June 7 FT Thoughts US vaccine support for Taiwan, Global tax first step, Inflation wrong basket? and more


07 Jun

This and previous notes can be found at Sub stacks 
Check out ERI-C.com  for your research needs

Australia
Market opened higher rallied to 7,309 before trading sideways and then selling down to 7,283 before working back to flat at midday.  But then trended lower to 7,270 around 2pm but then rallied back strongly to 7,290 before trading sideways to close -14pts (-0.2%) @ 7,281.  Altium +39% on news it rejected a T/O bid.  Travel companies weak on concerns Melbourne lockdown may be extended.  Crown Resorts weak on potential anti-money laundering; -VE also for NAB, The Star and SkyCity
Pre Market Services Index May 59 vs 61 Apr. Later Job Advertisments May +7.9% MoM vs +4.9% Apr revised
Japan
Pre market Foreign Exchange reserves rose to $1,387.5b
Nikkei opened higher at 29,200 but trended lower to 28,973 just before lunch.  PM opened higher and traded sideways to close +78pts (+0.3%) @ 29,019
Topix traded in a similar pattern, low was 1,957 and closed +2pts (+0.1%) @ 1,961
Toshiba announces buyback during the morning session.
Leading Economic Index Prelim Apr 103 vs 102.4 Mar revised (F/cast was 102)
Coincident Index Prelim Apr 95.5 vs 92.9 Mar revised (F/cast was 93)
Tomorrow we get GDP data.
S Korea 
Kospi opened higher and rallied to 436 in early trades but then reversed to the opening level before drifting lower to 430 around midday. It then worked back to 434 level mid afternoon but then sold down slightly and bounced back ahead of the close and finished +2pts (+0.4%) @ 434
Kosdaq similar pattern, high was 993, low 982 and closed-1pt (-0.1%) @ 986
KDCA reported 485 new covid cases (vs 556 Sunday) slight +VE but could reflect less testing.
Taiwan 
Taiex opened slightly higher but trended lower to 16,776 at 10am on news the Level 3 covid alert to be extended to June 28 but then worked better but resistance as it approached Friday’s closing level and closed -64pts (-0.4%) @ 17,084 T/O was US$17.65bn)
CECC reported 214 new covid cases
China 
CSI 300 opened flat but trended lower through the morning to 5,243 at lunch. PM worked better but closed -8pts (-0.2%) @ 5,275.
Trade data missed f/casts, balance missed badly, Imports were strong as expected but exports dropped more than expected
HK 
Pre market opened @ 28,986 +67pts vs +126pts ADR’s but sold down heavily in the first 30 mins to 28,616. Then traded sideways into lunch. PM working slightly higher -143pts (-0.5%) 2 28,775
Europe
Markets looking to open lower.  German Factory orders were weaker than expected -VE.  UK housing data due.  Sentiment cautious as UK re-opening may be delayed and weak China data.
US Futures
Opened Dow +15 points, or less than 0.1% but have now dipped to -8pts. Nasdaq less than 0.1% and S&P flat


FT FRONT PAGE

US pledges to send vaccines

US senators Tammy Duckworth, Dan Sullivan and Chris Coons met Taiwan’s foreign minister Joseph Wu and Brent Christensen, director of the American Institute in Taipei yesterday. Following a pledge of 750k vaccine doses and arriving significantly in a US Airforce plane; (first since 1999).
Also read US pledges 750,000 vaccines to Taiwan
Taipei alleges Beijing tried to block efforts to secure jabs as outbreak spreads.
‘Taiwan’s opposition has fiercely criticised the government of President Tsai Ing-wen over the lack of vaccines. The government fears China is trying to use the health crisis to turn the public against Tsai, whom Beijing has accused of “plotting independence with the help of the pandemic”. China has said it is ready to provide vaccines to Taiwan, but Taipei has accused Beijing of working to block efforts to obtain vaccines directly. China also criticised Japan for its vaccine donation to Taiwan.’
It does seem that since Biden has taken office Taiwan has seen more conspicuous support. The worry is that may push China in stronger action.

Chip shortage to last another year at least, warns key manufacturer
• Demand surge swamps supply chains • Recovery pushed back • Cars and consumer tech hit
So says Singapore Flex, ‘the world’s third-biggest electronics contract manufacturer,’ due mainly to the shortage of semi-conductors.
It also noted that some companies had become more aggressive in procurement; paying for chips in advance. The situation is notes more worse by stock piling by Chinese companies ahead of US sanctions.
Comes as the likes of TSMC and Intel are investing to create new production but plants can take up to two years to build.
Interestingly is concludes ‘Torrel said the picture could improve if Covid-19 vaccinations cause consumer spending to shift towards services and people spend less money on consumer electronics as the world recovers from the pandemic.’

UK blames ‘legal purism’ in Brussels for Northern Ireland’s post-Brexit impasse.
An interesting read interesting quote ‘He also writes that the EU, whose relationship talks with Switzerland recently broke down, “needs a new playbook for dealing with neighbours, one that involves pragmatic solutions between friends, not the imposition of one side’s rules on the other and legal purism”.’

INSIDE 
Tax deal passes ‘starting point’ on road to reform
Agreement must now gain approval from G20 and 139 countries in OECD talks.
A starting point for what is likely to be a long process. The framework is set now the detail will be worked on.
The final agreement will be based on two pillars; ‘Rishi Sunak, UK chancellor, said the G7 agreement ensured “the right companies paid the right tax in the right places”, a reference to pillar one.
By contrast, US Treasury secretary Janet Yellen did not mention this in her prepared remarks, focusing on the second pillar: a global minimum rate of “at least 15 per cent”. This would generate more revenue for the federal government in Washington.’
‘The first requires a global agreement and US legislation which must pass through Congress, while the second, which the OECD estimates will raise the most additional revenues, can be implemented unilaterally, but would work better if many countries came on board.
Pillar one faces opposition in Washington. France, Italy and the UK refuse to abolish their own digital taxes until the US has passed the relevant legislation and Canada’s finance minister Chrystia Freeland said after the accord was struck that her country intended to press on with introducing a digital tax.’
There are a lot of potentially hurdles still be overcome but it notes the deal showed that the G7 was still effective and that would ‘show the world that the 21st century was not going to be dominated by rules set by China. The west is seeking to regain control of the global agenda by striking agreements in contentious policy areas after four years of the Trump era when this was impossible, ministers said in public and in private.’
See also Editorial  G7 tax accord is a game-changing opportunity
Proposed model is imperfect, but a lot better than the system today

Italian PM sets tone in cooling ties between EU and China
An interesting read about the change taking place in Italy with regard to China. Draghi as the former ECB chairman is staunchly European and that is beginning to show.

Inflation basket upset by effect of lockdowns on consumers
FT series Disruption to spending patterns clouds interpretation of price statistics.
An interesting read about why the official Consumer Price inflation is giving a mis-reading about what is happening because consumer spending habits changed as the pandemic got underway and equally as we exit the pandemic they will lag what is really happening.
It is something that one presumes the Fed members are all aware of but it does highlight why inflation is so hard to gauge and why many companies are looking at alternative sources of data to give a better picture of what real inflation is doing.

Companies & Markets

Investors head for dividend stocks to cash in on rebound
• US funds gain $1bn a week in May
• S&P 500 payouts expected to rise
The perception being that with the recovery underway we will not see the the restrictions that we placed on some companies last year repeated. Also helping is the recent rotation into cyclical stocks that are expected to do well as the economy continues to recover.
It will be interesting to see if the yield plays increase their payouts to make up for last year or to attract more interest.
Paper chase Financial groups dash to raise short-term funding in the US on the cheap.
Trying to find a home for the excess cash that is currently in the system and in doing making life difficult for money market funds.
It notes ‘Some banks might also be raising cash to take advantage of discrepancies in short-term interest rates, analysts said. The Fed pays 0.1 per cent interest on excess reserves stashed at the central bank, meaning financial institutions could borrow cash in the commercial paper market and park it at the Fed and turn a profit.
However, other corporate borrowers’ use of commercial paper has been relatively flat this year, at about $200bn, well below the $320bn outstanding at the start of 2020.’

Farming insects for food battles the ‘ick factor’
Start-ups emerge around the world as buzz builds about expanding the creatures’ role in our diets beyond animal feed.
‘Harry Wright’s new range of smartly packaged seasonings looks like the sort of artisanal fare found at any foodie market or upmarket deli. But they have a distinctive ingredient: ground, roasted crickets.’
It is interesting to note that whilst many in the west consider this ‘ick’ some insects are common fare in a lot of Asia and available from roadside stalls as snacks.
As the article points out insect are rich in protein and other essential nutrients and have minimal impact on the environment. Something the west is waking up too. It notes ‘VC funding to the sector has been creeping up since 2018, with $210m in equity investments last year, according to data group Dealroom. The largest flows have been to startups focused on feeding livestock, fish and pets.’
It notes that a lot of westerners only see this as something for animal feeds etc. A change in perception might come through different presentation; rather than whole insects using them in ground down form or possibly in nutrient supplements.
‘Tzachor believes processed insects could be used in products such as pasta, porridge and pancakes to improve their nutritional profile or act as antioxidant and anti-inflammatory agents. “Pellets of black soldier fly contain proteins and calcium,” he said. “Powder of meal-worm beetles contains zinc and essential fatty acids.”’
Other things that insects can be used for includes using them for ‘anti-bacterial properties to increase food products’ shelf life, while others are investigating their potential role in addressing environmental problems, for example by rearing them on waste such as cardboard and plastics.’
The outlook I think is very good and it will be interesting is countries like Cambodia, Vietnam etc. are able to ride the wave; the companies mentioned in the article where in Europe.

Investors press Asian utilities to cut emissions
In focus are China Resources Power Holdings, Hong Kong’s CLP Holdings, Malaysia’s Tenaga Nasional Berhad, Japan’s Chubu Electric Power and J-Power with Global investors, including JPMorgan and Fidelity backing plans to engage with the companies to reduce emissions.
'The programme is being co-ordinated by the Asian Investor Group on Climate Change, which has 56 members from 13 countries and manages more than $15tn in assets.'
It will be interesting to see how much influence these investor groups have to really drive change.
Infosys calls for cryptocurrency asset class
Chair says treating it as a commodity would add wealth to India’s economy.
Interestingly he considers it too volatile to be a payment method but is encouraging its adoption as a commodity.
Currently the official stance in India at present is unclear; a ban is possible but last year India’s Supreme Court overturned a 2018 central bank directive clamping down on crypto.
In addition to crypto Infosys is +VE about the outlook for blockchain and Indian and global companies upgrading their systems to cope the changes brought about by the pandemic.
I think that it is interesting to see few decrying crypto entirely and more seeing it having a role even if that isn’t to replace fiat currencies.

Week ahead. Market questions
Central banks ponder policy as recovery gathers pace
Will US inflation unsettle markets? Looks at the inflation data to be released this week in the US.  It is worth  reading the earlier articleon what is wrong with the CPI data and the fact that there are a number of other countries also releasing inflation data too.
It concludes “It’s probably going to be another 4 per cent number [for non-core inflation], which temporarily will reinforce the fear side of the equation,” said Jason Pride, chief investment officer in Glenmede’s private wealth practice. In July and August, he added, “we’ll probably start seeing more consistent moderation in the CPI figures. And that will finally start reinforcing the thesis that it’s transitory.”
The big issue is going to be if July and August show continued rises.
How will eurozone outlook affect the ECB’s policy plans? ECB meeting this week in focus and how some countries in the EU are recovering much faster than others.
Will renminbi resume its ascent?
Looks at the dilemma facing the PBoC and Beijing as the RMB strengthens. Mentions also the fact that within the PBoC there seems that not everyone is onside about not allowing the RMB to strengthen.
I think the outlook is uncertain because part of the reason from the RMB strength is USD weakness. I think the China is worried because a lot of its exports are price sensitive, they don’t have enough added value elements that would allow them to strengthen without hurting their exports.

‘Many thought women should decide a car’s colour’
Nissan’s Asako Hoshino talks to Kana Inagaki about her years working for change in Japan’s male-dominated car industry.
An interesting read because of Japan’s aging population and the need for women in the market.  A key factor being childcare.  That is something that Japan and other countries will have to address going forward.

FT FT BIG READ. MIDDLE EAST
How Egypt’s army became an economic force
The military’s growing role in Egypt reflects Abdel Fattah al-Sisi’s bid for ‘self-preservation’, say critics, but the development risks crowding out the private sector and scaring away foreign investors.

An interesting read it looks about the competition from the army in many fields but there are also opportunities to join with the Army in projects where they realise they need outside help.

Corporate change in Japan will need more than pregnant pandas
Looks at some of quirks of the Japanese market that sometimes drive stocks. But makes the point that for real change the bigger narrative needs to change.

OPINION
Don’t dismiss bubbles — some deliver lasting progress  By Ruchir Sharma Morgan Stanley Investment Management’s chief global strategist, and author of ‘The Ten Rules of Successful Nations’.

A new era of corporate transparency is dawning  By Martin Sandbu ‘Successful companies will be those who can do their business as well in the open as in the dark.’

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