TLDR & TLDL: The global economy is far from healing as Delta waves crash through the unvaccinated 50% of developed economies, and as geo-political clashes between the United States and China and Iran deepen.
That is forcing many overseas to reassess the likelihood of rate hikes soon, just as economists here are calling for quick and big interest rate hikes from our Reserve Bank. Economists here have started talking in the last week about mortgage rates rising to over 4.5% next year because of a rise in the Official Cash Rate from 0.25% to nearly 2% next year. But that sort of talk is very out of step with what’s happening overseas.
The S&P 500 is down more than 2% this morning and the US 10 year bond yield, a key indcator for global interest rates, fell 12 basis points to 1.18% overnight as Covid-19 case numbers surged in Britain, Europe and the United States. Investors are particularly worried about Britain’s chaotic and very-premature ‘Freedom Day’ reopening overnight, which saw tens of thousands visit night clubs while over half a million were still in isolation, including PM Boris Johnson and his Health Minister Sajid Javid, both of whom have been double-jabbed.
The economic news from across the Tasman overnight is also worrying. New South Wales shut down its construction industry yesterday, delivering an immediate A$2b hit to its economy and sending 250,000 workers home. Melbourne also extended its snap lockdown yesterday and doctors fear New South Wales’ lockdown could extend well past August. New Zealand extended its travel pause with Victoria overnight.
Economists in Australia are talking this morning about the Reserve Bank of Australia having to reverse its comments about reducing its money-printing rate from only a few weeks ago. (AFR-$$$)
The tension with China is building
Meanwhile, New Zealand joined the US, UK, EU, Australia, Japan, NATO and Canada in accusing China of being behind recent cyber-attacks on the Microsoft Exchange email server system. GCSB Minister Andrew Little said in an unusually strong statement released last night the GCSB had “established links between Chinese state-sponsored actors known as Advanced Persistent Threat 40 (APT40) and malicious cyber activity in New Zealand.”
“New Zealand joins international condemnation of the exploitation of the Microsoft Exchange platform by Chinese state-sponsored actors, and the widespread and reckless sharing of the vulnerability, which led to other cyber actors’ exploitation of it. We call for an end to this type of malicious activity, which undermines global stability and security, and we urge China to take appropriate action in relation to such activity emanating from its territory.” Andrew Little
Elsewhere, the United States is considering fresh sanctions on Iranian oil exports to China as a way of pressuring Iran back to the table for a new deal to limit its nuclear activities, the WSJ-$$$ reported. (Al Jazeera) And this geo-political action is extending into our part of the world, with Australia’s Government set to finance a takeover bid for the mobile network used in Samoa, Fiji, PNG and Tonga to stop China getting hold of it. (WSJ-$$$)(AFR-$$$)
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Bernard
Dawn chorus: Will our mortgage rates really spike when the rest of the world's are not?