Global equity markets rose again over the past week, helped by a strong start to the US earnings season, strong economic data and US inflation data not being as bad as it was. we feared him. For the week, US stocks rose 1.8%, Eurozone stocks gained 2.5%, Japanese stocks rose 3.6%, and Chinese stocks rose 0.04%. The positive global advance also saw Australian stocks rise 0.6%. Bond yields retreated slightly, but oil, metal and iron prices rose, with copper almost hitting a new high. Strong commodity prices helped push the US dollar back above $ 0.74.

Correction risks remain

Cyclical indicators are positive and stocks are crashing on the back of technical resistance. The risk of a further correction remains – as issues over the debt ceiling, US fiscal policy and tax hikes, China’s slowdown, the energy crisis and supply constraints and inflation remain. However, we remain of the view that the problems will be largely resolved in a way that does not seriously threaten global growth: a US default is highly unlikely; China will not bail out Evergrande but restructure it to limit damage to the rest of the economy and provide economic stimulus; and supply constraints will ultimately be resolved as the pandemic recedes, workers return, and spending returns to services from goods.

The relative resilience of cyclical coins like copper, financials and the US dollar through the recent correction is a positive sign that the world is not about to fall back into recession and bodes well for the uptrend in US dollars. actions that will continue over the next 6 to 12 months. . And now the stock markets seem to be shedding the worries and going up again.

IMF forecasts still optimistic

While the IMF has expressed concerns about the coronavirus, supply constraints and inflation, it only revised its global growth forecast this year to 5.9% and forecasts growth of 4.9% l ‘next year. Which is similar to our own point of view.

La Nina continues. Two years ago the world was facing an El Niño weather phenomenon and for Australia that meant hot and dry conditions on the east coast, severe bushfires and declining agricultural production. Fortunately, the Southern Oscillation Index which tracks surface air pressure across the Pacific swung into La Nina last year and remains there and this suggests cooler and wetter conditions along the coast. is.

While La Nina has recently faced some criticism as the driver of soaring energy prices in Europe (as utilities stock up on gas ahead of a cold winter – although it could go in the other way around if La Nina drives more hydropower and wind) for Australia, this is generally positive for agricultural production and helps keep bushfires low. Controlling the coronavirus only to get straight back into a severe bushfire season wouldn’t have been good!

Coronavirus Update

Lots of reasons to be optimistic. New cases of coronavirus around the world continue to decline, with most regions remaining on a downtrend except for Europe, which is mainly driven by the UK.

More importantly, the new deaths remain moderate compared to previous waves. This is especially evident in developed countries, as vaccines have helped prevent serious illnesses. UK deaths (the red line in the following graph) are 20% below the level suggested by the December / January wave (the dotted line).

While Israel experienced a Delta spike in the number of new cases in August and September – likely reflecting the decline in the effectiveness of Pfizer vaccinations since the start of this year, the level of hospitalizations and deaths has remained low compared to to the previous wave and all again tend to decrease thanks to the administration of a shot recall to 42% of the population.

Another treatment for the coronavirus. In the midst of a recovery from the favorable results of Merck’s covid treatment pill, the results of the AstraZeneca antibody cocktail trials show a similar reduction in half the risk of serious illness or death. So now there are more ways to treat patients. These are very useful for high risk groups for whom vaccines are less effective and unvaccinated.

Immunization rates continue to rise, albeit slowly. 50% of people worldwide and 73% in developed countries have now received at least one dose of the vaccine.

The main risks to watch out for include: a possible resurgence of cases during the northern winter, especially when vaccine efficacy begins to wane in some countries in the absence of rapid booster programs; the low level of immunization in poor countries; and the possibility of more transmissible / deadly mutations. But so far good.

In Australia, new cases hit a new high in Victoria, but if NSW, which has led a month and continues to see declining cases, is any guide, Victoria is set to peak soon.

Australia continues to vaccinate around 1% or more of the population per day, with 72% of the entire Australian population now having received at least one dose, which is far higher than in the United States. For the first doses for adults, ACT is now 98%, NSW is 91%, Victoria will reach 90% in less than a week, and Australia will reach 90% in about two weeks. Making vaccination a condition of participating in reopening locked states has skyrocketed vax rates. Taking into account current trends and the average difference between 1^st and 2^sd doses, the following graph and table indicate approximately when key vaccine targets will be achieved.

NSW and ACT will likely reach the target of 80% of adults with double vax in the next few days, Victoria and Australia (on average) will reach 70% of adults in about a week.

So, based on meeting vaccination targets, the ACT lockdown is now complete and NSW will move to the second stage of reopening on Monday. NSW is also removing quarantine requirements for returning Australians who are vaccinated and have a negative covid test from November 1. Victoria will begin to reopen in about a week (if circumstances permit). Other states and territories will reach the 70% target by mid-November.

The main risk in Australia is that too rapid reopening in NSW and / or Victoria will lead to a resurgence of cases – as Singapore has seen with new cases with around 3,000 new cases per day – which overwhelms the hospital system requiring some reversal in reopening to slow new cases as seen in Singapore. Note that NSW is still only 64% of the entire population fully vaccinated compared to 82% in Singapore. A reversal of the reopening would again delay economic recovery. This could especially be a risk in the coming months if the vaccine’s effectiveness for people vaccinated earlier this year begins to wane. A sharp decrease in the time lag between vaccine doses in Australia also puts them at risk of being less effective. A less risky approach than simply tying reopening stages to vaccine levels may be to allow about three weeks between each reopening stage to ensure that new cases and, most importantly, hospitalizations do not increase and overburden the patient. hospital system.

Meanwhile, vaccination continues to help reduce serious illness. Data on coronavirus cases for New South Wales show that fully vaccinated people continue to account for a low proportion of cases, hospitalizations and deaths.

The level of deaths (the red line in the following graph) turns around 20% of the level predicted based on the previous wave (dotted line). On this basis, vaccines are currently helping to save about 52 lives per day.

Economic activity trackers

Our Australian Economic Activity Tracker has increased further over the past week, helped by the start of the reopening. It is likely to increase in the coming months as the reopening of New South Wales gathers pace and Victoria reopens. As such, there is growing certainty that GDP will be on the rise this quarter after what we estimate was a -4% hit in the September quarter. So recession avoided. However, given the high number of coronaviruses present in the community, which may cause some consumer and business caution and the risk of a setback, only those vaccinated can initially participate in the reopening, this recovery will likely be more gradual at first than this was not the case after the closures last year.

Our European economic activity tracker has edged up over the past week, but our US tracker remains at a standstill, suggesting some loss of momentum in the US recovery.

Epic songs

A typical radio song is about 2-3 minutes long, but in the late 1960s the Beatles tested it with Hey Jude which was 7.11 minutes long. But right before that, Jimmy Webb had composed a song called MacArthur Park that was about everything he had observed in the park of the same name in LA while catching up with his girlfriend. The song was eventually recorded by actor Richard Harris, had different movements and time signatures and at 7.21 minutes broke all the rules but reached second in the US and first in Australia. This in turn inspired Paul Ryan to write Eloise for his brother Barry Ryan (who sadly passed away last month) and it lasted 5.5 minutes. Queen’s Bohemian Rhapsody at 5.55 minutes is similar.