May 4 FT Vaccinated what next ? EU & INDIA discussion resume, Who pays for tax rises?


04 May

MARKETs @ 2:15pm Hong Kong time
AUSTRALIA 
ASX 200 Opened higher but trended slightly lower on weak Trade Data but worked better at the RBA left rates unchanged but raised its FY21 estimates. Saw resistance at 7,070 and eased back to around the 7,060 level to trade sideways and closed +32pts (+0.5%) @ 7,060
DATA
Balance of Trade Mar A$5.574b vs 7.595b Feb (F/cast was 7b)
Home Loans Mar +3.3% vs -1.8% Feb (F/cast was -1.1%)
Imports Mar +4% vs +4.7% Feb revsed (F/cast was 6%)
Exports Mar -2% vs -1.3% Feb revised (F/cast was +2%)
Investment Lending for Homes Mar +12.7% vs +4.5% Feb
RBA Interest Rate Decision unchanged
JAPAN
Market closed re-opens Thursday
S KOREA  
Kospi Market opened higher but sold down initially on slightly stronger inflation data but then bounced back to flat before trending lower to 3,110 around midday but then worked better, currently +13pts (+0.4%) @ 3,140
Kosdaq slightly weaker open, tested yesterday’s closing level before selling down to test 950, bounced but resistance at 960, trended lower to 945 which was tested a couple of times but held and then worked better; currently +6pts (+0.6%) @ 968
Data pre market
Inflation rate Apr +2.3% YoY vs +1.5% Mar (F/cast was +2.3%)
Inflation rate Apr +0.2% MoM vs +0.1% Mar (F/cast was +0.1%)
Market will be closed tomorrow for Children’s Day. Covid cases rose above 500 todays slight -VE
TAIWAN 
Opened flat an initial uptick but then trended lower hitting 16,650 around 10:45am and found support and worked better to but saw resistance approaching 17,000 and traded sideways to close -288pts (-1.7%) @ 16,934 Down for a third day despite good local data and earnings.
CHINA 
Market closed, re-opens Wednesday but it reported 17 new covid cases up from 11 the previous day, all imported. It also confirmed 20 new on symptomatic patients up from 12. China does not classify them as confirmed.
HONG KONG Pre market opened  @ 28,438 +81pts vs + 137pts ADR’s
But sold down to test yesterday’s close on margin calls before working higher to 28,470 late morning. Eased back into lunch. PM trending higher currently +145pts (+0.5%)@ 28,505 but volumes remain light. Chinese Financials remain under pressure and E-commerce names are mixed. Petrochems and shipping remain firm.
Xingyi Glass +VE as Chairman buys shares.
EUROPE 
UK re-opens and futures indicate a weak open; FTSE -3 points at 6,973, DAX -34 points at 15,202, France’s CAC 40 -18 points at 6,290 and Italy’s FTSE MIB -41 points at 24,379, according to IG.
Saudi Aramco’s Q1 profit beat estimates
Earnings due from Infineon, Deutsche Post DHL Group and Siemens Energy.
Data due
FRANCE Budget Balance
UK Market re-opens Mortgage Approvals, Mortgage Lending, BoE Consumer Credit, Manufacturing PMI, Net Lending to Individuals.
US Futures 
Opened flat in Asian time but have slipped now Dow -46pts, S&P and NDX slightly -VE
Data due tonight Balance of Trade, Exports, Imports, Redbook, ISM New York, Factory Orders, Factory Orders Ex. Transportation,  IBD/TIPP Economist Optimism, API Crude Oil Stock Change.

Earnings Pfizer, CVS Health, ConocoPhillips, Martin Marietta Materials, Activision Blizzard, DuPont, KKR, T-Mobile, Akamai, Pioneer Natural Resources, Lattice Semiconductor, Denny’s, Hyatt Hotels, Host Hotels, PerkinElmer, Prudential Financial, Viavi, Caesars Entertainment, Thomson Reuters, Cummins, Vulcan Materials

ON LINE
Cash-rich US banks move to reduce corporate deposits
JPMorgan Chase and Citigroup take unusual step of telling clients to move deposits into money market funds so the banks can avoid having to hold more capital.To me another indiction of how the Fed’s policy on low interest rates is disrupting the system. The key is that the US banks do not see increasing demand in loan growth.
A reckoning for Spacs: will regulators deflate the boom?
The SEC is concerned about the market for ‘blank-cheque’ companies, including optimistic projections and celebrity endorsements.Looks at the Momentus Spac deal which is currently under investigation and the change expected a SEC takes more interest.
Chinese banks accused of funding deforestation around the world
Report by Forests & Finance undermines Beijing’s drive to be seen as global leader in climate change campaign
Equity markets signal it is time to diversify
High valuations indicate investors should look beyond tech and consumer stocks


FRONT PAGE 
Credit Suisse made just $17.5m in Archegos fees before $5.4bn losses
The admission will add further questions to the review of business practice at the firm.
Much of this reminds me of the Peregrine and Baring situations; with a disconnect between the people at the top and the people doing the business. With management believing or trusting what they were being told rather than actually checking. Hopefully the review and action promised by the incoming Chairman will resolve those points. It probably also endorses the new hot desk stance taken by HSBC and Standard Chartered but rather than still sitting on a executive floor maybe some of them should be hot desking on the trading floor to really understand what is going on?

Germany to lift restrictions for people vaccinated against Covid
• Bill given green light • Critics say move is unfair on the young • UK eyes opening travel.
Countries are looking at both the re-opening of their economies but also hoot encourage more people to be inoculated, especially in those countries where infection rates are reducing. Germany is seeing frustration at the slow rate of inoculations and the prioritisation of the over 60’s. But that is probably more of a reflection on the EU’s slow response to arranging for vaccine supplies.
UK says ‘some’ international travel may be possible +VE Hotels, Airlines etc. But it will need to be monitored by qualified medical people to assess the risks of mutant strains being transmitted.
At present though there is no standard procedure with each country making their own plans. This is something that should be co-ordinated; potentially by the WHO although some of their credibility has been damaged this would be a good way to restore it.
Worth noting that HK quarantined the residents of another building and sent its residents for three weeks including those who have already been fully vaccinated with two doses. The issue is that if being vaccinated doesn’t allow for exemption then people are going to say why bother and that in itself will present a further problem.
See also  Canadians blame faltering response for spread of infection. Third wave taking hold after they were doing well; still not seen the variant first seen in India; so that threat remains too.
India struggles with relentless onslaught of third Covid wave
Latest surge has cut across all social divides, leaving hospitals full and supplies scarce
Modi urged to impose full lockdown. But he is still reluctant.  Notes 'The second wave has been so severe that many businesses have had to shut or scale back operations owing to shortages of industrial oxygen or because so many of their staff or families are ill.’  With out doubt this will severely impact the economy.  

INSIDE
EU and New Delhi to revive trade talks
China’s advance said to be behind latest initiative to rekindle negotiations.Amazing to see that the talks were suspended in 2013 and are only now being rekindled, comes as both parties are awakening to the threat from China and covid. Also notes that the UK is seeking its own deal with India, which probably explains and further reason for urgency by the EU.It does note however that India is quite protectionist and reluctant together drawn into alliances as seen in its decision last year not to join the 15 County Regional Economic Partnership.

For those looking at India there is a free ERIC webinar, Mifid II compliant entitled 'Regime Change, Debt Restructuring & India: David Mulford in conversation with Russell Napier’.
David Mulford is a former US Ambassador to India and Vice Chairman International of Credit Suisse.  Let me know if you are interested or sign up at  ERI-C.com .

IP battle Calls to waive vaccine rights face opposition
Looks at the issues involved; waiving the rights might increase production; although that is not certain because of the shortages of some ingredients. The issue is, if they are then the novel technology such as messenger RNA platforms would be handed over to Russia and China, which they could then use not just for covid vaccines but also new vaccines and therapeutics in the future…. at no expense or cost.
Some counter that ;there was “no evidence” that other companies would suddenly be able to make the vaccines if the patented IP were released.
Vaccines are trickier to manufacture than the drugs. 'Johnson & Johnson has said it examined 100 potential partners but concluded only 10 were capable of making its shot. “There’s almost nobody you could license to. They couldn’t do it — you need a huge plant, huge skills, patent or not, it doesn’t matter,” Jacob said.’
It concludes that what is really needed is 'Western countries need to follow the US’s lead and start sharing surplus shots.
Another short-term help would be to ease export controls, so vaccine makers are not restricted in where they send shots, or ingredients to make them.
The WHO is also trying to encourage companies with mRNA vaccines to share their technical knowhow with regional hubs in poorer countries.
But none of these proposals will greatly lift vaccine availability this year.’
For investors all that said I would expect to see valuations pulled back if they are forced share the IP rights.

Australia reviews China lease on Darwin port
Australia’s Department of Defence is reviewing a lease awarded to a Chinese company to operate Darwin port, which is near a US Marine Corps base. Comes as relations with China are already strained after Canberra to revoked two Belt and Road Initiative deals between China and the Victorian state government last week.

The question is whether the port operator is a security threat; there has been no evidence to date that it is.
Concludes with a quote from an anti China campaigner Peter Jennings, director of the Australian Strategic Policy Institute, who said China was “pursuing a policy of coercion to try to get states to behave in ways that suit Beijing . . . How comfortable can we be that key elements of Australia’s critical infrastructure are being held by Chinese companies?”

Factory and retail data fuel eurozone hopes
Manufacturing surge and rise in German spending point to strong recovery. Looks at yesterday’s data; which suggest the recovery is gaining momentum with a good outlook although supply bottlenecks are a concern; with a record level of uncompleted orders at factories. But manufacturer confidence is running high.

Companies & Markets
Sober assessment Asahi taps into taste for non-alcoholic beer after $20bn M&A binge
“Non-alcohol is a good all-around product,” Atsushi Katsuki, 61, Asahi’s chief executive since March, said in an interview. “It helps to resolve social issues, it connects us with new users and it leads to our profitability.”'Rivals such as Anheuser-Busch InBev and Heineken have also been building non-alcoholic portfolios. But analysts are waiting to see how much these products will contribute to earnings, with the low and no-alcohol market accounting for less than 2 per cent of that for intoxicating drinks. Asahi’s operating profit fell a third last year, as it relied heavily on sales at restaurants and pubs. It has ruled out any big acquisitions until 2024.’
Still a tough out look whilst the virus continues to be an issue.
On Wednesday 5 May Bud Apac (1876) reports, stock has seen significant shorting recently; stock has been rangebound over the past year between HK$20 - 29.50; currently at HK$24.30

For interest
Debate swirls over who will pay for a rise in US corporate taxes. By Robert Armstrong
Who will bear the heavier tax burden: companies, employees or shareholders?
Looks at arguments from Paul Krugman and Andrew Smithers
Krugman used to think the tax came out of corporate investment but he changed his mind because the investment is usually funded with debt which is tax deductible. Also most investment now is in software and equipment and only lasts a few years, so the cost of capital is less important. Lastly the quasi monopolies of Apple, Amazon etc. 'Monopoly profits are free money, not a return on investment, so they ignore taxes.’
Smithers disagrees 'average lifespan of corporate fixed assets is 16 years, and net debt is just 30 per cent of corporate capital employed. On monopolies, the profit share of output has not gone up in recent years and is near historical averages, inconsistent with claims of growing monopoly power.’
He goes on 'Corporate tax must be taken out of the private sector’s ability to consume or invest. If it comes out of consumption, there are three groups it could hit: companies’ shareholders, debt holders or employees. We know that shareholder return from stocks has been consistent through time regardless of the corporate tax rate, so shareholders don’t pay. We know that lenders don’t charge less interest when taxes rise, so debt holders don’t pay. And Smithers argues that wages relative to the output of companies have been stable through time, mean reverting regardless of the corporate tax rate. So employees don’t pay. Private investment is the only thing left for the taxes to come out of.
Smithers thinks the reason investment didn’t rise more after the tax cut is because of skewed executive incentives. In a “bonus culture”, execs would rather buy back shares to boost earnings per share and their share price than invest for long-term growth.’
Seems long term investment is what suffers and that seems reasonable especially in climate where despite low interest rates firms are not investing.
A good read.

Norway’s $1.3tn oil fund to purge ESG ‘rotten apples’ from buy list
It will screen the hundreds of new companies it adds to its portfolio each year for environmental, social and governance risks, as the world’s largest sovereign wealth fund seeks to regain its place as one of the leading responsible investors across the globe.ESG monitoring becoming more proactive in screening out smaller companies.
An interesting read.
Berkshire Hathaway lines up Buffett successor
Abel, who runs conglomerate’s non-insurance investments, primed for chief executive role.Looks at the succession issue; key being that when Buffett dies he intends to donate the vast majority of his wealth, which is primarily in shares of Berkshire Hathaway’s class A stock. They will then convert to B class shares and have less voting power which could mean more pressure from activists for change.
A good read.
Gupta’s ‘spiritual home’ left on edge by crisis
Australian steel city that feted industrialist as its saviour is left fearing for future after collapse of Greensill Capital
More on the saga which could be devasting for Whyalla and have implications for steel sector.

Investors reveal lack of faith in fossil fuel groups’ green vows
Fewer than a fifth of big investors are confident that oil companies will successfully change to become greener businesses, despite intense pressure from shareholders to cut carbon emissions and pledges from fossil fuel companies to overhaul their operations.
Should not really come as a surprise the Economist a couple of years ago noticed that for all their 'green words’ most of them were paying more to lobbyist to promote fossil fuels than was being spent on becoming more green. That may have changed and certainly with Biden in power the pressure to go green has intensified as have activists.
All that said with oil prices rising these companies make good investments. Shareholders will pressurise for change but focus on the returns.
It notes 'But the survey raises questions about why investors are spending so much time, effort and money engaging on the issue if few believe oil companies will change their businesses.’ It suggests 'There are two main schools of thought among big climate-conscious investors: those who believe it is better to rid their portfolios of fossil fuels, and those who choose to stay invested but use their power as shareholders to convince companies to change their stripes.’
It concludes 'If investors do not think fossil fuel companies will change, they should divest their holdings, invest in climate solutions and engage with companies in every sector to push them to decarbonise, said Ellen Dorsey, of the Wallace Global Fund, a foundation that works on environmental and social issues.
“This is the only course of action for investors that is ethical, financially sound, and preserves core fiduciary duty,” she added. “If they don’t act and still own fossil fuels, then they own climate change. Full stop.”’
The trouble for funds is that they are not convinced that their shareholders will remain faithful if the fund returns drop significantly for dropping fossil fuel companies. Like so many things we talk about emissions, climate etc but each of us hopes that someone else will pay for it.
A good read.
See also LEX Berkshire Hathaway: coming clean'Berkshire’s unwillingness to virtue-signal on climate change may irritate some shareholders, but the way it votes with its wallet is more significant.'

Commodities. Trading frenzy Rising prices fuel talk of raw materials   ‘supercycle’
Basics ranging from iron ore to grain rally together as global economy picks up.
Looks at the current pick up in commodities as the global economy rebounds from covid and discusses whether it is the beginning of a new super cycle or not; with hard and soft commodities booming.It notes that previously it was just China stoking demand but now it's the rest of the world. Which is fortunate as China’s economy is showing signs of slowing as the government looks to restrict credit.
What I think is key is that whilst this surge in demand is attracting investors the time it takes for actual production to increase is significant; mines and lumber that years; so the cycle, super or otherwise will remain for the foreseeable future as long as covid remains under control.

Europe’s top banks take on US payments ‘oligopoly’
More than 30 of Europe’s largest banks and credit card processors are trying to create a rival capable of shattering the US payments “oligopoly”.Looking to launch an electronic payments system in early 2022.The key is getting consumers to adopt it so that merchants will too; that is the big obstacle. -VE for the incumbents who are no doubt also looking at ways to enhance their systems.

Dollar under pressure as investors turn optimistic on global economic growth
The dollar is on course for its longest stretch without gains against a basket of peers in nine months, after investors turned optimistic about global growth prospects in April and pushed the exchange rate lower for four consecutive weeks.
An interesting read; not unsurprisingly currencies linked to commodities have been strong.

Markets Insight. Fed’s monetary framework puts recovery at risk  By Mohamed El-Erian
Looks at how the Fed is maintaining its stance of believing that the current inflationary signs are transitory and keeping existing policy in place rather than ‘testing the brakes’ and tightening some areas to gauge a reaction (as the Bank of Canada did recently).
He notes 'The argument for keeping an open mind on the nature of rising inflation is not one that dismisses the structural disinflationary effects of technology.
Nor does it deny that the initial jump in inflation data has a lot to do with base effects and a temporary mistiming between additional spending and production. Instead, it draws on structural changes that impact both the demand and supply sides of the economy.’
Basically that there is a lot of money being put into peoples pockets and they will send it, Buffett said a similar thing. He notes that Biden’s tax plans should mean that more money goes to the lower income brackets that have a higher propensity to spend. Although there is data to show that after the last round of stimulus cheques people are saving more money; across all income ranges for the first time in the US.
He concludes 'For quite a while now, the Fed has worried about a balance of risk tilted towards deflation. That balance of risk has flipped.It’s not just time for the Fed to start thinking about less monetary stimulus. It’s time for it to taper its markets interventions for the longer-term well being of the economy and the structural health of financial markets.’
There are those out there that still feel that the global supply/demand equation points to deflation. ERIC last week had a debate between Gary Shilling and Russell Napier on that point; it was recorded and is available on the ERIC website for free.
My feeling is that we are going to see more inflation, my worry is that the Fed thinks it can control inflation; of that I am not so sure.

FT BIG READ. CLIMATE CHANGE. Australia struggles to come to terms with life after coal
Global demand is expected to fall as countries commit to ever tighter emissions targets. So why are federal and state governments still pumping billions into the polluting fossil fuel industry?Looks at the current debate and potential changes that could take place but it will take time and vision.

OPINION
Not all blue-collar workers will find green-collar jobs. By Sarah O’ConnorMakes the point that the new ‘green’ jobs will not be as plentiful as the ones they replace and are unlikely to be as well paid.It’s not just green jobs but in general manufacturing jobs are under constant pressure with pressure from new technology and margin squeezes.

An ageing society will not stop China’s rise. By Gideon Rachman
An interesting read. Most developed Nations are seeing a slowing or decline in their populations; he suggests then the key question becomes not whether the country’s with growing populations become more powerful but whether people remain in their home country or choose to migrate.

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