May 10 FT Thoughts Covid diplomacy, Cyber attacks, Battery policy, inflation and more


10 May

MARKETs @ 12.30pm Hong Kong time
Asian markets opened mainly higher 
AUSTRALIA 
opened higher and worked to test 7,170 level around midday before easing lower. With strong Business confidence data but Retail sales were slightly shy of the forecast. Currently +57pts (+0.8%) @ 7,137
DATA
Business Confidence Apr 26 vs 17 Mar revised (F/cast was 18)
Retail Sales Mar +1.3% vs -0.8% Feb revised (F/cast was +1.4%)
JAPAN
Nikkei opened slightly higher but quickly rallied to 29,600 level and traded sideways for an hour before testing higher to 29,685 but lacked momentum was eased back to 29,600 level going into lunch. PM opened slightly lower currently +185pts (+0.6%) @ 29,543
Topix followed a similar pattern; rallied to test 1,950 initially then test 1,955 but eased back into lunch. PM opened flat but easing currently +17pts (+0.9%) @ 1,950
S KOREA  
Kospi opened slightly higher and rallied to 3,220 in early trades. Eased back to 3,212 for 15 minutes but then worked back to 3,220 and after an hour worked higher again to 3,240 and traded sideways. Currently +42pts (+1.3%) @ 3,240
Kosdaq traded in a similar pattern, initially rose to 983, eased and then worked higher for the next two hours to 990 level, eased back slightly but worked back; currently +11pts (+1.1%) @ 989
TAIWAN 
Opened lower but initially tested Friday’s closing level selling down to 17,190 level. The bounced back into the green only to trend lower again; currently -52pts (-0.3%) 2 17,242
CHINA 
CSI300 opened higher, dipped to 4,990 bounced to 5,020 then oscillated around Friday’s closing level. Sold down into lunch; -8pts (-0.2%) @ 4,988. Expect caution ahead of tomorrows Inflation and PPI data. We are also likely to get loans data this week which again is likely to keep investors cautious.
HONG KONG 
Pre market opened at 28,777 +166pts vs +85pts ADR’s and initially traded around 28,700 level for the first 30minutes but then trended lower into lunch. -93pts (-0.3%) @ 28,518
E commerce names remain weak as Chinese State Administration of Market Regulation revealed the progress on its investigation and evaluation into 34 platforms. Tencent weak after its subsidy lost a patent case to Gree. Chinese Financials mainly +VE. Petrochems strong and pharma names seeing interest too as Sinopharm’s covid vaccine got WHO approval.
EUROPE 
Expect markets to open higher following the mainly +VE trading in Asia
UK Halifax House Price Index due pre market.
US Futures Opened Dow futures +30 points, S&P +0.1%. Nasdaq +0.2%.  But have worked higher currently Dow +98pts, S&P +0.25% and NDX +0.23% there are concerns about the ransomeware attack on the Colonial Pipeline.Data today is the ISM New York Index & Consumer Inflation Expectations

PRINT Front Page
Chinese jabs dominant in Latin America Covid battle
• Beijing scores soft-power victory
• Few sizeable deliveries yet from US
China leading the way in both delivery of vaccines and ingredients which no doubt is a big diplomatic win for the country. Admittedly the transportation of the Chinese vaccines is easier than some of the western vaccines but that is a poor excuse for the US not to have done more but probably explains Biden’s push to waiver vaccine IP’s to make it look like they are trying to do more.
It does note however that China could have done more but for a slowdown in deliveries to Brazil. China us upset about some of the recent comments from President Bolsonaro and economy minister Guedes; which highlights that there are strings attached to the Chinese generosity. As does the fact that Paraguay is struggling to get access to Chinese shots because it has full diplomatic relations with Taiwan.So far the US has only said that it will share 60m doses from its supply over the next two months, without going into details.
Read also Biden’s diplomatic victory blunts pharma lobby
President’s aim of widening access to jabs confounds sector and administration doubters.
Looks at the background but doesn’t mention that over the weekend it has been said that the US is looking for a way to do it that doesn’t hand leading edge technology to China or Russia.
I still think that the move has a lot to do with the fact that the US has done little in actually exporting vaccines or ingredients.But longer term it probably means that the Pharma business in the US is going to come under more government pressure.

Scottish nationalists’ poll win sets up independence showdown with Johnson
Looks at the Scottish election results and the implications for the UK.

INSIDE
Rehn calls on ECB to take Fed approach with flexible inflation goal
An interesting read. I think flexibility is a good stance but the problem comes when the politicians and bankers start flexible but then at some stage have to react firmly and the markets throw a tantrum. Whichever approach is adopted there will always be some who want more or resist change.

US braced for market turmoil after cyber attack hits pipeline
The key Colonial Pipeline suffered a serious cyber attack, although details are few, it was serious enough to shut the pipeline; which saw petro prices rise. It will be interesting to see the government response. Obviously it should be +VE for internet security companies; although no details have been released about which company was currently responsible for the Colonial systems’ security.

Weak US jobs data muddy spending plans
Biden faces tough talks to agree deal with lawmakers after pace of hiring slows. Talks are scheduled for Wednesday with the four congressional leaders.Interestingly it talks about the Biden packages’ increased Federal benefits being a disincentive for people to return to work.
But the fact that most hiring was in the leisure and services sector; which tend to be low paid jobs, would suggest otherwise. I think at least part of the problem, is a lack of the right skills and the immobility of unemployed people for various reasons.

Border closures leave Russia short of workers
An interesting read because I would expect other countries to be suffering too. It is also important because it will drive up wage inflation. The article notes that '“Construction workers’ salaries were raised 50 per cent due to [labour] shortages and doubled in some places. [But] even while paying double it is extremely hard to find people,” he said.’
It is not just construction but agriculture too. It quotes the Russian deputy agriculture minister who said 'adding that locals lacked the skills or will to work in the fields even at higher salaries.’
For Russia the closed borders have implications for a number of the Central Asian countries where the labourers come from. They too are suffering unemployment issues.It highlights the need for mobility of labour and the treat of inflation; globally.

Brussels and New Delhi to resume trade talks
Seen as a response to the threat from China. The first joint statement said '“We agreed to resume negotiations for a balanced, ambitious, comprehensive and mutually beneficial trade agreement which would respond to the current challenges. We agreed that in order to create the required positive dynamic for negotiations, it is imperative to find solutions to longstanding market access issues.”
Fine words but the truth is that the two sides have tried in the past with limited success. So a +VE but needs to have substance and probably more accommodation on both sides going forward.

MUGJ the no coal Japan lobby group has put a full page advertisement saying
'MUFJ stop funding climate chaos. Since the Paris Agreement Mitsubishi UFJ Financial Group (MUFG) has funnelled ofer 150bn USD to fossil fuels and rain-forest destroying commodities, making it the largest Asian banker of climate chaos. When will you stop destroying the planet MUFG’
An interesting approach from the lobby group and one that may gain more prominence as ESG issues become more mainstream.

Companies & Markets
Private equity groups to bid in court-led Hertz auction
• Battle for bankrupt car rental group• Shareholders set for recovery boost
An interesting read; shows the amount of cash that is currently available. It doesn’t mention it but it will be interesting to see if the new company has changed its business model; especially having sold down their fleets to save money in the lock down and now with the sector facing production issues due to chip shortages.

On the move Transport index dashes ahead as US economy accelerates out of lockdown
Another sign of the strength of the recovery in the US. But prices are rising too. Another sign of inflation in the system.

Europe turns back clock to bail out carriers
Debate rages over Paris, Berlin and Rome’s €20bn U-turn on aviation industry privatisation. An interesting read because if will impact airlines globally. It underlines how national pride is often at the heart of the issue, although protection of jobs is normally citied. It also highlights why the business is going to remain tough for years to come.

Dfinity seeks crypto success with ‘internet computer’
Looks at the background to what was originally intended to be 'a faster, cheaper alternative to ethereum’.
'Dfinity is due to release what it calls “the internet computer”, a group of technologies intended to support a new generation of decentralised applications and services being developed in the block-chain world.’
The question is whether it can differentiate itself and become the market leader in an increasingly competitive market.

Nio bets on battery swapping network to gain lead on Tesla
Comes after Tesla rejected the technology. It looks rather like the competition between VCR and BetaMax. China originally backed both but recently has made battery swapping a 'a requirement for receiving subsidies on electric vehicles priced at Rmb300,000 or above, in a move that benefited Nio.’
The benefits are lower up front costs; as the owner buys a subscription package for the battery service. At present there is no clear winner. It points out that 'some analysts remain unconvinced, pointing to the high costs of building stations. They argue that fast-charging systems developed by Tesla and others are more efficient than battery swapping once overall running costs and the potential to charge multiple cars simultaneously are taken into account.’
It seems that only time will tell. But for investors it is worth remembering that the the elements that go into the batteries are probably a better investment at this stage than trying to pick a winner from which system.

Week ahead. Market questions. INFLATION
Will inflation thwart the US economic recovery?  Look forward to Wednesday US inflation data and whether the April core CPI will have surged.  Friday’s jobs number will have eased some worried but people are seeing prices rising around them raising new concerns.
How quickly is the UK economy rebounding?  Looks at the expectations for the UK’s GDP data due Wednesday.  Coming after the BoE raised its growth forecasts last week people will be looking for more upside.  
How worried should investors be about China inflation? Chinese data out tomorrow will give us an insight  Inflation and PPI. Rising inflation expected as oil and other commodities rebound.  Food costs will also be closely watched with Pork prices a key factor.  It notes 'Policymakers and advisers in the country have warned about the risk of asset bubbles, especially in the property sector.’  The big concern will be that the PBoC tightens further raising the risk of defaults.
I think it is a big worry because the recovery in China, like many countries, is not even.

Agribusiness. Climate change. Russian tycoon catches the insect bug with animal feed start-up
Entoprotech strikes blow for planet with factory that turns waste-eating flies into fodder
An interesting read. 'Aside from scaling up, Entoprotech’s biggest challenge is set to be government legislation and public acceptance of the product. The US allows black soldier fly larvae to be fed to livestock, while the EU has strict rules both on what the flies can eat and what can eat them. Both Babaev and Babitsky do not expect humans to be eating them directly for some time.“Of course it’s way sexier to talk about food instead of feed,” said Babitsky. “But that’s not the battle we want to pick. We’re providing the meat industry with sustainable feed and reducing pressure on the planet.”
Entoprotech is also researching the potential use of fats from the larvae in the healthcare and cosmetics industry, and has a joint venture with a Russian skincare company.“This fly has spent 200m years living in excrement. Over that time it has developed crazy anti-bacterial and anti-fungal and disease-resistance properties,” said Babitsky. “If we can harness them, then potential for all sorts of products is enormous.”'

FT BIG READ. CHINA. The launch of a space superpower
The establishment of a new space station is the latest sign of China’s extensive ambitions. But a lack of international co-ordination could undermine Beijing’s efforts to gain prestige from its endeavours.
An interesting read
Great quote 'China wants to be seen as a creator and innovator of the next transformative technologies, Krolikowski (a scholar at the Missouri University of Science and Technology) adds. Demonstrations of world-leading breakthroughs are in especially high demand ahead of July’s centenary of the party’s founding.
“Social instability might be what keeps China’s leaders up at night but what gets them out of bed in the morning is making China a science and technology superpower,” she says.
There are risks for China in this endeavour and not least the cost and what that money could have been spent on. A lot of the easy commercial gains and discoveries have already been made. But as it says this is the 21st century’s equivalent to building Cathedrals.

Japan’s great Olympic gamble
Worth a read, makes the point that the latest ’state of emergency’ is not being as effective as earlier ones.
Notes 3 problems
1. 'The first is that, by insisting on the necessity of holding the Olympics in a pandemic, Japan is leaning heavily on the notion that its role as host is scripted by both duty and destiny.’ That worked well initially but now is wearing thin after all the delays and surges in the pandenmic.
2. 'the government risks creating a credibility deficit that could persist long after the torch has moved on and the political priority switches back to completing the vaccination of the world’s oldest population.’ 'Japan’s leaders risk spending future months and years trying to convince voters that, whatever it may have looked like, they were always more important than water polo and the pole vault.’
3. 'perhaps most demoralising problem with treating the games as something necessary is that they become just that: a joyless chore rather than the soaring festival of achievement, ambition and togetherness the Olympics can be at their best’
Personally I don’t think they should be going ahead.

OPINION
The toughest capitalists should root for a wealth tax. By Martin SandbuA good read in support of a progressive net wealth tax.
Transformation is good but has to be managed. By Rana Foroohar'Change is good. However, if we don’t acknowledge the full extent of the transformation we are going through, we’ll end up with all the problems of the pre-pandemic economy, but on steroids.’
ECB climate models are built on obsolete scenarios. By Roger Pielke Jr  a professor of environmental studies at the University of Colorado' if financial institutions are to run meaningful climate stress tests, it is imperative that they be based on the latest science and not on improbable scenarios.’
Humanitarian aid cannot be allowed to fall foul of sanctions. By Justine Walker Global head of sanctions, compliance and risk at ACAMS'
Addressing the humanitarian consequences of sanctions supports wider security objectives, including those currently on the table with Iran. No matter where you sit in the sanctions effectiveness debate, it is clear that the pandemic has made the delivery of humanitarian relief even harder. Now, more than ever, it is time for action.’

Lex. {In-game money: fantasy finance} Looks at how Tencent is suing DD373.com,  (a virtual item trading platform)  over who owns in-game currency and merchandise.  An interesting read; some platforms in the small print make it clear they own it ….. even if you paid for it.  Some do allow players to own and convert back to cash.  The court case will be widely watched by gamers and I think would seriously impact which games remain popular depending on who wins.  
But Lex concludes. 'Regulators, struggling to make sense of cryptocurrencies, have given in-game money a wide berth. But ownership confers responsibilities, and potentially even a tax liability. The bigger it grows, the harder it will be for regulators to remain hands-off.'

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