June 14 FT Thoughts: G7 allied vs China, Crypto and Putin, Toshiba bounces.. despite worrying report.

14 Jun

This and previous notes can be found at Substack ( Asian Market Sense )
Check out ERI-C.com  for your research needs

Australia Market closed Queen’s  Birthday; re-opens Tuesday
Sentiment helped by G7 endorsement for holding the Olympics. Lunchtime Industrial data +VE  but still caution ahead of US FOMC and Japanese Trade and Inflation data this week.
Shippers and Tire makers leading. Financials weak. Toshiba rebounded despite the negative corporate governance report (suggests Team Japan support?)
Fanuc and Daiichi Sankyo +VE, Nintendo and Itochu weak.
Nikkei opened higher at 29,153 but trened lower through the morning to 29,026 mid morning before rebounding into lunch 29,106.   PM trading sideways around that level.  Currently +175pts (+0.6%) @ 29,118
Topix similar pattern to Nikkei; opened 1,966, low was 1,955 and currently +5pts (+0.2%) @ 1,959
Industrial Production Apr 2.9% MoM vs +1.7% Mar (F/cast is +2.5%)
Industrial Production Apr +15.8% YoY vs +3.4% Mar +3.4% (F/cast is +15.4%)
Capacity Utilisation Apr +1.1% MoM vs +5.6% Mar (F/cast is +4.2%)
S Korea
Sentiment cautious ahead of US FOMC meeting this week.  
KDCA reported 399 new covid cases (-92 DoD and -205 from Saturday).
Kospi opened flat and initially trened lower to 3,239 after an hour and then worked better currently flat at 3,249
Kosdaq opened higher and worked higher to 999 around midday and then drifted lower; currently +6pts (+0.6%) @ 997
Taiwan Market closed Tuen Ng Festival (Dragon Boat Festival)
China Market closed Tuen Ng Festival (Dragon Boat Festival)
HK Market closed Tuen Ng Festival (Dragon Boat Festival)
With little guidance from Asia expect the Europe to open slightly higher after +VE sentiment from the G7. But UK to open lower as PM Johnson expected to announce a delay in the re-opening.
Earnings from Fraport and Ted Baker.
EUROZONE Industrial Production Apr (Mar was +10.9% YoY F/cast is +38% (Mar +0.1% MoM F/cast is +0.4%) 
US Futures
Opened in Asia Dow futures +23 pts. S&P 500 futures +0.09% and Nasdaq 100 futures +0.14% but have eased back slightly.
Consumer Inflation Expectations May (Apr was +3.4% F/cast is +3.8%)

Biden rallies western allies in global ‘contest’ against autocrats

Leaders of democracies pushed to use financial strength to challenge China’s rise
Coronavirus latest: India probes ‘fake’ tests at huge religious gathering
Fed meeting turns into a test of its inflation narrative

Central bank should not take comfort from the bond market
by Mohamed El-Erian

Front Page
Biden rallies western allies in bid to counter Chinese influence

• US president highlights ‘contest’ with autocrats • ‘Build Back Better’ initiative launched.
Whilst PM Johnson did not mention China specifically in his closing statement; it and Russia were referenced in the agreed communique; Biden said he was pleased with the end result. A number of the G7 leaders pointed out that they had to work with China in certain areas but it was clear that going forward China is going to find it harder to pick bilateral fights with countries. It may also face greater competition with regard to developing infrastructure in the developing world; although the G7 was vague on funding details they have a new initiative; “Build Back Better for the World”, or B3W.

BNP pressed by Europe’s leading wine exporter over lossmaking forex trades
An interesting read, it will be interesting to see whether these were legitimate trades or not. It is also interesting that the matter has taken so long to surface; since it refers to trades going back to 2015. The fact that they are referenced to a former employee will also raise questions.

Biden open to hacker exchange with Putin  See also online Biden says he is open to exchange of cybercriminals with Putin
US president offers olive branch ahead of meeting Russian leader in Geneva.
‘Speaking at the conclusion of a meeting of G7 leaders in the UK yesterday, Biden told reporters he was receptive to Putin’s suggestion of a reciprocal extradition of cybercriminals responsible for disruptive ransomware attacks.
Earlier yesterday, Russian state TV aired an interview with Putin in which the president said Russia and the US must “assume equal commitments”.’
It was later clarified; ‘Jake Sullivan, US national security adviser, later clarified that Biden had not signed up to a “prisoner swap”.
“What he was saying was that if Vladimir Putin wants to come and say I am prepared to make sure that cyber criminals are held accountable, Joe Biden is perfectly willing to show up and say cyber criminals can be held accountable in America, because they already are. That is what we do.”’
Clearly Putin is expecting questioning on the matter. It comes after a TV interview with Putin where he was clearly telling the Russian people that the issues that Biden was talking about were problems of the west’s making not Russia’s.
It is interesting to see the way Putin is preparing for the meeting; it suggests that he is going to deny the hackers are residing within Russia and that encourage some in the west to push for retaliatory strikes.
Biden mentioned that ‘“This is not a contest about who can do better in front of a press conference or try to embarrass each other,” Biden said. “It is about making myself very clear what the conditions are to get a better relationship.”
He added: “Russia has engaged in activities which we believe are contrary to international norms. But they have also bitten off some real problems they are going to have trouble chewing on. For example, the rebuilding of Syria, of Libya.”’

Nato leaders fret over China’s growing Atlantic presence
An interesting read about how China is expanding its presence globally whilst at the same time complaining about other countries sailing in the waters around China. For Nato the alliance between China and Russia is a worry. The Russian fleet has been in decline for sometime largely due to the lack of finance whereas China has been committing more funds to develop an offshore fleet.
It also mentions that increased involvement of Chinese companies in European critical infrastructure like ports and telecoms.
Nato would like to have a more uniform approach, something I would imagine that Biden will push for too. But as seen in the G7 meeting members of the alliance have varying agenda’s; as seen in the members joining in exercises in the South China Sea, where Germany is the only nation doing a port visit to Shanghai.

Chinese economic hubs at risk from higher sea levels
The on line edition has some very good maps that illustrate the impact.
The key point being that most of China’s economic growth is focused on the coastal strip and that is at risk from rising sea levels.
It does note that ‘Although tides are unlikely to rise to levels that would submerge infrastructure for decades, researchers warn that intensifying floods, storm damage and soil erosion, as well as reduced fresh water supplies, threaten to undermine economic growth long before then.
Despite the high degree of exposure, the effect of sea-level rise on economic growth has traditionally received little public attention in China.’
The online article is longer but rising sea levels is not just a China issue; many countries face similar issues.

Myanmar junta heaps charges on Aung San Suu Kyi
A worrying read about the current situation. The recent Asean delegation seemingly having little impact, probably because China has seemingly endorsed the junta. Many believed the junta would not have taken the recent steps without reference to China.
It seems that the only impact of international pressure is to bring forward her trial.
'“The trial is obviously a sham, and the only reason why the military has even announced the date is due to international pressure,” said Manny Maung, Asia researcher with Human Rights Watch.
“They would happily keep Aung San Suu Kyi detained and out of view for as long as they can.”'
Her lawyer commented ‘that Aung San Suu Kyi, who has been held incommunicado since the February 1 coup, had been moved from her ministerial residence in the capital to an unknown location the night before her first court appearance on May 24.
She had to leave her home, where she had been staying with her dog Taichito, he said, and asked her legal team for medicine and food “to make ends meet” at a meeting last week.’ Her son’s have tried to contact her but doubt any messages have reached her.
A sad reflection on the ability of international governments to influence injustice.

Price rises and supply shortages threaten EU recovery plans
Building industry warns of twin risks to bloc’s €800bn economic stimulus.Worth a read, illustrates that it is not only China that is aware of rising commodity prices.‘According to the European Construction Industry Federation (FIEC), bitumen prices have risen 15 per cent in three months, cement prices were up 10 per cent in a single month and wood prices were up more than 20 per cent.’
Part of it is blamed on bottlenecks due to the sharp rebound.For me it is another indication that the expected increase in inflation may be around for longer that many are currently expecting.

Companies & Markets 
Four Toshiba executives forced out as crisis deepens
• Clash at emergency board meeting
• Investor rebellion gains momentum
Interestingly the share price bounced back today following the sell off when the report was first released. The company held a meeting on Sunday and yesterday announced four executives had been forced out of their positions as directors clashed.
Worth a read.  Read also The inflammatory Toshiba report may change corporate Japan  By Leo Lewis
Concludes ‘But again the strong temptation is to view the whole affair as revealing of a broader truth: that the fundamental attitudes of corporate Japan, and the government officials most directly engaged with it, have in a great many cases budged only minimally in the direction of greater care for shareholders.
That conclusion, for all of its negativity, may ultimately be a useful thing if, as one of Toshiba’s largest shareholders said, the report and its inflammatory nature now becomes the catalyst for real change. The risk around Toshiba’s long stretch of misery, which began with an accounting scandal in 2015 and brought the company to the brink of collapse a few years later, has always been that it would be treated as an eye-popping outlier rather than as sitting on the same poor governance spectrum as much of corporate Japan.’
One can only hope that real change takes place in Japan, the potential it has is great but intransigence of corporate management to acknowledge that change and internationalisation can be good.
Twice shy Amateur traders lack targets after funds trim their short positions on US stocks
The article focuses on how short positions in the US have reduced in recent months. An interesting read.
Key will be whether the amateur investors can be successful in buying good names for growth rather than just squeezing stocks which other funds have shorted.
An interesting read. Bloomberg also has a report on the issue noting that some amateur investors are concerned about the collective action investigation by the SFC.

China fashion site accused of IP breaches
Large and small brands claim popular app Shein is stealing their designs.
A somewhat typical story for a Chinese company; copying existing products and selling them at discounted prices. This is likely to be a problem in China for many years to come. Anyone who has visited the markets in Shenzhen will know how many ‘copy’ items there are.

Week ahead. Market questions
Fed to tackle timing of tapering bond purchases;
Will the Federal Reserve dare to mention tapering? 
Personally I doubt it, Jackson Hole is a more likely venue.
Are UK inflation risks rising?
most seem to expect so.
Will BoJ keep rates policy on hold?
Most are expecting no change ‘“Japan is one of the few countries whose property prices have not risen, and since rent is a major component of the consumer price index, it is not likely to see much inflation ahead,” said John Vail, chief global strategist at Nikko Asset Management in Tokyo.’

The rebirth of Hertz
With the company’s revenues collapsing overnight, its bankruptcy last May appeared to be the start of a wave of corporate failures. But the economic rebound sparked a bidding war for the car rental business.
An interesting read and worth noting that the recent increase in used car prices due to chip shortages is beneficial to car hire firms; which in my view are really used car businesses. What will be interesting to see is whether Hertz changes its business model; from buying cars at a discount and selling them itself or adopt the model used by others of agreeing buyback agreements with the automakers.

Post-Covid figures should be handled carefully
Economic data about strength of recovery partly reflect ‘base effects’
Basically comparison with last year’s data (base data) is irrelevant and a better comparison would be with 2019.
Concludes ‘For the moment, the rich world’s economic statistics are distorted by comparisons with the worst months of the pandemic. It is probably inevitable that political arguments will be as well — many will care more about selecting the data that proves their point and disregard the caveats — but there is no need for central bankers or professional investors to be misled. Investigating the data thoroughly to work out what it means is always sensible but this year it is more vital than ever.’
A good point but even that has its limitations.

Fastly’s cautionary tale of internet fallibility  by Richard Waters
Highlights the fallibility of human design. Raises the question ‘of whether too much of the internet’s infrastructure rests in the hands of small, little-known companies. But at a time when so much power online has already consolidated, do we want the fabric of the medium itself to come under the control of an oligopoly?’
'The Fastly incident is a reminder of how competition and innovation among highly specialist service providers have shaped the internet. They are far from infallible, but private services like this have turned the internet, a best-efforts network that was never intended for commercial use, into the backbone of the world’s digital economy.
Perhaps the spotlight should really be falling on Fastly’s customers. Businesses and governments are increasingly dependent on digital services. What are they doing to ensure continuity when a key supplier slips? '
A good read.

Lex. {Bitcoin/cryptos: liberal litmus test}   An interesting read on the different attitudes to crypto from different governments.  It concludes ‘Foot dragging is shrewd. The lower the value of  cryptos, the less they matter. Proposed uses for cryptos range from  digital gold to weathervanes for speculative exuberance. Another emerges  from a survey of official attitudes towards an asset with  anti-establishment roots.
Toleration, rather than Bukele’s boosterism, is a good litmus test of a nation’s liberalism.’
I would disagree; I believe crypto’s are here to stay and a proper and co-ordinated stance on their regulation would serve the public better.

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