe/momentum-in-ukraine-is-shifting-in-russia-s-favour-20220612-p5at3i
Momentum in Ukraine is shifting in Russia’s favour
Marc Santora and Roger Cohen
Jun 12, 2022 – 10.55am
A war in Ukraine that began with a Russian debacle as its forces tried and failed to take Kyiv, Ukraine’s capital, has seemingly begun to turn, with Russia now picking off regional targets, Ukraine lacking the weaponry it needs, and Western support for the war effort fraying in the face of rising gas prices and galloping inflation.
On the 108th day of Russian President Vladimir Putin’s unprovoked war, driven by his conviction that Ukraine is territory unjustly taken from the Russian Empire, Russia appeared no closer to victory. But its forces did appear to be making slow, methodical and bloody progress toward control of eastern Ukraine.
On Saturday, Ukraine’s president, Volodymyr Zelensky, once again promised victory. “We are definitely going to prevail in this war that Russia has started,” he told a conference in Singapore in a video appearance. “It is on the battlefields in Ukraine that the future rules of this world are being decided.”
Yet, the heady early days of the war — when the Ukrainian underdog held off a deluded and inept aggressor and Putin’s indiscriminate bombardment united the West in outrage — have begun to fade. In their place is a war that is evolving into what analysts increasingly say will be a long slog, placing growing pressure on the governments and economies of Western countries and others throughout the world.
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This article originally appeared in The New York Times.
Russia ‘bombing indiscriminately’ with massive anti-ship missiles
By James Kilner
June 12, 2022 — 5.00pm
London: Russia is firing huge Cold War-era missiles designed to destroy aircraft carriers at Ukraine’s military in Donbas because it has run out of precision rockets, according to the UK’s Ministry of Defence.
The five-and-a-half-tonne missiles were designed to carry a nuclear warhead, so using them as conventional missiles is causing vast collateral damage.
“When employed in a ground attack role with a conventional warhead they are highly inaccurate and can therefore cause significant collateral damage and civilian casualties,” the Ministry of Defence said.
Since withdrawing from around Kyiv in March, the Russian army has concentrated its main efforts on capturing the Donbas region of eastern Ukraine. Severodonetsk is the largest city that it does not currently hold in Luhansk, which makes up half of Donbas, and is the focus of the fiercest fighting.
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Inflation: as bad as the 1970s? At least some think it is
1:55PM June 12, 2022
At least it’s not as bad as in the 1970s.
That’s one glass half full approach to assessing the inflationary burst spreading painfully throughout the world, foreshadowing potentially economy-crushing rates of interest.
governments, central banks and an army of experts caught embarrassingly off-guard by rising inflation over the last 12 months – which they said would be transitory – could reassure themselves at least that the challenge of reducing inflation wouldn’t be as great as in the wake of the two 1970s oil shocks.
But is that even true?
One of the world’s best-known economists, Larry Summers, former president of Harvard University and US Treasury secretary under Bill Clinton, thinks not.
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US set for recession next year, economists predict
Colby Smith and Caitlin Gilbert
Jun 13, 2022 – 12.21pm
Washington/New York | The US economy will tip into a recession next year, according to nearly 70 per cent of leading academic economists polled by the Financial Times.
The latest survey, conducted in partnership with the Initiative on Global Markets at the University of Chicago’s Booth School of Business, suggests mounting headwinds for the world’s largest economy after one of the most rapid rebounds in history, as the Federal Reserve ramps up efforts to contain the highest inflation in about 40 years.
The US central bank has already embarked on what will be one of the fastest tightening cycles in decades. Since March, it has raised its benchmark policy rate by 0.75 percentage points from near-zero levels.
The Federal Open Market Committee gathers once again on Tuesday for a two-day policy meeting, at which officials are expected to implement the first back-to-back half-point rate rise since 1994 and signal the continuation of that pace until at least September.
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Why global economies fear a US-China decoupling
Hans van Leeuwen Europe correspondent
Jun 13, 2022 – 8.55am
Geneva | A decoupling of the US and Chinese economies would batter the world’s GDP by more than the global financial crisis of 2008-09, World Trade Organisation director general Ngozi Okonjo-Iweala has warned.
In a punchy opening address to a summit of trade ministers from the WTO’s 164 member countries – the first time they have met since a failed conference in Buenos Aires five years ago – Dr Ngozi said another failure in Geneva this week would fan geopolitical tensions, fuel illegal migration and ramp up the world’s debt burden.
But speaking separately to journalists, she also hosed down expectations: she said nailing down even one or two of the WTO’s stalled trade deals would amount to progress for the world’s beleaguered trade umpire and rule-setter.
“If we do not deliver – if we allow or even embrace economic and regulatory fragmentation – the costs to your domestic constituencies will be substantial,” she told the 120 ministers at the summit’s opening session late on Sunday (AEST).
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Shock US inflation a rude reality check for already shaken markets
Senior business columnist
June 13, 2022 — 11.30am
After Friday’s shock inflation readings, the US Federal Reserve Board meeting that starts on Tuesday is predestined to produce an outcome that will further destabilise shaken markets and add more pessimism to an already-gloomy global economic outlook.
The 8.6 per cent headline US inflation rate for May – another 40-year record – dashed hopes that had been raised by an April reading of 8.3 per cent that seemed to suggest the rate had peaked.
Inflation in the US and elsewhere now appears entrenched and spreading beyond the impact of dysfunctional supply chains and soaring energy prices. The May increase is disconcerting, given that the US is cycling inflation numbers that were already surging at this time last year.
The US data came a day after the European Central Bank foreshadowed its first rate rise in more than a decade at next month’s meeting and announced it would end its eight-year-old program of massive bond purchases on July 1.
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‘Party like a Russian’ turns toxic at Putin’s economic forum
June 13, 2022 — 7.30pm
Vladimir Putin’s annual economic forum in St. Petersburg was always a hot ticket for Russian and foreign business tycoons eager to curry favour with the Kremlin by hosting glitzy parties or announcing major investments. His invasion of Ukraine has made it a radioactive one.
Many business leaders are concerned about even being seen at this year’s St. Petersburg International Economic Forum, fearful it may make them targets for sanctions, three people familiar with the situation said, declining to be identified because the issue is sensitive. At least two executives said they plan to leave early to avoid attending Putin’s speech at the event, which in past years was the highlight for the well-connected.
Some have asked the organisers, Roscongress, not to identify them on their badges at the June 15-18 SPIEF forum, the people said. Roscongress didn’t respond to requests to comment.
Even as Russia contends with unprecedented international sanctions that threaten its deepest economic recession in decades, officials are projecting a business-as-usual approach for the 25th anniversary event under the slogan of “new opportunities in a new world.”
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Brexit: Boris Johnson rips up Northern Ireland Protocol
5:43AM June 14, 2022
The United Kingdom government has introduced new legislation to rip up the Northern Ireland protocol, angering the European Union and Irish politicians who have threatened a fresh trade war and a reopening of Brexit divisions within the Conservative party.
For 18 months post-Brexit difficulties for Northern Ireland, including a refusal by the Democratic Unionist Party to form a government at Stormont has caused such “exceptional and long term” political concern, the Boris Johnson government has now tested international law to do away with the protocol and introduce a new one.
Under the new legislation, introduced on Tuesday morning Australian time to Westminster, the British government can make changes to restore stability and ensure the delicate balance of the Good Friday agreement is protected.
The government said the latest Northern Ireland Protocol Bill will address the practical problems the existing protocol – the Brexit deal negotiated between the EU and the UK which included an effective trade border down the Irish Sea – had presented.
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https://www.afr.com/world/europe/divisions-in-the-west-threaten-ukraine-20220614-p5atml
Divisions in the West threaten Ukraine
Gideon Rachman Columnist
Updated Jun 14, 2022 – 2.39pm, first published at 2.17pm
Early in the Vietnam war, US President Lyndon Johnson asked one of his top generals what it would take “to do the job”. The unhelpful reply was to ask for a definition of the job.
A later White House study defined winning in Vietnam as “demonstrating to the Vietcong that they cannot win”.
Now, as the US supports Ukraine in its war with Russia, Western powers are once again tempted to define winning as not losing.
The Ukrainians worry that they will be given just enough to keep fighting – but not enough to defeat Russia. This is an agonising prospect at a time when their cities are being devastated and the Ukrainian army is losing hundreds of men a day as it fights to stem a Russian advance.
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Echos of Lehman Bros blowup as markets plunge
Ye Xie, Isabelle Lee, Amelia Pollard and Peyton Forte
Jun 14, 2022 – 11.41am
Quincy Krosby could not wait for Monday’s trading session to be over.
“I was glued to the screen,” LPL Financial’s chief equity strategist said in an interview.
It was just one of those days with losses so gigantic that solely looking at stocks was not enough. Her eyes strayed to bonds, to credit default swaps and elsewhere as she tried to figure out how bad things were and might get.
What she saw was ugly. Even by the standards of this volatile year, Monday’s wild ride throughout financial markets stands out. Two-year US Treasury yields surged 29 basis points as bond prices tanked. The yield jumped 54 basis points since Thursday night, the biggest two-day increase since 2008, a sign of just how rapidly traders are adjusting where they think the Federal Reserve will take interest rates.
All but five stocks in the S&P 500 tumbled, and the benchmark posted a more than 20 per cent loss since its January peak, thus crossing into a bear market.
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https://www.afr.com/policy/economy/policy-errors-of-the-1970s-echo-in-our-times-20220615-p5atv3
Policy errors of the 1970s echo in our times
The echoes of the 1970s are loud: higher than expected inflation, big shocks and weakening growth. But the differences are also encouraging.
Martin Wolf Columnist
Jun 15, 2022 – 12.04pm
Unexpectedly high inflation, wars in key commodity-producing regions, declining real wages, slowing economic growth, fears of tightening monetary policy and turbulence in sharemarkets – we see all of these things in today’s world economy.
These were also the dominant features of the world economy in the 1970s. That period ended in the early 1980s, with a brutal monetary tightening in the US, a sharp reduction in inflation and a wave of debt crises in developing countries, especially in those of Latin America.
It was also followed by huge changes in economic policy: conventional Keynesian economics was buried, labour markets were liberalised, state-owned enterprises were privatised and economies were opened up to trade.
How close are the parallels, especially to the 1970s? What are the differences? And what can we learn from those mistakes? The World Bank’s Global Economic Prospects report, out last week, addresses these questions. The parallels are clear, as are differences. Not least, there are mistakes to be avoided: do not be over-optimistic; do not take high inflation lightly; and do not leave vulnerable people and economies unprotected against the shocks themselves and their painful legacies.
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https://www.afr.com/policy/economy/fed-lifts-key-rate-by-75-basis-points-20220616-p5au2f
Fed’s jumbo rate rise to cool ‘very hot’ economy
Matthew Cranston United States correspondent
Updated Jun 16, 2022 – 9.14am, first published at 4.05am
Washington | The Federal Reserve lifted the official interest rate by 0.75 percentage point, the biggest increase in 28 years, as it intensifies efforts to combat the highest US inflation in four decades.
After the Fed’s two-day policy meeting on Wednesday (Thursday AEST), chairman Jerome Powell said it would continue raising rates at a more aggressive pace, with another 0.50 to 0.75 percentage point increase at its next meeting in July.
“I do not expect moves of this size to be common,” Mr Powell said at a press conference. The increases would likely lead to a benchmark rate of 3.4 per cent by the end of this year, up from its new range of 1.5 to 1.75 per cent.
Mr Powell played down fears of a recession from the rapid pace of tightening, saying the US economy was still “very hot” and could withstand higher rates even in an “extraordinarily uncertain environment”.
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Interpreting the Federal Reserve’s latest move and outlook
Timothy Moore Before the Bell editor
Jun 16, 2022 – 5.26am
Here are how some economists and strategists are assessing the latest Federal Reserve policy decision and chairman Jerome Powell’s comments:
LPL Financial asset allocation strategist Barry Gilbert: “The more aggressive stance can still be consistent with a softish landing for the economy, but the path is getting narrower. We still think the Fed may be able to back off from its new forecast of a 3.4 per cent benchmark rate at the end of the year, but for now the priority is showing resolve.”
Pantheon Macroeconomics’ Ian Shepherdson: “We think a further 75bp hike in July is less than a 50/50, given our macro forecasts, and we’d be amazed to see 75bp in September. The incoming data are going to make it clear that such aggressive action is unnecessary. We hope the Fed takes the opportunity to pull back from overkill.”
Morgan Stanley on the revised US economic projections: “The Fed’s projections revealed higher forecasts for headline inflation, but little change to core inflation (just marking to market, for example), and the large drop in core inflation in 2023 still underscores they see the surge as largely temporary.
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https://www.afr.com/policy/foreign-affairs/five-hard-truths-about-the-war-in-ukraine-20220615-p5atvy
Five hard truths about the war in Ukraine
The Russians and Ukrainians are running out of weapons and the rest of the world is running out of patience and ideas.
Bret Stephens
Jun 16, 2022 – 8.00am
Five sentences sum up the war in Ukraine as it stands now.
The Russians are running out of precision-guided weapons. The Ukrainians are running out of Soviet-era munitions. The world is running out of patience for the war. The Biden administration is running out of ideas for how to wage it. And the Chinese are watching.
Moscow’s shortfalls with its arsenal, which have been obvious on the battlefield for weeks, are cause for long-term relief and short-term horror. Relief, because the Russian war machine, on whose modernisation Vladimir Putin spent heavily, has been exposed as a paper tiger that could not seriously challenge NATO in a conventional conflict.
Horror, because an army that cannot wage a high-tech war, relatively low on collateral damage, will wage a low-tech war, appallingly high on such damage. Ukraine, by its own estimates, is suffering 20,000 casualties a month. By contrast, the US suffered about 36,000 casualties in Iraq over seven years of war. For all its bravery and resolve, Kyiv can hold off – but not defeat – a neighbour more than three times its size in a war of attrition.
That means Ukraine needs to do more than slow down the Russian army. It needs to break its spine as quickly as possible.
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Joy over big rate jump misses the point
The risk of lifting rates faster so markets can take their medicine now and then get relief from future cuts ignores the implied threat to company earnings.
Jun 16, 2022 – 10.16am
At first glance, the 1.5 per cent rally on Wall Street on Wednesday night is difficult to understand.
After expressly ruling out a 0.75 percentage point rate increase last month, Federal Reserve chairman Jerome Powell went ahead and delivered it anyway. He cited Friday’s ugly US inflation data and worrying signs inflation expectations are becoming embedded in the minds of consumers.
It was the biggest single rate rise since 1994 and as clear as a sign as we’ve had that the Fed recognises it will need to move rates up much faster and far higher than it thought possible just months ago,
The famous “dot plot” that sets out the rate expectations of Fed committee members now says rates will sit at about 3.4 per cent by the end of the calendar year. That implies another 1.75 percentage points of jumps, with another 0.75 percentage point hike widely tipped for July. Just two months ago, the dot plot said rates would top out in 2022 at 2 per cent, which underscores just how rapidly the Fed’s thinking is changing.
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Xi tells Putin his Ukraine invasion is ‘legitimate’
Updated June 16, 2022 — 9.26amfirst published at 6.03am
Beijing: Chinese President Xi Jinping has told Vladimir Putin that his actions on Ukraine were legitimate, reasserting China’s support for the Russian president on issues of sovereignty and security, according to Moscow’s official readout of their phone call.
Xi told Putin that he “noted the legitimacy of the actions taken by Russia to protect the fundamental national interests in the face of challenges to its security created by external forces”.
China has refused to criticise Russia’s invasion of Ukraine or even to refer to it in such terms, while accusing NATO and the West of provoking Moscow into attacking.
Xi said “all parties should responsibly push for a proper settlement of the Ukraine crisis,” according to Beijing’s readout of the call. He has sought to avoid repercussions from supporting the Russian economy amid international sanctions.
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World’s central banks got it wrong, and economies pay the price
By Enda Curran
June 16, 2022 — 9.52am
Even after central banks recognised they got their inflation calls wrong last year, they’ve continued to flub their policy guidance, threatening greater damage to their credibility, roiling markets and undermining the pandemic recovery.
The Federal Reserve now hiked interest rates by 75 basis points overnight, just weeks after Chair Jerome Powell and his team repeatedly advertised a half percentage point move. It’s the latest in a series of misfires, from deeming high inflation “transitory” last year to speeding up the end of its bond-purchase program to accelerating the runoff of its bond portfolio.
European Central Bank President Christine Lagarde has lately also turned more hawkish than she previously indicated, and the Reserve Bank of Australia is among those raising rates faster than its policy makers had signalled.
Investors are casting judgement as they fret that the race to make up for past forecasting errors raises the risk of recessions. Global stocks have entered a bear market, US Treasury yields on Monday posted their biggest two-day jump since the 1980s and credit markets are showing signs of increasing stress.
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Operation Attic: inside the race to re-arm Ukraine
By Larisa Brown
The Times
June 16, 2022
Inside the dusted-off attic of an old Second World War building in southern Germany is the nerve centre for western weapons shipments to Ukraine.
More than 100 troops based at Patch Barracks in Stuttgart have the job of finding and sending arms across the border in the first mission of its kind.
For Brigadier Chris King, the most senior British officer in charge of the highly sensitive operation, the stakes could not be higher. “I feel if we don’t do enough, we will sow the seeds of future conflict,” the father of two told The Times.
“This is a generational moment and we either help Ukraine to fight or we accept that maybe not straight away, but in the next few years, we’re going to be fighting somewhere else.”
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Panther tank ‘will easily outgun’ pride of the Kremlin
By Oliver Moody
The Times
4:26PM June 15, 2022
Germany’s biggest arms company has unexpectedly unveiled the first prototypes of an advanced battle tank said to be capable of easily outgunning the T-14, the pride of the Russian army.
The Panther KF-51, whose main gun is thought to have a range of up to 6km, was developed in secret for two years but rushed to completion after the invasion of Ukraine in anticipation of a global surge in military spending. It is also equipped with four loitering munitions: anti-tank suicide drones with a 4.5kg explosive payload that can circle in the skies for an hour before dive-bombing enemy armour.
The Panther is pitched as the successor to the Leopard 2, which has been Germany’s primary battle tank for more than four decades and which has been sold to more than a dozen countries.
Yet it also appears to be a response to the T-14 Armata, a Russian tank whose capabilities have unnerved NATO strategists, although so far only a couple of dozen have been produced and the model has seen little action in Ukraine.
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Ukraine tells the West: talk is cheap, give us the weapons
Hans van Leeuwen and Andrew Tillett
Jun 17, 2022 – 10.17am
For Ukrainian President Volodymyr Zelensky, visits from his fellow world leaders are like buses. You don’t get any for ages, then three come along at once.
German Chancellor Olaf Scholz, French President Emmanuel Macron and Italian Prime Minister Mario Draghi boarded a night train in Poland on Wednesday, for a highly consequential visit to Kyiv on Thursday.
These are the leaders of the European Union’s three biggest economies. And they are three men who have each, in their own way, seemed reticent to back Zelensky to the hilt in his David-and-Goliath struggle against the forces of Russian President Vladimir Putin.
Scholz has been sluggish with the weapon supplies, and wary of causing Germans political and economic pain. Macron has been talking about not hurting Putin’s feelings. And Draghi proposed a ceasefire plan even as Russian troops remain ensconced on Ukrainian territory.
But Zelensky needs them: he is on the back foot. After visiting his troops on the front line last week, his rhetoric has changed. He now talks often of “painful losses” and “a terrifying toll”; he speaks less of winning, more of “holding on”.
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As European leaders visit Kyiv, Putin cuts their gas supply
Katrin Bennhold and Melissa Eddy
Jun 17, 2022 – 10.17am
Berlin | As the leaders of Europe’s three biggest economies appeared in Kyiv on Thursday (Friday AEST) to send a message of support to Ukraine, Russian President Vladimir Putin had his own message for them: Don’t forget, your industries are at my mercy.
With inflation already near a 40-year high, gas prices surged further as Russia cut flows to Europe’s most important natural gas pipeline for the second day in a row on Thursday. Germany, Italy, Austria and the Czech Republic all reported shortfalls.
Gazprom, Russia’s state-controlled gas giant, said repairs were to blame for the squeeze. But European officials openly accused Mr Putin of using energy supplies as a weapon, burying any last shred of the notion that Moscow was, on energy at least, a reliable partner.
Gas exports have given Moscow a potent diplomatic tool on the continent, where large swaths of industry depend on Russian energy. As German Chancellor Olaf Scholz, French President Emmanuel Macron and Italian Prime Minister Mario Draghi met with Ukrainian President Volodymyr Zelenskyy in Kyiv, the capital, Mr Putin reminded them he has his finger on the gas tab - and the fate of European economies in his hand.
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China launches new aircraft carrier in military build-up
Michael Smith North Asia correspondent
Jun 17, 2022 – 4.08pm
Tokyo | China launched its third aircraft carrier on Friday in a move that will significantly bolster its military presence in the East and South China seas.
The Type 003 carrier, named Fujian, was launched from a shipyard in Shanghai. State television broadcast footage of the vessel decked out with ribbons and Chinese flags at a launch ceremony attended by thousands of military officers and local officials.
The vessel will now undergo mooring and sailing tests, China’s Defence Ministry said in a report on its website. It is not expected to enter military service until 2024.
China now has the world’s largest fleet of carriers after the United States which defence analysts said would play a crucial role if Beijing took military action to seize control of Taiwan.
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Russian President Vladimir Putin looks sick at St Petersburg Economic Forum
Vladimir Putin appeared fidgety and grimacing as he looked sweaty and bloated during a lengthy speech on stage.
Henry Holloway and The Sun
June 18, 2022 - 10:48AM
Vladimir Putin appeared fidgety and grimacing as he looked sweaty and bloated during a lengthy speech on stage.
Russia’s tyrannical ruler was appearing at the St Petersburg Economic Forum as he delivered a speech and then took part in a long discussion.
Putin appeared to be uncomfortable, constantly shifting in his seat and fidgeting with his hands.
He was sat slumped into his chair, often resting at strange angles and curling into hands into claw-like positions.
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Beijing digs in behind Russia over Ukraine invasion
By Afp
10:53AM June 16, 2022
President Xi Jinping has assured Vladimir Putin of China’s support on Russian “sovereignty and security”, leading Washington to warn Beijing it risked ending up “on the wrong side of history”.
China is “willing to continue to offer mutual support (to Russia) on issues concerning core interests and major concerns such as sovereignty and security,” state broadcaster CCTV reported Mr Xi telling the Russian President during a phone call on Wednesday.
The backing comes as the three leaders of France, Germany and Italy arrived in Kyiv to “send clear political signals to Ukraine and the Ukrainian people, who have been resisting heroically for several months”.
US President Joe Biden also announced $US1bn worth of new arms for Ukraine as Pentagon officials defended the pace and quality of supplies as meeting Kyiv’s battlefield needs.
China has refused to condemn Moscow’s massive military assault on Ukraine and has been accused of providing diplomatic cover for Russia by blasting Western sanctions and arms sales to Kyiv.
Wednesday’s call was the second reported between the two leaders since Mr Putin launched his invasion of Ukraine on February 24.
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Losing troops in Ukraine, Russia grapples with its manpower problem
By Thomas Grove
The Wall Street Journal
7:54PM June 18, 2022
As Russia tries to take the initiative in eastern Ukraine, Moscow has had to find fresh manpower from some unlikely places for what is shaping up to be a crucial phase of the war.
Since the beginning of what the Kremlin calls its special military operation, it has tried to pursue its campaign with an army at peacetime strength. The results have been mixed.
Though Russian forces have made gains in the east and south of the country, they sustained crushing losses in Moscow’s initial attempt to seize Kyiv, by some counts losing as many soldiers as the old Soviet Union did in Afghanistan.
Yet Russia’s leadership has been reluctant to take the step of declaring war, which would allow it to order a full mobilisation of fighting-age men. That, analysts say, would tie Russian President Vladimir Putin’s own fate too closely to the outcome.
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I look forward to comments on all this!
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David.
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