Apr 19 FT US/China join on Climate, HSBC CEO to hot desk, China tames tech what about SOE's

19 Apr

MARKETs @ 1:45pm Hong Kong time
opened higher and worked higher to test 7,095 a few times in the morning session but failed to break out and then drifted lower, currently seeing support around 7,070 level and trading sideways.
Data out during market
New Home Sales Mar +90.3% MoM vs +22.9% Feb (F/cast was +20%)RBA meeting minutes due Tuesday
Nikkei opened flat but initially sold down to 29,550 despite strong trade data which it tested a couple of times before bouncing back to 29,650 and then worked better into the green and lunch. Good Industrial Production data too.  PM initially tested 29, 800 but didn’t break above and now drifting lower currently +39pts (+0.1%) @ 29,724 Topix followed a similar pattern but  only briefly touch into the green and currently -1pt (flat) @ 1,960
Data out Pre market
Balance of Trade Mar ¥663.7B vs 215.9B Feb (revised from ¥217.4B) F/cast was +300B)
Exports +16.1% vs -4.5% Feb (Consensus was +11.6%)
Imports +5.7% vs +11.8% Feb (Consensus is +4.7%)
Industrial Production Feb -1.3% MoM vs +3.1% Jan revised from +4.3% (F/cast was -2.1%)
Industrial Production Feb -2% YoY vs -5.3% Jan revised from -5.2% (F/cast was -2.6%)
Capacity Utilisation Feb -2.8% vs +4.7% Jan (F/cast was +2.1%)
Tomorrow we get Tertiary Industry Index
Kospi opened flat and tested 3,194 in early trades but then rallied strongly to test 3,215 but didn’t quite reach and reversed to find support around 3,200 level before working better but only to 3,213; then traded sideways in the 3,205/210 range. Currently+7pts (+0.2%) @ 3,206
Kosdaq saw a similar start but then worked gradually higher currently +10pts (+1%) @ 1,031
Out in the morning Consumer Confidence Mar 76.52 vs 74.64 Feb (F/cast was 75)
Opened flat but trended higher though the day to close just off the day high +116pts (+0.7%) @ 17,275
CSI300 opened flat but worked higher through the morning to 5,074 at lunchtime. PM is drifting lower Currently +93 (+1.9%) @ 5,060
HONG KONG Pre market opened @ 28,960 -10pts vs + 91pts ADRs
Initially selling to 28,800 level but then reversed and worked higher to test 29,300 around 10:25 and several times again in next to minutes but failed to break above and drifted lower into lunch (28, 200) PM initially selling down currently +180pts (+0.6%) @ 29,150
Ecommerce names still weak; Baba -1.1% on the rumour, denied by the company that Jack Ma was looking exit. Auto’s +VE as the Shanghai Auto show opens. Tech also +VE
IPO TRIP +3.5% vs listing price
Futures FTSE +6 points at 7,061, DAX +31 points at 15,490, CAC 40 +16 points at 6,306 and Italy’s FTSE MIB +65 points at 24,545, according to IG.Little data to drive markets but covid concerns and the ECB meeting this week in focus along with earnings.
Current Account, Construction Output
GERMANY Bundesbank Monthly Report
US Futures Opened in Asian time Opened Dow -54pts, S&P -0.2% and NDX-0.3%; following the record close for the Dow and S&P on Friday.  Currently Dow -80pts S&P flat, NDX slightly +VE
No data due but Earnings include Coca-Cola, IBM, United Airlines, Zions Bancorp, FNB, Steel Dynamics

Front page

Clubs to join ‘Super League’
European football is set for its biggest shake-up in decades, after some of the continent’s biggest clubs signed up to a breakaway “Super League”.
Up to 12 teams, including Liverpool and Real Madrid (pictured), Barcelona, Juventus and Manchester United have agreed to join a new competition that will seek to supersede the current Champions League. It would involve 20 teams, including 15 “permanent members” who would not need to qualify via their domestic leagues.
Clubs hope it will resemble the structure of “closed” North American sports leagues, where franchise owners enjoy reliable profits and with the valuation of teams steadily rising over time.
See also Companies & Markets Europe’s top football clubs sign up for ‘Super League’

US-China climate pledge boosts hopes for global emissions deal
• Top powers to work together • Agreement despite tensions • Optimism rises for COP26
John Kerry and Xie Zhenhua, the climate envoys for the world’s two biggest economies, have vowed to co-operate “to tackle the climate crisis”, committing to “concrete actions in the 2020s” to reduce emissions in line with the aims of the 2015 Paris climate accord.
“Both countries recall their historic contribution to the development, adoption, signature and entry into force of the Paris Agreement through their leadership and collaboration,” they said in a joint statement yesterday.

HSBC top brass forced to hot desk as London HQ scraps executive floor
HSBC chief executive Noel Quinn has abolished the entire executive floor of its London headquarters, as the bank becomes the latest to drive through sweeping changes to post-pandemic working practices.
A very practical recognition of the fact that a lot of office space is under utilised by managers that are often travelling. But makes you wonder what will happen to books, awards and pictures that people use to make their offices more ‘friendly’.
Says more changes coming, not renewing a lot of city centre leases in the next 3 to 5 year and moving to a two employee’s per desk structure (excluding branches).
It concludes 'HSBC’s Covid-related office changes echo those of its peers. Standard Chartered signed an agreement with flexible office company IWG to allow many of its 95,000 staff to work from “near-home” locations rather than commuting into cities. Nationwide, Britain’s biggest mortgage lender, will allow its 13,000 office-based staff to work from home full-time if they wish.’
Should be good for HSBC especially as senior management tend to have large offices. But I wonder if all staff will adapt to the changes. Time will tell. For landlords its a slight -VE as it will be interesting to see how property valuations changes that are likely to happen to CBD’s.

Page 2
Navalny supporters say he is close to dying
Jailed activist’s health worsens as Kremlin cracks down on his foundation. Kremlin is also looking to have his Anti-Corruption Foundation with its network of regional offices declared an “extremist organisation”. Putting members at risk of prosecution.
All this is happening at a time with Putin’s ratings are falling and it is attracting attention from World leaders which is likely to be -VE for Russia.

Trump loyalists set fundraising records
Campaign inflows to former president’s supporters in congress reach quarterly high.Interestingly mentions that whilst corporate donations have fallen personal ones have increased.

Brussels Brexit chief optimistic on UK talks over N Ireland
The EU’s Brexit chief has said he is convinced solutions can be found to “minimise” the disruption of Brexit on Northern Ireland, calling for a “good faith” approach to applying new trading rules in a way that can reduce tensions.

Vatican forced into austerity drive as pandemic hits donationsNotes the Pope will not see a pay … because he doesn’t draw a salary.  But others will.

Page 3
Biden push to ‘end the forever war’ leaves Afghans in fear of Taliban retribution
US troop withdrawal brings warning of return to Islamist brutality and regional power struggles.Concerns about the Taliban taking control are a concern. It also says 'As the US steps back, Afghanistan’s neighbours — Pakistan, Iran, Russia and China — are waiting to step into the power vacuum, evoking the great power rivalries in the region of the late 19th century between Britain and Russia.’
China’s border is only 46 miles long and so its interest is a little tenuous but its proximity to Xinjiang is an interesting issue. China already has a number of border disputes so it really does not need one more but in its assumed guise of regional power it may feel compelled to get involved especially with the Belt and Road Initiative running though the country. It would also be a coup if it could achieve a settlement where the UK,Russia and US have failed.
It is a nice hope but I think the fractious nature of the Taliban make that unlikely.  China  has already had some successes and runs a number of projects in the country but it is not alone; see the FT’s Reunified Pakistani Taliban threatens China’s Belt and Road project. 14 Sept 2020
Worth a read it concludes with a worrying quote.
'Muhammad, the former soldier, fears the Afghan military may not be strong enough. “Without US and foreign troops, Afghans will be killed like chickens in a butcher shop,” he said.’
See Also Editorial Biden’s risky withdrawal from Afghanistan
The Taliban gets something for nothing in its war on Kabul. Well worth a read
Basically Biden is hoping 'that the US can diplomatically achieve from afar what it has failed to do on the ground — an Afghanistan that will never again play host to international terrorist groups. Luck may go Biden’s way.’
It concludes 'When the choice boils down to all or nothing, the least bad is probably the latter. But there is a third option — to retain America’s modest presence on the ground and in the air. Last year 10 US troops were killed in combat in Afghanistan. Each loss is tragic. But the result of America’s departure risks being far more tragic for Afghanistan and the world. '

Czechs expel 18 Russian envoys over 2014 blasts
The Czech Republic is to expel 18 Russian diplomats over suspicions that Russia’s security services were involved in explosions at a Czech ammunition dump in 2014.
More pressure on Russia.

Page 4
Australia hits at ‘vaccine nationalism’
Trade minister warns Brussels to curb policies on jabs and carbon levies
Australia will ask the EU to lift export restrictions on vaccines and drop a plan to introduce carbon tariffs on imports from outside the bloc in high-stakes talks due to begin today.

Egyptian women attack new family laws
Campaigners say reform fails to address inequality and treats them as minors

Populism’s rocky ride to victory in Peru augurs ill for region
Notes 'Although voting was compulsory, nearly a third abstained. Of those who did vote, more than 17 per cent returned an invalid paper. “More people cast spoiled or blank ballots than voted for Castillo, who won first place,” said Cynthia Arnson, director of the Latin America programme at US think-tank the Wilson Center. “That is a deeply troubling sign.”’

South Africa recommends restarting J&J shots
South Africa’s health regulator has recommended resuming use of the Johnson & Johnson coronavirus vaccine, days after the country followed the US with a pause to assess the risk of blood clotting with the single-dose shot.

Chile predicts rebound after fast jabs rollout
Chile expects this year to recover all the economic growth it lost to coronavirus, the only major Latin American nation to do so, as rapid vaccination helps it beat the pandemic, according to President Sebastián Piñera.

Companies & Markets
Europe’s top football clubs sign up for ‘Super League’
• Up to 12 of wealthiest teams join
• JPMorgan provides backing of $6bn
Many of Europe’s wealthiest football clubs have agreed to join a breakaway “Super League” competition that would mark the biggest transformation of the game in decades.An interesting read for football fans but it concludes 'Uefa said that it was united with Europe’s top leagues, national governing bodies and Fifa in “efforts to stop this cynical project, a project that is founded on the self-interest of a few clubs at a time when society needs solidarity more than ever”.

Great expectations Spectacular forecasts set the bar high for US corporate earnings
US corporate earnings season has officially begun and analysts are expecting nothing short of a spectacular rebound in companies’ first-quarter results.
Starts by saying 'But the lofty outlook leaves little room for disappointment, and could prove a stumbling block for US equity markets, which have been rallying to all-time highs off hopes for a swift economic recovery.’
An interesting read and surely again calls into question the valuation models being used. It would appear that US analysts are way too dependent in company guidance to get their models to even come close to the companies they are supposed to be modelling.
On the plus side at least this time around companies are giving guidance.

EY’s Wirecard audits had serious flaws, probe reveals
EY’s audits of defunct payments group Wirecard suffered from serious shortcomings over a period of years, a German investigation has found.
'The Big Four firm is said to have failed to spot fraud risk indicators, did not fully implement professional guidelines and, on key questions, relied on verbal assurances from executives.’A big concern to investors who rely in part on the auditors annual appraisals.

Abu Dhabi fund veers away from commodity roots
Chief says selldowns will include public listing of Emirates Global Aluminium' Abu Dhabi’s most active investment fund, Mubadala, is turning away from its roots as it cuts its holdings in energy and other commodity-related assets while ramping up investments in technology, healthcare and disruptive industries.’
An interesting read and encourage to see their willingness to drop legacy sectors and explore new drivers although their experience has not always meet with success. Such as its investment in GlobalFoundaries which has struggled against TSMC and Samsung.

GSK chief finds that breaking up is hard to do
Walmsley under pressure as activist Elliott pushes for change and investors show concern over lagging drug research
An interesting read both about the company and the Elliott which has built a recent stake.'Elliott declined to comment. But one person familiar with the activist group’s general approach argued that it would not have become involved unless it planned to agitate for a sale of at least part of the business ahead of the demerger — most likely consumer health — with pharma and vaccines likely to be put on the block later. “This is the end of GSK,” the person added.
Many people will be watching its progress not least the British Government with the raised profile of being able produce vaccines domestically.

Australia and NZ test ‘travel bubble’ template'
The launch of a quarantine-free “travel bubble” between Australia and New Zealand could provide a template for elsewhere in the world and pave the way for an airline industry recovery, the countries’ main carriers have said.
However, cash-strapped Air New Zealand and Qantas Airways have warned that delays in Covid-19 vaccinations in both nations threatened to disrupt the resumption of international flights to parts of the world that are struggling to contain the spread.’
Says that further travel bubbles with Singapore, Japan, South Korea and Vietnam could be its next step.
Worth noting that Qantas and Air New Zealand both have domestic routes to help offset the full impact of covid whereas a number of other regional Airlines do to have that luxury.
The real challenge will be flying to countries where the pandemic is less well controlled.

Big banks urged to defund carbon emitters
Goldman, HSBC and BNP Paribas and 2 others are under pressure from a investor coalition that includes Amundi, Legal and General Investment Management, the Church Commissioners for England, Nordea Asset Management, M&G Investments, Northern Trust Asset Management and Aviva Investors.
An interesting read because it shows how a number of investors really want to speed up the process of achieving their climate change goals and some are going further and wanting the banks to 'phase out lending to projects that led to emissions through deforestation and land-use change.They also argue that lenders should not rely on “unproven negative emissions technologies” and that so-called avoided emissions — derived from backing green projects such as wind farms — should not be used to offset carbon-intensive activities.’
It certainly looks as if the banks are in for tough time ahead as their traditional clients go ‘off limits’. JP Morgan warned that the traditional lending market faced a tough outlook when it announced last week. Activist could make it much tougher.
Read also Energy. Climate change. Doubts raised over environmental benefits of offset schemes  Proliferation of projects is not necessarily equating to reductions in emmisions.  On the same page.'Fundamental to the principle of offsetting is that the projects that generate credits deliver carbon benefits that are additional to a business-as-usual scenario, and can show that they would not have been viable without the revenue from offsets. But some of the most abundant credits are from big renewable energy schemes developed by well-funded power groups, according to data compiled by the Berkeley Carbon Trading Project.’An interesting read highlighting that there needs to a better benchmark and that adhering to not just the rules of the scheme but the spirit behind it too is necessary if we a really going to make a difference.
Also see Opinion  We must help poorer countries tackle climate change by Alok Sharma president-designate of the 2021 UN climate change conference.
Sets out three key areas
1. The first challenge is quantity; raising money
2. Second make it easier for those in need to access available finance.
3. The need to reduce future emissions.
Sets out that solutions are in progress.
Concludes 'We owe it to those communities around the world that are suffering from a crisis they did next to nothing to cause. Without adequate finance, the task ahead is near impossible. But removing barriers to climate action is within our gift to solve. We must act now.'

UBS told it could not rely on privilege with rape inquiry report.
UBS was told by an employment tribunal it could not use legal privilege to keep private the findings of an inquiry into how it handled an alleged rape.
A strange read for the financial pages

Market Questions. Pandemic fallout
ECB ponders options for hastening bloc’s recovery. 
Wonders how the ECB will react to the state of the European recovery which is being hampered by lockdowns, whilst the US, China and the UK show encouraging rebounds. Crucially is it doing enough and what more can it do? Will there be any adjustment to the pandemic emergency purchase programme?
One of the problems for the ECB in my view is that it is the EU’s recovery package is still progressing slowly as different countries argue over specific issues. Biden’s package had the advantage of being quickly implemented, which of itself boosted confidence.The EU is also mired by the delays in securing vaccines and rolling out the inoculations. None of which helps the confidence of the ordinary citizens; whose participation is the key to success.
How will pandemic winners and losers fare in US earnings season?
Looks at the Netflix earnings due this Tuesday; key being the number of new subscribers. Also in focus will be the US airlines and indications of how strong the recovery in travel is.
Is UK inflation at inflection point?
Inflation data due on Wednesday will be closely watched; it 'could mark a point when price growth switches to an upward trajectory. The key question for investors is where a move higher in inflation will stop and how central banks will respond.
’'Dales (Chief UK economist at Capital Economics) said the BoE would probably disregard higher growth figures due to the strong influence of technical factors, including rising energy and utility prices. Clothing had also proved to be a “wild card” over recent months as retailers increased their price tags in response to lockdown measures, he added. But higher readings over the next several months could still make investors nervous about the prospect that higher inflation is here to stay.’

The cross-border pitfalls of ‘working from anywhere’
When staff decide to work abroad, businesses have to grapple with tax and compliance woes. So what might ease the way? By Patrick MulhollandAn interesting read about the potential pitfalls from allowing staff to work overseas and for the new breed of ‘digital nomads’ 'someone of no fixed abode who works remotely online’.

FT BIG READ. MIDDLE EAST. Inside Jordan’s royal crisis
What lies behind the family feud that led to Jordan’s king detaining his half-brother? Sibling rivalry? Foreign intervention? Or a faltering economy struggling with corruption and exposed by Covid?

Editorial The limits of China’s taming of tech
Antitrust measures do not extend to state-owned monopolies.
The Alibaba fine put firms on notice to end their ‘walled garden’ practices and create a commercially open and competitive market.
The editorial goes on to say that China should apply the same thinking to the SOE’s, who even after opening up have considerable local advantages.
But it goes further to point to out. 'as Chinese companies become leaders in an increasing number of industries and the country’s technological prowess draws level with the US and Europe in a list of industries. The key problem now, says the ECFR/Rhodium report, is that Chinese multinationals are using the advantage of a protected home market to build up resources that they then deploy in competition with western counterparts abroad.’
It concludes; 'This sets the scene for friction. China should extend its anti-monopolistic scrutiny from its own privately owned internet companies to several state-dominated sectors of its economy, taking care to open to foreign multinationals as much as domestic competitors. If it decides against doing this — as is likely — it will be furnishing Europeans and Americans with ammunition to argue against extending access to Chinese corporations in their own markets.’
I very much doubt China has any thought to opening up SOE’s. But to be fair it is currently grappling with the need to consolidate and upgrade many of those legacy businesses and it is still unsure about the outlook for its modern tech businesses. But I would agree it will do everything in its power to try and dominate world markets.

The US should invest in human infrastructure. By Rana Foroohar
Does caring for humans count as infrastructure?
'It’s a big debate in the US right now, in the wake of President Joe Biden’s $2.3tn American Jobs plan, which aims to repair the country’s crumbling roads and bridges and bolster its supply chains, but also to improve the health and childcare systems — if you can call the US’s paltry patchwork of coverage a “system”.’
Says healthcare is where future job growth will come from; ageing demographics and automation of other jobs.
'Care jobs will be what’s left at the bottom end of the socio-economic spectrum. But, done well, they can release more productivity at the top.’
Concludes 'In rich and poor countries alike, investment still focuses primarily on physical capital. It’s time to recognise that, perhaps more than any other form, human capital is the infrastructure of the 21st century.’

Brutality backfires on Myanmar’s secretive junta. By Andrew Heyn. a former UK ambassador to Myanmar and honorary professor at the Senator George J Mitchell Institute at Queen’s University, Belfast

An interesting read. Says that whilst a lot of countries boycotted the Arm Forces Day the presence of India, China and Russia gives the junta comfort.
Notes unlike previous coups this was against an just re-elected government.
Also says that ‘ Myanmar’s generals. They are ruthless in suppressing dissent among rank-and-file soldiers, who are uneasy about being asked to kill their compatriots. But they are politically naive, secretive and inward-looking. Isolated from reality in Naypyidaw, their remote capital, they seem to have miscalculated reactions at home and abroad to their coup.’
He looks at China’s part, who he sees as crucial. It blocked the UN’s intention to condemn the coup and seems to have communication with both sides. It may not care about reputational damage but it does care about its economic interests and has been alarmed by the recent violence against several Chinese factories. The outcome the coup could also impact China’s Belt and Road initiative too.
The key in his eyes is Aung San Suu Kyi herself and the love the people have for her.
He concludes 'Her endurance of years of house arrest and her status as the daughter of General Aung San, the father of Burmese independence, means she will always be the Myanmar people’s choice. By locking her up and trying to drag the country back to its authoritarian past, the generals have unleashed a resistance that even their brutal methods may not be able to extinguish.’
I think Beijing will also be monitoring the situation carefully for its potential parallels with Hong Kong and Taiwan.

A boycott hurt my Olympic dreams. Don’t do it again. By Anita DeFrantz a member of the International Olympic Committee and won a bronze medal at the 1976 Olympics
Another article in defence of the olympics in Beijing on behalf of sports people.
Read also the FT’s article April 9 Boycotting Beijing 2022 is not the answer 
'But there is no reason why western broadcasters should give primetime treatment to the opening ceremony for Beijing 2022. US and EU leaders who want to signal their displeasure with Chinese policies over Xinjiang can also stay away. A model could be the way the UK government treated the 2018 football World Cup in Russia, which took place just months after the attempted murder of Sergei Skripal on British soil. The British government did not send any official representation to the games. But it did not prevent the England team and its fans from taking part. The world can enjoy a sporting event in Beijing in 2022. It does not have to participate in a propaganda event at the same time.'

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