Apr 6 FT Yellen wants a global corporate rate of Tax, China/EU & CAI? Comics in China, and more

06 Apr

MARKETs at 2:15pm Hong Kong time
Re-opened and traded higher around 6,900 in early trades. Then basically sideways; with support at 6,880 and resistance 6,915. RBA left rates unchanged as expected
Nikkei 225 opened higher on the strong US re-opening but trended lower though the morning after weak household spending data, although average cash earnings were slightly better. The 30yr JGB auction was done at the same yield as last month. PM the market opened lower and traded sideways but eased lower to close -392pts (-1.3%)@ 29,697
Topix traded in a similar fashion Currently -29pts (-1.5%) @ 1,954
Data Household Spending Feb -6.6% YoY vs -6.1% Jan (F/cast was -5%)
Household Spending Feb +2.4% MoM vs -7.3% Jan (F/cast was +3%)
Average Cash Earnings Feb -0.2% YoY vs -0.8% Jan (F/cast was-0.3%)
30 year JGB auction @ 0.691%
Tomorrow we get Foreign Exchange Reserves premarket and later Prelim Leading Economic Index and Coincident Index.
Kospi opened higher and tested 3,135 in early trades but then trended lower to 3,110 around 11am before working higher. Closed +6pts (+0.2%) @3,127
Kosdaq Opened higher tested 974 initially but then sold down to 965 mid morning and then traded sideways/slightly higher. Currently -2pts (-0.2%)@ 968
Tomorrow we get current account details
Re opened higher at 16,712 ticked higher in early trades and traded sideways; to close +169pts (+1%) @ 16,740
CSI 300 re opened higher but sold down initially to 5,134, bounced to flat but then sold down to 5,128 at lunch. PM opened flat and trading sideways Currently -27pts (-0.5%) @ 5,135.
The sell off as PBOC calls on banks to curb lending to property as it looks to reign in debt. The selling was despite strong Caixin PMI data, +VE sentiment in the service sector although some concerns about inflation.
Caixin Services PMI Mar 54.3 vs 51.5 Feb (F/cast was 52.7)
Caixin Composite PMI Mar 53.1 vs 51.7 Feb (F/cast is 52.8)
Services at a three-month high amid a further recovery from the pandemic. The latest reading was also slightly higher than the series average, as domestic demand strengthened, with new orders expanding the most since  December 2020. Also, employment returned to growth, while backlogs increased slightly following falls in the prior four months. Meantime, export orders fell for the second straight month, though the contraction was limited. On the cost front, inflationary pressure increased, with input rising for the ninth straight month while output prices expanding for the eight months in a row. Looking ahead, sentiment strengthened to its highest in over a decade amid hopes of post-pandemic recovery.
Composite at the highest reading since December 2020, driven by a sharper rise in services activity, as manufacturing production growth was fractionally slower than that seen in February. New orders rose at a faster rate, supported by a renewed expansion in overall export sales. In addition, employment rose slightly after a mild drop in February. As for prices, input costs and output charges both rose sharply, with the latter increasing the most since November 2016. Lastly, confidence was at an eight-month high. "The economy continued to recover from the epidemic. More attention still needs to be paid to inflation going forward. This has restricted the room for future policy changes and is not conducive to a sustained economic recovery," said Wang Zhe, senior economist at Caixin Insight Group.
market closed re-opens Wednesday
to re-opened I would expect markets to open higher but Credit Suisse has announced a $4.7bn hit from Archegos and the investment bank CEO and Chief Risk & Compliance officer to step down with immediate effect. The bank now expects a Q1pre tax loss of around $940m.
EUROZONE Unemployment Rate
UK New Car Sales
US Futures 
Opened flat after Monday’s record moves and have not changed during Asian trading; Dow and  S&P unchanged NDX +0.2% 

Front Page 
Johnson eases English curbs
Pub gardens, clothes shops and hairdressers can reopen next week. PM Johnson backed the use of domestic “Covid passports” but scientist warned of a resurgence.
Read also page 2 Johnson backs ‘Covid passports’ and sets up clash with MPs

Yellen urges global corporate tax floor in US bid to seize policy lead
• Push for level playing field • Washington calls for allies • Rebuff to Trump unilateralism.
Looking to bring more control over multi national companies. Seeking stable tax regimes that can raise enough money to fund essential public goods and services. Follows the Biden administration saying they would crackdown on tax avoidance and tax shelters. This goes further than the multilateral agreement on digital taxation the US is seeking at the OECD.
Comes are companies and republicans are already pushing back against Biden’s proposed tax hikes.
Yellen said “America first must never mean America alone. For in today’s world, no country alone can suitably provide a strong and sustainable economy for its people. Over time, a lack of global leadership and engagement makes our institutions and economy vulnerable,” She touched on China saying “Our economic relationship with China, like our broader relationship with China, will be competitive where it should be, collaborative where it can be and adversarial where it must be.”
Whilst many economist are raising their forecasts she said it was too early to declare victory in the current crisis. She notes that in her view the inflation risk was asymmetric.

Commodities groups investigate web domains with links to Gupta’s empire.  Looking at domain names that are similar to those of the trading houses but actually linked to Gupta’s empire; after a number were found registered to a email address of a Gupta employee at Liberty House.Groups mentioned Gunvor oil traders, Concord Resources, Salzgitter Mannesmann.It also notes that ‘The Liberty House email address was also used to register dozens of web domains for companies that the steel tycoon has insisted are independent.’Basically there is a web of suspicious links that will take time to clarify but generally it does not look above board.    
Actually the FT has this article twice, same one in the Companies & Markets section; just shows even newspapers editors can miss things!

Page 2
Brookings-FT index. Countries set to pay for virus failures
Those with rising infections and slower jab rollouts face weaker economic rebound
Looks at the latest Brookings-FT tracking index 'which forecasts that advanced economies will outperform emerging markets in growth, financial indicators and investor confidence this year.’
It is in line with last weeks warnings from the IMF and UN that poorer countries would face debt crisis. '“The recipe for a strong and durable recovery remains the same as it has over the past year; resolute measures to control the virus [and] balanced monetary and fiscal stimulus, with an emphasis on policies that support demand as well as improve productivity,” he added.
’Currently the US and China lead but with different policy mixes; with the US likely to have a record year with output exceeding pre-pandemic levels due to the stimulus packages. Whereas China has remained resilient. Europe and much of Latam have weak prospects.
The IMF meets this week and will discuss the efforts of the G20 to aid the debt burdens and help with vaccine supplies, essential to the recovery.

Sanctions dispute forces EU to reassess its China strategy
Looks at the prospects for ratification of the Comprehensive Agreement on Investment (CAI) that China and the EU agreed last year. At the time many thought it contentious and there was some opposition on issues like human rights and a lack of commitment by China to international standards. Now that China has imposed sanctions on EU members it faces more problems. Failure to ratify could mean less investment in Europe but China’s actions leave it little room to manoeuvre with regard to public opinion. Especially in the face of 'a consumer boycott, orchestrated by state media, of some western brands over previous Xinjiang statements.’
When the deal was struck it was a coup for China and potentially an opportunity to 'drive a wedge between the US and EU,’ but that has now changed. President Xi has lost face on the international stage and it is worth noting that he has not been seen or referred to much in the media recently with more limelight going to Foreign Minister Wang.
At the same time the US has sought to capitalise on events US Secretary of State Biden addressing Nato last week said “The United States won’t force our allies into an ‘us or them’ choice with China,” he said. “We know that our allies have complex relationships with China that won’t always align perfectly. But we need to navigate these challenges together.”
For the EU human rights are important it concludes by saying '“The partnership dimension has become a lot smaller,” said Oertel. “Competition has become a lot bigger and the rivalry is now more pronounced.”That will become clearer as the EU pushes ahead this year with a suite of other unilateral defences that will make it easier to push back against Beijing. These include EU rules on foreign state subsidies, measures against economic coercion and a carbon border tax on imports from climate laggards as well as national measures on slave labour.’

As I have written before Beijing has adopted a narrative and it is now very difficult for it to walk that back. The easy solution would be to open Xinjiang to a UN team and give them free, unfettered access. But as with covid it is not being straightforward and that invariably leads people to question why?
I have not seen much written about Chinese brands and the impact on their international efforts. Many are obviously focused on their home markets but internationalisation is a long term goal. As that becomes reality China will open itself to the same Achilles heel that western companies have operating in China; western consumer backlash.

Russia plans ‘sovereign internet’ fight
Threat to ban Twitter follows development of parallel web running on domestic servers
Was run yesterday in the online edition: Russia flexes its ‘sovereign internet’ with move to curb Twitter
Parallel web is designed to give Moscow more control and reduce reliance on foreign tech.
'Exerting greater control over foreign social networks — the biggest outlet for dissent in Russia — has become more pressing for the Kremlin after supporters of jailed opposition activist Alexei Navalny used them to organise nationwide protests in January.’
Looks at how Russia is looking at a sovereign internet run on its own servers, it will be cheap and easy to access and they will make the foreign controlled internet difficult to access. It hopes initially that that threat will ensure more compliance by western sites with Russian laws, especially anti Kremlin content.
An interesting read about the potential for state control.

Page 3
IMF to boost balance sheets of developing countries
Fund lines up $650bn in special drawing rights (SDR) to help nations further indebted by pandemic
Explains what an SDR is, how they are created and granted. Who gets them and how they can be used.A useful reference. Key is that rich countries can donate or lend their SDR’s to other, usually poorer countries to assist them. Those countries can then convert them into cash.
It notes that 'The US in particular can block the proposal as it holds 16.5 per cent of the votes. It did so last year under then president Donald Trump, arguing most of the benefits of any new SDR issuance would go to rich countries. Some analysts claimed the real reason was Washington did not want to boost the finances of China and Iran.’
Read also opinion IMF’s spring meetings lack ambition for a world in crisis By Mark Lowcock the UN under-secretary-general for humanitarian affairs. Masood Ahmed, head of Center for Global Development, co-authored
Concludes 'Some will say these proposals extend the mandate of the IFIs. But maintaining the weak response we’ve seen so far would be a moral failure, and one lacking foresight. Aside from the obvious risk of leaving the virus free to circulate, it opens up the possibility of secondary crises — hunger, conflict and displacement — spilling over into the lives of everyone, everywhere. The spring meetings have the potential to determine whether this autumn is the beginning of the end of the pandemic, or the start of a more complex and dangerous phase for the world.'

Page 4
Censorship China’s stand-up comedians find authorities no longer see the funny side
An interesting look at the intensifying of censorship and how Chinese comedians keep away from sex and politics. When standup comedy started to rise in China back in 2010 after a performance by Joe Wong at the White House correspondents’ dinner, it was seen as a ‘breath of fresh air’ but that now has been stifled.
China and its leaders take themselves very seriously which can be good. By comparison many western leaders accept that they will get ridiculed over some things but the voter system means that they have to 'roll with the punches’. Where there is no public representation the situation is very different. Like the case of Lui Daiqing who last year was jailed for connecting President Xi with Winnie the Pooh.
I have always found that people who can’t laugh at themselves and accept their short comings generally cause problems, because we are all human.

Companies & Markets
US Supreme Court rules for Google in $9bn Oracle battle
• Copying of software judged ‘fair use’
• Interfaces’ legal status left unresolved
An interesting read about the ‘copying’ of software interfaces that allowed Google to make its android operating system more compatible with the widely used Java code. Basically saying that they should not have legal protection because they were like a car steering wheel, needed to make things work.More interestingly the court limited its decision to cover enough to resolve the case, leaving the question on whether interfaces are covered by copyright still be determined

Monster weekend ‘Godzilla vs Kong’ box office boost raises hopes for Hollywood
The release was more successful than expected but more importantly showed a desire by people to return to things that were normal before the pandemic, namely going to the cinema rather than watching it at home on line. The release was +VE for Warner Bros and also AMC the cinema operator whose shares were +13% yesterday, slight off the day high.I think it interesting because a lot has been written about how post covid life is going to be so different. Whilst this is only one small area, I do think that most people long for the good old days of social interaction. I think it will take time but a lot of ’the old ways’ will spring back +VE for restaurants, bars, cinema operators, hoteliers etc.
The crucial question is whether they can survive until the re-opening; unfortunately many will not but without doubt there are more operators in the wings waiting to give it a go.

Firms address burnout with bonuses and luxury gifts. 
More on the response of companies to worries about retaining junior staff, mainly involving cash but not exclusively.
One example 'At Goodwin, for example, associates will be paid in two tranches, in July and October, but must have billed at least 1,850 hours to qualify. Junior lawyers in the UK, US, Hong Kong and Luxembourg will be eligible.’ 1,850 hours assuming a 8 hour day is just over 231 days, assuming no breaks. Which is about a years worth (5 days a week x 48 weeks = 240 hours). Clearly their staff are in the office for far longer.
Other firms ‘Investment bank Jefferies has offered staff a choice of perks including a Peloton bike or Apple products, while Davis Polk workers can opt for luxury gifts including wine or a shopping spree. Credit Suisse said it would pay junior staff $20,000 in bonuses, while others vowed to hire more staff.’
It will be interesting to see whether the staff do increase headcount and if so in which areas.

Nomura’s Archegos setback reveals growth dilemma for Japan Inc
Was in the online edition yesterday; I wrote
Companies need to expand globally but often stumble abroad.
'Familiar criticisms of the bank’s accident-prone nature have resurfaced. Its past is befouled with crises and misadventure, not least its disastrous purchase of the failed Lehman Brothers operations in 2008. But few debacles before Archegos so succinctly define the dilemma facing not just Nomura and Japan’s finance sector, but the broad sweep of the country’s corporate base. Japanese companies need to go global, but are often haphazard globalisers.’
He concludes 'Nomura’s problem is an acute version of an issue shared with many Japanese companies that surged to the top of global rankings in the late 1980s, but may never have used their spell at the top to develop the management musculature and scale required of globalisation. Now Nomura and others have no choice but to globalise, that oversight is shifting into a liability.’
I think a key issue is that Japanese companies do not trust foreign staff to control overseas operations. They don’t believe they can do the job as well and additionally western executives rarely exhibit the same level of loyalty and obedience to the company (even when it makes no sense) that the firms top management expect. Until there is compromise on both those points I think Japanese overseas expansion is doomed.

Investors press steelmaker Posco to cut ties with junta in Myanmar
Shareholders, like APG, have put pressure on the management to quit its JV in Myanmar.Some however question the negative impact it will have on the country. But I suspect the hopes of changing the attitude of the generals by maintaining a presence in the country is similar to the hopes that working with China would pursued the communist party to embrace the wests rules based structure. It did not work and I suspect the same would be true in Myanmar unfortunately.

Supply chain finance pushes risky boundaries
Greensill collapse highlights perils of striking deals that disrupt traditional models.Looks at how the supply chain finance system is supposed to work and the problems and grey areas that can occur.

Digital banks look beyond pandemic battering
Rival fintechs are back on the offensive with range of business models after crisis that threatened their very existence. An interesting looking look at how quickly circumstances can change.

Europe breaks records with government debt issuance
State treasuries rush to take advantage of favourable terms on top of already busy season
'Appetite for new debt dispelled any worries about pricing. The average yield for eurozone bond syndications since January came in at 0.75 per cent on a duration weighted basis, down from 0.94 per cent in the first three months of 2020, according to calculations by BNP Paribas.’
An interesting read.

Underwriters’ share sale income beats bond fees
Investment banks earned more from underwriting equity issuance than from bonds in the first quarter this year, reversing a decade-long trend as companies rushed to tap rallying stock markets.
A vast range of offerings too; 'Proceeds from traditional IPOs, follow-ons, Spacs and convertible bonds topped $441bn globally in the first quarter, the highest level since Refinitiv started tracking the data in 1996. High-yield and investment-grade bond issuances came close to $1.4tn in the same period.’ +VE for investment banks but people are wondering how long it can continue, with many expecting it to start slowing in Q2 and if there are any unpleasant surprises it could quickly halt, especially Spacs. But if the recovery continues then there are probably a good number of deals waiting in the wings.
Read also Windscreen repairer Belron borrows €2.2bn to fund dividend for owners
'The dividend is in line with Belron’s strategy since being acquired by D’Ieteren in 2017. It has repeatedly grown the business, reducing leverage, before using debt markets to finance dividends that re-lever the company. Belron issued a €400m loan in October 2018 to fully fund a dividend to its owners. It did the same again in October 2019 with an €850m loan.’
An interesting read nevertheless.

Airlines’ $16bn fundraising points to investor confidence over longer term
Another example of how investors are expecting people to return to their old habits once inoculations have been rolled out. The US is thought to have the best prospects due to its reliance on domestic flights. International carriers will face a tougher outlook because of the different rates of inoculation internationally. But as it notes the sector has benefited from investors rotating into ‘re-opening’ trades.
Yesterday Cruise operators did very well as the CDCP updated its guidelines for cruises to restart.

LEX LG Electronics: life could be better. Looks at how it is bowing out of the smartphone business… at last. Key though it concludes 'Growth in the smartphone industry is slowing everywhere. Global sales fell 13 per cent last year. Even if it does recover, LG’s 40 per cent stake in LG Innotek and LG Display, key suppliers to Apple, will provide exposure to any upside. It has made the right move.’
In selling phones only a few make money, the safer way is to supply the parts and whilst margins are being squeezed there too, especially by Apple, there can be economies of scale or niches of excellence that can still demand a premium.

For interest
NFTs: who decides the value of art?
In Beijing, the first large-scale crypto-art exhibition reveals the contradictions in China’s eager market for digital works, writes Yuan Yang
'It is a remarkable twist that the first major gallery in the world to host a crypto-art exhibition is in a country where the artists are forbidden from supporting themselves through the proceeds.’‘
An exhibition of NFT art, it is curated by Block-CreateArt (BCA), China’s first platform for exchanging art through NFTs, or non-fungible tokens.’
Notes that despite the barriers put in place by the government China has a very active blockchain community.'
For Qinwen Wang, the exhibition’s producer, the recent surge of capital into NFT art represents the new influence of the “tech capitalist class”: bit-coin millionaires, tech entrepreneurs, and their taste for styles such as cryptopunk, which will stimulate more artists to create work in that vein. Sun Bohan, founder of BCA, puts it more bluntly, asking: “Is it old money or new money who gets to decide the value [of art]?”’
An interesting read says 'China is steeped in political and social fascination with online technologies, and entrepreneurs and artists are used to pushing at the outer bounds of what the government explicitly approves of. Some of the artworks in Virtual Niche were not fully displayed at times, because they required special software (VPNs) to bypass censorship controls to access the global platforms that the art works reside on.’
Worth a read; NFT are currently very popular with the millennial generation and as I have written before whilst many question the value, for a generation that is prepared to pay cash to buy a skin for their avatar in a computer game it makes sense.

Editorial Central banks should embrace turning green
Climate change has risks; more radical plans need democratic approval
It starts 'A revolution is under way in central banks: a green one. Everywhere, monetary policymakers are pondering how to address the reality of global climate change. And it is “how”, not “if” — hardly any central bankers think they can do their job if they ignore the issue.’
It concludes 'As Klaas Knot, president of the Dutch central bank president, told an FT climate conference last week, “We shouldn’t be tempted to think that we are the primary actors here. The primary actors are really the governments.” Central banks should follow, but first it is the job of democratically elected governments to lead.’

Why ranking workers by performance backfires
A look at “forced distribution”, or “stack ranking”, methods. The key to me is that for HR departments and poor managers this is a land grab. Using a system because they don’t really understand managing staff. As an officer in the UK’s armed forces we were taught about task, team and individual. When things are on track each has equal importance but that can change. Good managers know that, if they see weakness in staff they don’t wait for the end of year assessment they take action. The trouble is in large companies a lot of managers are in positions because they are good revenue generators or because of 'dead mens shoes’. They are not taught about managing and hence rely on HR departments. But they are generally too small to understand the needs and dynamics of all the company departments. So they rely on annual assessments rather than daily understanding.
Worth a read if only to see how the system is flawed.

Race is also a geopolitical matter By Gideon Rachman
Looks at the composition of the UN’s security council and the issues involved.
An interesting read, mentions how China is resistant to increasing the size of the permanent, veto-wielding members of the UN Security Council; which effectively it notes reflects the power balance of 1945.
Focuses on current racial tensions from Xinjiang to the US’s George Floyd and whilst China may say 'the US and its allies “do not have qualifications to lecture on China, when so many lives are lost from Covid-19 and people like George Floyd cannot even breathe”.’ That does not give them the right to abuse human rights within China.The article gives many views and is an interesting read.
It concludes ‘….there are deeper structural forces at work. Shifting demographics and new concentrations of wealth are challenging power structures that once seemed firmly embedded. As that happens, the global argument about racial justice is only likely to intensify.'

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