Apr 23 FT Climate, China berates Aus, HK conviction -VE for the press, China Sales

23 Apr

MARKETs @ 1:45pm Hong Kong time
Markets opened lower following the US, which sold off on talk of Biden raising capital gains tax to 39.5% for those earning over US$1m, a quick look on the web puts that at 1% of the population in 2018 and the higher rate will impact even fewer. India’s covid cases is a concern.
Bitcoin dropped below US$50,000 which some see as a key level currently -6.9% @ US$49,433.88
Opened lower but quickly bounced back to flat on good PMI data but then trended lower back to the initial lows (7,036 level) before trading sideways to close -8pts (-0.1%) @ 7,048
Data out pre market
Flash PMIs
Manufacturing Apr 59.6 vs 57 Mar. (F/cast was 56)
Services Apr 58.6 vs 55.5 Mar. (F/cast was 55)
Composite Apr 58.8 vs 55.5 Mar. (F/cast was 55)
Nikkei opened lowered tested down to 28,800 following the US and despite inline inflation data. Then worked higher through the morning despite mixed PMI data to 29,035 around 11am before easing back into lunch. PM the market is trading sideways around 28,960 level Currently -238pts (-0.8%) @ 28,953
Topix followed a similar pattern currently -12pts (-0.6%) @ 1,910
Inflation Rate Mar -0.2% YoY vs -0.4% Feb (F/cast was -0.1%)
Inflation Rate Mar +0.2% MoM vs +0.1% Feb (F/cast was +0.2%)
Inflation Rate Ex Food and Energy Mar +0.3% YoY vs +0.2% Feb (F/cast was +0.3%)
Core Inflation Rate Mar -0.1% YoY vs -0.4% Feb (F/cast was -0.2%)
Out after market open PMI's
Services Apr 48.3 vs 48.3 Mar. (F/cast was 49)
Manufacturing Apr 53.3 vs 52.7 Mar. (F/cast was 53)
Composite Apr 50.2 vs 49.9 Mar. (F/cast was 51)
Kospi opened lower and tested down to 3,145 level in the first few minutes but having tested a couple to times it worked better to 3,185 just above yesterday’s close and then traded sideways although it dipped around 12:40 to 3,170 but rebounded, currently +9pts (+0.2%) @ 3,186
Kosdaq traded in a similar pattern currently +3pts (+0.3%) @ 1,029
Tested yesterday close in initial trades but then worked better to 12,245 around midday, then pulled back before working higher to test 17,300 at the close +203pt (+1.2%)
CSI300 opened flat but worked better through the morning to 5,150 before easing back into lunch (5,127) PM initially dipped to 5,110 level which it tested a couple of times, currently +33pt (+0.7%)@ 5,122
Pre market opened @ 28,799 +43pts vs -173pts ADR’s
Worked higher to. 29,000 in the first 20 minutes and then traded sideways into lunch in a tight range 28,940/29065. PM dipped 28,935 level currently +197pts (+0.7%) @ 28,951
Chinese Financials +VE (Except CCB -0.2%), Ecommerce strong, even Baba +1.4%A broad rally
Expect Europe to see a mixed open, with concerns over the US sell off but pre market UK retail sales better than F/cast +VE
EUROZONE Flash PMI data (Manufacturing, Services and Composite)
GERMANY Flash PMI data (Manufacturing, Services and Composite)
FRANCE Flash PMI data (Manufacturing, Services and Composite)
UK Consumer Confidence out Apr -15 vs -16Mar (F/cast was -12).
Due later Retail Sales, Public Sector Net Borrowing, Flash PMI data
US Futures Opened in Asian time Dow +16pts, S&P & NDX slightly +VE, and are currently trending slightly better; Dow +22pts
AHEAD PMI Flash (Manufacturing, Services and Composite), New Home Sales, Baker Hughes Rig Count.
Earnings American Express, Honeywell, Daimler, Regions Financial, Schlumberger, Kimberly-Clark

FT Print Front Page
Climate goals stepped up
'The US chose Earth Day to announce a new goal of cutting carbon emissions in half by the end of the decade. Japan, Canada and South Korea also made new commitments at a US-led climate summit, while China said it would “phase down” the use of coal from 2025.
The summit is part of an effort to re-establish US leadership on an issue that has been a central priority for Joe Biden’s administration. However, Swedish climate campaigner Greta Thunberg said the new targets were “very insufficient” and full of loopholes.
See also Climate summit page 4
Also Gillian Tett Opinion page 17

Russian troop withdrawal from Ukraine border eases fears of war
• Kremlin recalls military to bases • Kyiv welcomes pullback • Potential flashpoint persists
Easing immediate tensions; saying that the troops were conducting exercises, those exercises were complete and the troop were no threat to anyone.Obviously that statement wasn’t true and tensions remain elevated, because the recent moves merely compound the activities that have taken place over the past few years.
See also Putin’s pause for thought page 3

Wirecard staff removed millions in cash from HQ in plastic shopping bags
More on the embarrassing saga that was Wirecard. It means that up too €100m could have been moved out vs the €6m noted on the bank records.
See also German ministry not to blame for Wirecard, insists Scholz page 2

Page 2
ECB dismisses tapering bond purchases
Rates on hold as central bank waits for jabs to aid reopening of eurozone
No significant changes, officials are confident of a strong rebound later in the year but say too early to change its accommodative policies.
'The debate about when to start winding down the bond-buying programmes launched by central banks in response to the economic shock of the pandemic is one of the major issues that policymakers must confront. The Bank of Canada said on Wednesday it would scale back its monthly bond-buying in response to the improving outlook. But the US Federal Reserve said last month it was not ready to reduce asset purchases and the Bank of England said recently it expected to complete its bond-buying “around the end” of this year.’
That is when the markets will get very jittery.

Missing billions highlight Turkey’s opacity
Opposition and analysts say policy of shoring up lira has poor governance at its heart.Looks at the fact that despite spending money to try and defend the lira it has been unsuccessful and people want to know how much was spent and why.With Covid Turkey’s problems are set to become worse with the likelihood of another year without tourist revenues.

Slovakia urges EU to allocate more jabs to needier states
Slovakia’s new prime minister has urged the EU to inject more flexibility into its Covid-19 vaccine distribution programme or risk failing to achieve “community immunity” owing to diverging immunisation rates between member states.Continued problems in Europe with vaccine supplies after the EU’s collective purchasing scheme has failed to deliver.

Page 3
Ukraine military upgrade gives Putin pause for thought over conflict cost
Kyiv was poorly prepared when Moscow seized Crimea in 2014 but threatens a tougher fight in Donbas

Czech Republic tells Russia to scale down Prague embassy
Further escalations in the row with Russia.

Thais demand speedier rollout of vaccines
Anger grows as reopening of tourism sector faces delay and infections rise sharplyHaving reacted well to the first wave the government is now coming under criticism as a new wave hits.

China berates Australia for veto of Belt and Road deals
Looks at the cancellation of two deals signed back in 2018 and 2019 when the relationship between the two countries was far better. The cancellation came after the passing of a new law last year. The reason given was that they were inconsistent with foreign policy.
China says the act is “another unreasonable provocation” and “again shows that Australia is not sincerely trying to improve China-Australia relations and will inevitably further harm ties”. It reserved the right to take further action.
It is amazing that China not only thinks but believes that having instigated so many measures against Australia since Canberra called for an investigation into the source of covid, that its interests were not going to be harmed. China believes that it can 'cherry pick’ the western rules it will abide by but expects the west to stick by all the rules.
As more countries unify in their approach to China it will soon find out that that is not the case

Page 4
US pledges to halve carbon emissions
Big economies promise similar action during environment summitLooks at Biden’s summit where pledges were made to improve current targets. China’s commitment on coal though suggests that it will continue to use more coal until 2025. Good news for the coal producers.

Fox News anchor offers glimpse of way ahead for RepublicansLooks at the reaction of Tucker Carlson to Wednesday’s verdict on Derek Chauvin for killing George Floyd.
An interesting insight into American politics

Republicans offer cheaper infrastructure plan
'Senate Republicans have proposed a $568bn plan for federal investments in infrastructure, far below the $2tn level of spending demanded by US president Joe Biden, highlighting the difficult path to a bipartisan compromise on a new package of economic measures.The Republican offer is heavily weighted towards traditional infrastructure projects, with $299bn devoted to roads and bridges, $65bn to broadband, $61bn to public transit systems and $44bn to airports.
By contrast, the White House plan seeks broader investments in research and development, manufacturing subsidies and retooling buildings, while devoting much more federal funding towards tackling climate change.’
Shows the different attitudes to spending . Worth a read.

Hong Kong conviction stokes fears for press
Key here I think it the way the government is making it harder for the press to do its job. When seeking information from the governments vehicle licence plate information system people have three options; legal proceedings; buying or selling a vehicle; or other traffic and transit related matters. Historically journalists have ticked the ‘other’ and no-one has complained. Last year the Hong Kong administration decided that journalists would not be able to use that option.
That decision seems to have come about because the information she obtained was used in her report about when a gang of pro Beijing thugs beat up anti government protestors in Yuen Long and why it took the police 39 minutes to respond. To put that in context, you could leave your desk in Central and get to HK airport in Chek Lap Kok in 40 minutes, so the police’s delay was unusual.
At its heart is the increase use of Hong Kong’s legal system to crack down on dissent rather than on the protection of people right to know the truth.
It looks increasingly likely that not only will that policy continue but extended via the national security law which will make it increasingly difficult for journalists or any one else to speak about the injustices within the system.

Companies & Markets
Credit Suisse to raise $1.9bn as it reels from Archegos blow
• Bank’s worst trading hit in a decade
• Watchdog starts enforcement action
Looks at the quarterly results, the real question is will the knee jerk reactions hamper the business going forward. They are cutting the size of prime brokerage significantly but is it because they have now found a lot more family offices like Archegoes or just because they got hurt?
With regard to the Greensill debacle it is harder to draw comparisons. Other recent articles have suggested that its bankers were told to try and find more Greensill’s by which presumably it mean good entrepreneurs, not knowing then what a 'house of cards' it was.
It is rather reminiscent of ING and Nick Leeson, that having found what appears to be a good money generator, albeit that the management doesn’t fully understand it … they back it. Since Barings banks have improved their systems but in Credit Suisse’s case mangers were able to over ride the systems.
The key now for Credit Suisse should be to take an unbiased look at the existing business remove the bad and build the good, of which there is much. The key to success will be not to discard the some of the good with the bad.
They rightly recognise that the damage to their reputation is massive and that will take time to rebuild but it can be done
It is also worth noting that the Archegos event has had significant impact on hedge funds and family offices; across the board all funds have been having reviews, leverage offered has been curtailed and in many cases second tier funds have been cut off; which is having an impact on the amount of deals and trading being done in the markets.
See also LEX Credit Suisse: Antonio the exorcist

Fashionably early Sales at biggest luxury groups poised to recover ahead of forecasts
The luxury sector’s biggest names are on track to shrug off the hit from Covid-19 as early as this year as shoppers in the US and China help push sales above pre-pandemic levels.Hermès beat yesterday and others have reported ahead of target sales.
The article says 'The improvement among luxury leaders began in the middle of last year and has gathered pace, suggesting they are taking market share from smaller, independent brands.’
The key is that the rich are not worried about covid, a number of reports recently have suggested that the rich have got significantly richer during covid and so the rebound should not be so surprising.
China has been a big driver for these companies, earlier this week there was an article on growth in Hainan, a testimony to that is that as I wrote this morning that demand for luxury has prompted Alibaba’s logistics arm to launch direct cargo flights from Singapore to Hainan, it will start with on Sunday but plans to run 7 flights a week and is looking for flights between Japan and S Korea; just to supply luxury goods.
Also a Frobes report said Japan's richest people accumulated more wealth over the past year despite the COVID-19 pandemic, with their collective wealth jumping nearly 50 percent. The collective net worth of the country's 50 richest people rose 48 percent to $249 billion from the previous year, thanks to a rebound in exports as well as the benchmark Nikkei Stock Average being up 54 percent from a year earlier.
With that in mind it is no wonder that Biden is considering an increase in Capital Gains Tax.

Blackstone net income tops $1.7bn in quarter
Looks at the latest earnings; which were a record for the firm.
It 'reaped $8.1bn from asset sales in its private equity portfolio in the three months to March, helped by rising stock prices, a resurgent listings market and the proliferation of blank-cheque acquisition companies.’
Worth noting that 'At the same time as it sold assets, Blackstone deployed $18bn in investments. Roughly one-third of the total went into property.’ The exposure to property ahead of expected inflation makes a lot of sense and I think you will see more moving that way.
It concludes “Our brand is powering robust growth, increasingly in perpetual capital strategies,” said Stephen Schwarzman, chief executive, referring to vehicles that are never forced to return money and are able to earn profits and fees indefinitely. Such “perpetual” vehicles accounted for n'early a quarter of Blackstone’s capital, the firm disclosed yesterday. That was “driving an important shift toward more recurring earnings”, Schwarzman said.

Brussels delves into murky territory with plans for AI regulation
A good read about how the EU is trying to set up rules for how AI is used and maybe more importantly how it is setup. Notes that whilst Europe may be behind in designing AI it is on the cutting edge of regulating it. But it’s a complicated arena and so the regulations could take a longtime to be formalised.
It concludes 'As with all sweeping EU regulations, this one is likely to be years in development and subject to heavy lobbying. But in its bid to shape how automated decisions are made, Brussels has set a clear direction.’

Carmakers sound alarm on chip drought
Renault fears months of disruption while JLR and Ford idle factories
Nothing really new, its been known about for a while key will be, going forward, for better communication between the car makers and the chip companies.

America Inc pressed to act after murder verdict
Brands voice approval of Floyd case conviction but stakeholders want action
An interesting read about how political companies should become.'“CEO activism” on matters not directly tied to their profits is relatively new, said Vanessa Burbano, a Columbia Business School professor who attributed the public comments on the Chauvin verdict to the changing expectations of employees and other stakeholders.
But civil rights groups are already urging businesses to take their activism beyond statements, donations and diversity initiatives, putting pressure on executives to support legislative change.’
It is an issue on which there will be no pleasing everyone but an interesting read.

Bosch accuses EU of electric ‘fixation’ in pursuit of climate goals
Bosch, Europe’s largest car parts supplier, says the EU is “fixated” on electric vehicles while overlooking other low-emission transport technologies, such as hydrogen and synthetic fuels.
A good read and a reminder that there are alternatives to EV’s.

Hyundai faces supply chain test as sales revive
Hyundai Motor reported a near threefold rise in first-quarter net profit as demand for SUVs and its premium cars rebounded, though analysts cautioned that a chip shortage could derail the sales recovery.
The turnaround from 12mths ago is impressive, I think in general terms the chip shortage is similar across most of the auto makers; the exception maybe the Japanese ones who built up better stocks and liaison with the manufacturers after Fukushima disaster.

Odey reveals to clients it shorted Deliveroo
It. has revealed to clients that it took a short position against Deliveroo, the first sign that hedge funds are targeting the food delivery company after last month’s disastrous initial public offering. But its short position was too small to have to be declared (less an 0.5%).The shares are currently around 40% from the listing price, which was set at the bottom of the IPO range.

Tata forced to refocus after victory over Mistry
Looks at the background, the split and the future.
Notes that 'Critics argued that despite its labyrinthine interests, the group remained unhealthily reliant on Tata Consultancy Services, the IT group that generates much of its profit.’
An interesting read but it sounds like a major overhaul is required.

HBO Max’s subscriber growth beats Netflix
Looks at the recent results and the outlook for the sector. Content and pricing seem to be the key drivers.

Apple poised to bolster its mobile ads business
Opens 'Apple will expand its advertising business, according to two people familiar with its plans, just as it brings in new privacy rules for iPhones that are likely to cripple the ads offered by its rivals, including Facebook.’
A good read about how it is trying to monetise its platform, the bigger question will be how the regulators or courts view the action. It is already in a legal battle with EPIC over the use of its payments system, so I would not be surprised to see another one soon.
Key behind it all is Apple realises that making phones and computers is not a sustainable business so its moving to monetise the platform but with internet companies under scrutiny it will be interesting to see what happens next.

‘Quant winter’ thaw ends long spell of drab returns for funds
AQR among big names on rebound as new phase of pandemic shakes up trading.
Looks at the recent rebound 'Industry insiders are cautious about declaring a definitive “quant spring” but the rebound suggests that the long winter might be fading and that many flagship strategies are regaining some of their mojo.’
No one knows why definitively the quant strategies didn’t work but there are a number of theories. A key factor seems to be that quant needs to review its models and find new data streams; it quotes 'Anthony Morris head of quantitative strategies at Nomura, said the performance of many major factors was linked to movements in bond yields and that the industry therefore has to evolve.“The whole industry is deceiving itself and others that these are independent, systematic factors,” he said. “We need to move on. Using new data sources is a way to rescue the quant world from the shackles of fixed income, whether those shackles are recognised or not.”’
A good read

Sweden’s IPM closes after strategy falls out of favour
Informed Portfolio Management is to close after a run of poor returns and as investors have yanked money from the computer-driven hedge fund.
Again a reliance on historic models and data that floundered in the pandemic.
An interesting read but it underlines how strategies have to make money otherwise funds and quickly withdrawn.

Ant money market fund shrinks to four-year low amid Ma crackdown
'Funds invested in Ant’s flagship Yu’e Bao fund fell 18 per cent in the first three months of the year to Rmb972bn ($150bn) as the group pushed users to switch to other providers’ funds, according to data released yesterday by its Tianhong Asset Management unit.
The money market fund, once the world’s largest, acts as the main repository for leftover cash stored by hundreds of millions of users of Ant’s Alipay payments app.’
The decline is another sign of Beijing’s influence.
An interesting read, the regulator cracked down because it feared a rush of redemptions could have systemic financial risks.

European watchdogs probe Binance’s launch of trading in stock tokens
Regulators are examining whether Binance, one of the world’s biggest cryptocurrency exchanges, has complied with securities rules over its launch of trading in stock tokens.
'Binance says it allows users outside the US, China and Turkey to “trade equity shares through crypto coins”, with tokens that “represent a share in a stock corporation”. The move marked one of the most significant forays by a leading digital currency venue into a specialised and heavily regulated market.’
Key is that the regulators 'are seeking to determine whether the tokens comply with rules governing transparency and corporate disclosures.’
Concludes 'Lawyers say the regulatory status of the tokens is a grey area as Binance does not make clear on its website whether it is a security or a derivative. “Taken together with the information from Binance, it’s simply not consistent,” said Thomas Tüllmann, a partner at law firm Eversheds Sutherland in Hamburg. “If I was BaFin, I’d write immediately to them and ask where the prospectus is.”’
It highlights how, like everyone else the crypto exchanges are trying to broaden their offering and often exploring areas where the law had often been written before crypto had!
Going forward it would be good if the exchanges worked closely with the regulators but there will still be grey areas which the regulators need to clarify.

Alarming mood as equities investors party like it’s 1999. By Tobias Levkovich chief US equity strategist for Citi since 2001
Well worth a read Parallels current conditions to 1999 because that is what their Panic/Euphoria Model is showing. Takes into account factors including 'amount of investor positions anticipating a fall in stocks, the level of funds borrowed to purchase securities and commodity price futures.’
At such levels he says 'it would indicate a 100 per cent probability of lower share prices over the next 12 months. This is despite the current powerful US economic growth expectations buoyed by fiscal stimulus and business reopening.’
Goes through the reasons what this time is different. But also notes from their late-March poll of money managers that most are fully invested. Thinks is outlook is effectively priced for perfection but their 'lead profit margin indicator — based on surveys by trade group NFIB on the ability to raise prices relative to rising input costs — implies that there could be profitability trouble ahead.’
Thinks chasing the rally now imprudent. Investors need to think about rotation from growth to value etc. But that means stock pickers can do well.
He concludes 'Given this less than compelling backdrop, we contend that one may be best off looking at companies that have pricing power (to offset labour or input expense escalation) as well as those names that have strong balance sheets and offer better than average dividend yields.
There is also a procyclical bias to our investing approach. We particularly favour areas encompassing capital goods, financials and leisure. In the latter, explosive demand should evolve as inoculations allow people to move about more freely and indulge in the activities they have sorely missed.’
A good read and I agree with much of what he says.

FT BIG READ. ASIA-PACIFIC POLITICS Is Myanmar on the road to becoming a failed state?
With security experts warning of economic collapse and escalating conflict, the UN has compared the country with Syria as violence spreads and humanitarian conditions deteriorate rapidly.An interesting if somewhat sad read. Notes that 'While China, arguably the country with the most to lose from the instability, has been guarded in its public statements’ It concludes 'Analysts say the outside world’s ability to influence events in Myanmar, limited to start with, is narrowing with the rapidly shifting realities on the ground. “Sanctions aren’t going to have any impact in the immediate future — they’re a band-aid response at best, tokenism at worst,” says Davis from Janes. “What will happen is an economic collapse amid escalating conflict.”’

Tech wars are becoming the new trade wars
Starts 'Technology has turned geopolitical. The US has blocked semiconductor exports to China. In turn, China has looked to limit US access to rare earth minerals, crucial to the manufacture of many tech products.’
'For some trade economists, schooled in the quaint idea that humans are rational actors, such developments have come as something of a shock.
“From a classical economic perspective, this escalation makes little sense,” argue Daniel Garcia-Macia and Rishi Goyalof the IMF. The high priests of globalisation, it seems, still preach that free trade is an economic blessing, encouraging higher growth, lower costs and productive specialisation. However, as Garcia-Macia and Goyal add, such interventions do make sense when viewed from another perspective: security.’
'Traditional analogue sovereignty, as he calls it — which controls territory, resources and people — remains a necessary function of modern states, but that is now insufficient. It must also reach an accommodation with digital power, which controls data, software, standards and protocols and is mostly in the hands of global tech companies.’
He concludes 'It is clear that the US and China are increasingly being drawn into a titanic struggle for supremacy. The rest of the world must rapidly figure out how to protect its own economic interests and assert its own values if it is not to be trampled in that fight.’
A very good read. Rules will be needed but getting the parties to agree the rules will be fraught.

The developing world is key to climate action. By Gillian Tett
Looks at the John Kerry’s recent tour. Well worth a read but some key takeaways "while Xi promised yesterday to “phase down” coal usage, more coal-fired construction is slated in its latest five-year plan, adding to emissions. “The [Chinese] feel very strongly that they have some carbon space that is owed to them, since the rest of the world has been developing for a long time,” Kerry told the FT this week.’
'Take Pakistan, for example. Like every other developing country, it needs more energy. Until recently, it was mostly achieving this with expensive oil imports and cheaper electricity from coal-fired plants, including those constructed with Chinese BRI loans.
But now it wants to switch: Nadeem Babar, Pakistan’s government energy adviser, recently told the FT that by 2025 some 50 per cent of its energy will come from renewables. “The targets are ambitious but we can do it,” he insists, noting that there is an economic incentive since hydroelectric and solar power costs less than imported oil in a sunny, mountainous place like Pakistan.
Hooray. But one big problem is that Pakistan cannot close its dirty coal plants because it owes China money for them (although it is currently contesting their terms). Nor can it easily finance the construction of renewables itself because it faces a pandemic-induced fiscal crunch. And while it hopes to attract private investors, it could be hard to do this at scale without public money to underwrite some of the risks. So it is not impossible to imagine a scenario where China might collaborate, formally or informally, if a consortium of multilateral or western lenders created a blended finance initiative for renewable energy use in Pakistan. It might even engage in some debt forgiveness for the coal loans if, say, Pakistan buys hefty quantities of Chinese-made solar panels or turbines. And if a pilot project like this could be made to work in Pakistan, it could be replicated in places such as Vietnam, Bangladesh and Indonesia.’
Shows what could be done .
She concludes 'So the next time that Biden holds a climate summit, he should not just invite the biggest countries to participate but include those such as Pakistan too. It might yet offer a way to turn this week’s rhetoric into granular, collaborative progress.’Well worth a read although whether China can afford or wants to participate is open to question.

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