High Steaks Battle

Market Update: 22 May 2020

China National Party Congress today and Australia is waiting in anticipation to see what infrastructure may be announced – but they mightn’t be invited to the party.

This week has seen besides Barley and Beef, additional measures such as “supervising” Iron Ore imports and talk of Coal-run generators told to buy local coal only. This represents over 30% of our exports and over AUD120Bln to our economy*… it comes in at over 40% or 160Bln when we add Education – that most International Students can’t attend and Beef.

There are certainly reasons Australia is standing up for its rights to understand how COVID occurred, but this may hurt us more than China. Some say China needs us as much as we need them… there’s some truth behind that. China coal is believed to be of a lesser standard and more polluting, Iron Ore quality is the same story. Beef is questioned on both the protein shortage basis in China alongside quality and if it’s fake.

Can China though source elsewhere? Yes to an extent and there has been plenty of cycles of stockpiling commodities and then going on a buyers strike. The recovery of Australia does depend on exports and as such, it will be detrimental to the economy should this dispute persist. Let’s hope leaders see reason, but although these events should’ve suppressed AUD, the lack of non-speculative cross-border flow will over time will certainly not support it. Alongside this, Fitch put Australia’s AAA status on negative watch.

China isn’t making friends elsewhere at present, the US are concerned with not only COVID but any announcements made today against HK civil rights – so we await the outcomes and see how volatile market reactions will be.

Have a great weekend.

*Source DFAT 2017-18 Exports

Sources: Bloomberg

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