FT. IP rights, India & the global recovery, China vs G7 and what about Brazil? Copper$15,000 and more

07 May

MARKETs @ 2pm Hong Kong time
ASX 200 opened flat but rallied; pre market Services Index was better than F/cast and market tested 7,100 a couple of times before lunch but failed to break out and drifted lower finding support round 7,080 and then trading in a tight range to close +22pts (+0.3%) @ 7,084
Banks and Miners driving the market.
DataServices Index Apr 61.0 vs 58.7 Mar (F/cast was 59)
RBA Statement on Monetary Policy
Nikkei opened flat and initially tested lower to 29,250 which was tested a couple of times but then the market rallied on the good PMI data and stepped higher to 29,450.  It then eased back to 29,400 and traded in a tight range into lunch.  PM opened lower and trading sideways 29,345/29,385, Currently +39pts (+0.1%) @ 29,369
Topix dipped early but then rallied to 1,938 eased back into lunch. PM trading in a tight range 1,930/1,935 currently +7pts (+0.4%) @ 1,935 Data premarket
Average Cash Earnings due but not released
After the open
Services Final PMI Apr 49.5 vs 48.3 Mar (F/cast was 48.3)
Composite Final PMI Apr 51.0 vs 49.9 Mar (F/cast was 50.2 )
Kospi Market trended higher through the morning to 3,200 level and then traded sideways currently +24pts (+0.7%) @ 3,202
Kosdaq followed a similar pattern worked up to 980 level and traded sideways; currently +9pts (+0.9%) @ 979
Data premarket
Current Account Mar $7.82b vs $8.03b Feb. (F/cast was $7.6b)
Sentiment helped by new covid cases reported Friday @ 525 vs 574 on Thursday
Opened higher following the good wholesale price and manageable inflation data, out after market Wednesday, and continued good local results. It worked higher through the day, to close at the day high +290pts (+1.7%) @ 17,285
After market due
Balance of Trade, Exports, Imports.
CSI300 opened slightly higher but tested yesterday’s close in early trading despite better than expected PMI data but then rallied to 5,094 on the very good trade balance but exports were weak and it then trended lower into lunch. PM saw the market open at Thursday’s closing level and trend lower Currently -25pts (-0.5%) @ 5,037
During market hours
Caixin Services PMI Apr 56.3 vs 54.3 Mar (F/cast was 54.5)
Caixin Composite PMI Apr 54.7 vs 53.1 Mar (F/cast is 53.3)
Balance of Trade Apr $42.85b vs $13.8b Mar (F/cast was 14.5b)
Exports Apr +32.3% vs +30.6% Mar (F/cast was +35%)
Imports Apr +43.1% vs +38.1% Mar (F/cast is 37%)
After market due
Foreign Exchange Reserves
Pre market opened @ 28,721 +84pts vs flat ADR’s
Market traded higher on the good China PMI data but then trended lower after the weak export data. PM open almost 100pts lower at 28,709 saw a small bounce and but currently +34pts (+0.1%) @ 28,670
E-commerce and Tech names weak, Insurance companies and some Chinese banks seeing some interest. Paper stocks strong after Nine Dragons Paper scraped initial offers and resumed original pricing.
Expect markets to open higher following the mainly +VE state of Asian markets but with some caution ahead of pre market data and the US jobs report.Data due
GERMANY Balance of Trade, Exports, Imports, Industrial Production, Current Account
Balance of Trade, Exports, Imports, industrial Production,
Construction PMI
US Futures Opened in Asian time Dow -18pts S&P flat and NDX +0.1%  the Dow now -34pts but the others as they were.
Data NonFarm Payrolls, Unemployment Rate, Ave Weekly Hours, Ave Weekly Earnings, Participation Rate, Wholesale Inventories,  Baker Hughes Rig Count, Consumer Credit Change.
Earnings Cigna, Siemens, Gannett, AMC Networks, Draftkings, Liberty Broadband, Elanco Animal Health

Fed warns of hidden leverage lurking in financial system
Central bank says Archegos collapse shows it lacks tools to see full extent of risk-taking

Merkel resists Biden proposal to waive patents on Covid vaccines
• Output capacity the key, says chancellor • WTO talks planned • Russia offers support
She said key was “production capacities and the high quality standards, not the patents”.“The protection of intellectual property is a source of innovation and it must remain so in the future,” she added.
I would agree from other reports it appears that the raw ingredients are in short supply and that many countries just do not have the production facilities to produce the vaccines. Plus giving away the IP for the new type of vaccines (mRNA) seems wrong especially as they could be useful in the delivery of other vaccines, plus as noted by the CEO of Moderna
'“There is no idle mRNA manufacturing capacity in the world. This is a new technology. You cannot go hire people who know how to make mRNA — those people don’t exist.” (See Moderna boss brushes off Biden patent waiver move in Companies & Markets section)
Drug makers, especially in HK/China got hit hard yesterday but are likely to see a rebound of the WHO proposal gets rejected.

Rio Tinto suffers big investor rebellion amid bruising day for UK-listed groups
An interesting read both because of the widespread opposition from shareholders at many companies and also because boards still seem to be insensitive or out of touch with the reality of how the pandemic has hurt shareholders.

UN urges methane cuts to fight warming
An interesting read because it is more potent than carbon dioxide and the sources are gas leaks, landfill sites and agriculture. It recommends 'include faster gas leak detection, and the covering of landfills to capture their gases, as well as eating less meat.’
'Agriculture, including cows, manure and rice fields, is a major source of methane, accounting for about 40 per cent of human-caused emissions,’

Pharma industry fears Biden patent decision sets dangerous precedent
Looks at the loss of IP rights and hit to innovation but WHO chief praises White House. It seems that the US thinks it will help speed up production of vaccines although from what I have read that doesn’t seem to be the case. It is easy to see why the WHO would support it because as an organisation it does not have to finance itself whereas drug companies do and have in the past year focused additional resources on finding vaccines to combat the pandemic.
'“The administration’s steps here are very unnecessary and damaging,” said Jeremy Levin, chair of biotech trade association Bio. “Securing vaccines rapidly will not be the result, and worse yet, it sets a principle that companies who invested in new tech will stand the risk of having that taken away.”
The key worry for the drug companies and investors is that the move would set precedent.

India Covid surge causes crew shortfall in shipping sector
A double whammy; with India closing its ports disrupting supply chains and the fact that many countries are not allowing entry to ship or replacement crews if they are travelling from India.
Interestingly it says 'Executives also said that crews from India were testing positive for Covid-19 on ships, despite quarantining and testing negative before boarding.’ That suggests that the current tests are not effective in all cases, which would be a bigger worry.
The largest suppliers of crews are the Philippines and China, India. Many worry that the impact on global growth and inflation could be huge with 80% of global trade going by sea. Worth noting that yesterday oil fell on concerns that the virus surge in India would hurt oil demand, it could actually do a lot more. But there is no easy solution; especially if testing is not identifying cases.
Once again the virus is showing us how little we really understand about how it is transmitted.

Olympics sponsors duck questions on Beijing
Looks at the growing calls to the event to boycotted. Much has been written on this. The fact that companies are not answering questions really shows how sensitive the issue is; between supporting the athletes and standing up for human rights.
One wonders if the event could proceed without sponsors?

China hits back at G7 Taiwan stance
Beijing bristles at praise for Taipei’s efforts to curb spread of Covid-19. Whilst Beijing talks of the G7 turning back the wheel of time the reality is that at last the G7 is accepting the real, current situation.
Beijing seems to be the one stuck in the past and thinking that things have not changed since 1992. They have. Taiwan was the first to alert the WHO to covid, even before China was prepared to admit it had a problem. If Taiwan’s warnings had been heeded we might not have had a pandemic; something that in the interest of world health, China should note.
The bigger issue is that once Taiwan has access to the WHO it is on the path towards UN acceptance again, something China is fundamentally opposed to.
The G7 said it would work together to foster global economic resilience in the face of China’s “coercive economic policies”, but also “look for opportunities to work with China to promote regional and global peace, security and prosperity”, “We encourage China, as a major power and economy with advanced technological capability, to participate constructively in the rules-based international system,” the statement said. It also made reference to Xinjiang, Tibet and Hong Kong and warned against its role in cyber-enabled intellectual property theft. Foreign ministry spokesman Wang Wenbin said on Thursday that the G7 should focus on distributing vaccines and not hoarding them and should not interfere with other countries.
Whilst the G7 did not set out any direct moves it is unlikely that China will either but it underlines the increasing gulf that is opening up between the China and many other countries; something that Biden and his team will be keen to capitalise on.

Virus stalks Asia as west gears up for rebound
Looks at the findings of the recent Asian Development Bank report; as India has been hit by a severe wave and cases remain high in Thailand, Indonesia and Philippines.
Six months ago Asia seemed to be winning the battle against covid whilst the west was mired by it. Today the situation seems to be reversed.
Furthermore the reaction to 6% growth in US was muted as exporters know that American’s have been buying throughout the pandemic so there is unlikely to be a surge in demand but there’s more chance of higher US interest rates and tighter financial conditions in Asia. As the US re-opens money will be spent on services not buying more products.
Taiwan and S Korea look to benefit from the semi-conductor cycle for the next year but other countries are less well positioned.
The big question it poses is what about China, where the economy looks to have lost some momentum.
I think China is in difficult position. It continues to try and stimulate domestic consumption but with limited success. It’s citizens are more focused either short term wins in the stock market or long term by buying property as an investment. President Xi’s call for property for living in is falling on deaf ears. In China investment property is rarely rented out but kept as a shell and hence does not drive consumption to the same extent as would be seen in the west. I also worry that a lot of firms that re-geared to produce PPE will see orders dry up before their core businesses see recovery.
The continuing high levels of cases in Japan and S Korea also remain concern, especially as Japan looks to extend emergency measures which will have a big impact on the economy.

Brazil’s supplies of China jab risk drying up
Due to a shortage of critical ingredients from China. Which would rather endorse Angela Merkel’s stance that IP rights are not the problem but ingredients are.
Interesting that whilst the Chinese have said the G7 shouldn’t hoard vaccines many think that the shortage caused by China delaying the release of ingredients or reducing the amounts because President Xi is annoyed 'with President Jair Bolsonaro, who has been critical of China and has intimated that the coronavirus was created in a laboratory.’
It follows 'Brazil’s finance minister, who was caught on tape saying: “The Chinese invented the virus and their vaccine is less effective than the American one,” referring to the Chinese-developed CoronaVac jab.’
It notes that 'In response to Guedes’s comment, Yang Wanming, China’s ambassador to Brazil, highlighted that “CoronaVac represented 84 per cent of the vaccines delivered in Brazil” and that China was the “principal supplier of vaccines and input ingredients”.’
We are unlikely to ever find out the truth but certainly ingredients are a key element. But it does demonstrate the power of being able to control them, just as with other resources.

Moderna boss brushes off Biden patent waiver move.
Saying that '“There is no idle mRNA manufacturing capacity in the world. This is a new technology. You cannot go hire people who know how to make mRNA — those people don’t exist.”
In his view expanding production at existing plants would be the solution.
It also notes that the WHO has no power to enforce a waiver.
The company results were good and it intends to apply for full approval of its vaccines this month. It also announced trials on children were good. Looking further out repeat business should be good as as booster shots are likely to be needed to tackle variants;
'The company said that a single 50mg booster shot in people who were already vaccinated had proved effective against the original virus and the variants first detected in South Africa and Brazil, increasing antibodies present in the blood.’

See also Chinese jab makers bear brunt of pain as US backs plan to halt Covid patents. 
The key being that Chinese vaccines use ‘traditional’ vaccine production methods and therefore are relatively easy to produce. Although the number of facilities that could do that are limited and they could still need the raw ingredients its a greater threat that to mRNA production.

SocGen to offer partial homeworking
French lender expects flexibility will help to attract young talent which highlights a difference between European and US banks. After Jamie Dimon and David Solomon are both pushing to get staff back in the office. An interest read with regard to home working.
Makes you wonder whether talented people are keen to work from home or whether it is just the perception of the top management. Good talent is likely to be drawn to the firms with the best success rate rather than the best working arrangements in my view… but maybe I’m out of touch.
The results themselves beat key being 'Revenues from fixed income and currency trading were €625m, from €609m last year and ahead of expectations at €570m. Core equity tier one ratio, a measure of balance sheet strength, was 13. 5 per cent. Like European peers, SocGen reduced provisions for bad loans, setting aside €276m against analyst expectations of €716m.’
Interesting to see it still provisioning for bad loans unlike US and some UK banks that have written back provisions.
Read also Tishman Speyer bets big on the post-Covid office. Developer keeps close eye on the needs of the technology and life sciences industries.

Uber shares fall further over threat of tighter US regulation for gig economy
More regulation would hurt profits; shares were weak despite good results. KEY being 'the labour department withdrew a rule that Donald Trump’s administration had sought to push through in its final days to make it easier for businesses to classify their workers as independent contractors, avoiding federal rules on minimum wages and overtime. “By withdrawing the independent contractor rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect,” said Walsh.’
An interesting read. I think like the food delivery business there are too many players still trying to gain or buy market share with no clear differential between the players. For investors it remains taking a gamble on who may win.
LEX Uber: a worker’s company. 'Uber shares have more than doubled from their pandemic lows. But they are down a fifth from their recent peaks. Even as the market opportunity grows, workers are the ones winning over shareholders for now.'

Crypto. Trading boom. Rush for speculative assets leaves equities in the shade
Retail investors switch focus from meme stocks to bets on bitcoin and its competitors.
An interesting read especially as the market has seen a rise in crypto derivatives as well as more speculative crypto currencies seeing a pickup in interest.
I still think that crypto will become more mainstream as blockchain does and that there will always be room for one more currency to add to those already out there.
See also Eager clients tempt Citi to try hand in crypto arena. It would be following Goldmans, Bank of New York Mellon,  State Street and others.

Copper must rise 50% for miners to accept extra risk, says Glencore chief
Reflects the fact the the ‘easy’ mining has been done, new production will come from mines that are more difficult to access and who no doubt will be subject to greater ESG scrutiny.
Ivan Glasenberg the CEO of Glencore said Russia and parts of Africa were potential areas for mines but there were greater risks associated with those areas.
Follows the IEA report warning that high minerals prices could delay a transition to clean energy given the amount of metals needed for batteries, solar panels and wind turbines.
The key then is how long it takes to get to those levels; Goldmans forecast is by 2050, others expect it sooner than that. More recycling will help but I would expect prices to rise faster as more EV’s and alternative energy sources are hooked up.
It concludes 'Glasenberg also teased the prospect that Tesla could be a sensible suitor for Glencore, given that the electric car-maker’s market value of almost $650bn widely trumps the commodity group’s $57bn value.’To me that would make a lot of sense as carmakers will look to try and tie in supplies.

Investors cannot ignore risk from ‘crowding out’.  By Michala Marcussen group chief economist at SociétéGénérale
Sees good reasons for fiscal policy expansion due to the pandemic and the debt is sustainable if interest rates are well below growth rates. 'In this environment, the prospect of governments “crowding out” other borrowers by competing for funding, pushing interest rates higher and squeezing out private investment might seem a distant concern.’
But investors should pay attention.
Notes pre covid low interest rates were ineffective and possibly damaging the economy by supporting zombie companies. They were also squeezing banks and giving then less incentive to lend. QE was supposed to help but failed.
She notes 'Individual banks may try to avoid more deposits by measures such as offering unattractive rates but the system as a whole cannot avoid them.;'
The result was banks hitting their maximum leverage ratios and being unable to lend. So the central banks offered temporary relief in ratio calculation to allow the banks more room to lend. But that hasn’t resulted in aggressive lending; 'it could be lack demand but there has also been bank prudence.'
'Such prudence from the perspective of individual banks makes sense, even if theoretically better economic growth outcomes could be achieved if all banks were to lower capital ratios and lend even more. This paradox of capital thrift is something that macroprudential models would do well to account for.’
She concludes 'Once economic recovery gains momentum, it’s not hard to see how policymakers could be tempted to opt for macroprudential measures instead of interest rate hikes to tame risks of overheating. This could include tightening bank capital and leverage ratios, capping loan-to-value ratios on real-estate lending or introducing higher collateral requirements for non-banks. This would create room for central banks to maintain large balance sheets and keep government borrowing costs low.
Crowding out effects — reducing funding available for the private sector — would, however, still materialise and ultimately weaken the recovery.’

An interesting read. I was listening to Russell Napier recently in a deflation vs inflation debate and he was saying a key way to getting the banks to lend was where the central bank offers to guarantee the banks lending ie underwrite commercial lending, and how that had been successful in stimulate loan demand. That way you got a strong recovery albeit with inflation but that would be well below the growth rate.
You can see the webinar on ERIC (ERI-C.com ), its free and Mifid II compliant. “Inflation Deflation Debate: Does Money Matter Most, When Considering The Outlook For Real Vs Financial Assets Now?”   with  Gary Shilling & Russell Napier

POLITICS. The west is in a contest, not a cold war, with China  Philip Stephens
Looks at the G7 statement and noted that in the long communique; which mentioned most things there was actually little of substance, there was no road map for the way forward. But we might get more at the G7 Leaders meeting in July. 'A short statement would have demanded sharper choices and some hierarchy of priorities’
He says 'Blinken came up with what is probably the closest the G7 will get to a useful mission statement. If the west was not in the business of holding China down, he said, the leading democracies do share a clear interest in shoring up the rules-based international order.’
He concludes 'Beijing and Moscow want a return to a 19th-century global order where great powers rule over their own distinct spheres of influence. If the habits and institutions created since 1945 mean anything, it has been the replacement of that arrangement with the international rule of law.
Today’s contest is between these two systems. It is a fight the west can win by persuading the world’s non-aligned nations that it has a better offer. It is quite simple, really. Instead of complaining about the economic coercion inherent in, say, Beijing’s Belt and Road plan, the G7 should present its own development projects. A timetable to vaccinate the world against Covid-19 would be a good start.’

An interesting read but as he says what the west really needs is some clear objectives.

FINANCE Millennials may forever change investing. Gillian Tett
Looks at the recent survey by Fidelity, after polling its clients about their philanthropy.
An interesting read she concludes 'But if wealthy millennials retain their current attitudes, it could accelerate the shift towards value-based investing. It is also likely to accelerate the trend towards using digital platforms to get better oversight of companies, and more transparency.
Savvy wealth managers understand these sums.
Hence why the financial industry is scrambling to expand its environmental, social and governance products: sustainability is a crucial marketing pitch if you want to target those future $30tn-plus flows. Which is another reason for some Gen-Xers and boomers to roll their eyes.
However, here is another point to ponder: this attitude shift suggests that millennials have less tunnel vision when talking about “finance”, “politics” and “social issues”. Instead, their sense of the economy is interconnected, not least because they do not treat an issue like the environment as a mere “externality” to an economic model, as it was in the 20th century. Therein lies another reason for generational misunderstanding. And, perhaps, a source of hope.'

MARKETS. Biden’s experiment could be revolutionary. By Megan Greene senior fellow at Harvard KennedySchool
An interesting read about the equilibrium around which the economy fluctuates.'Given free and open markets, an economy will naturally adjust and revert towards this equilibrium. In its simplest form, this is where supply meets demand. It is where growth is at its long-term potential.’
She concludes 'Success is not guaranteed. Governments have failed many times to identify an equilibrium and have under or overshot with their policy responses. Now there are multiple equilibria, and they are moving targets. But if the administration’s spending plans can shift the economy to a fundamentally better plane, the Biden administration could reverse the Washington consensus preference for small deficits and market efficiency, in favour of a much bigger role for the state and policy. That would be an economic revolution.’

LEX Nintendo: switch the script. 'Rising Covid-19 infections in Singapore, Indonesia and India might drive up demand for more at-home entertainment. Sales would get a boost if reports of an updated Switch with faster graphics and a sharper Samsung OLED display are true too. Even so, the return to normality makes Nintendo’s sales targets look overly ambitious.'

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