FT Weekend. Covid knock on, US/China relations, BoJ's New Policy, HK quarantine and more

22 Mar

FRONT Page lead
Scramble to produce Covid jabs derails supply of other US drugs
• Pfizer warns of disruptions • Pharma groups lack ingredients • Shortfall of glass vialsBasically some of the ingredients needed to produce the covid vaccines are also key for other critical vaccines and medicines. So there are going to be shortages whist the focus is on covid. Also associated items like the vials used to deliver the vaccines are in short supply. Positive for the source drug ingredient producers and vial makers.
Read also Oxford jab still on hold in ScandinaviaFrance rules out use for under-55s as programme restarts across Europe
And Europe’s vaccine hesitancy endangers wider rollout
Underlining that whilst we have a vaccine there is still a lot that we don’t know both about covid and the vaccines effects on different people. Scientists are still working on the basis that the vaccines are better than the alternative.
The FT BIG READ. CORONAVIRUS PANDEMIC Europe’s vaccine disarray
The EU’s immunisation campaign was faltering even before this week’s delays and confusion. With Covid cases rising, it has created a picture of rattled leaders losing their nerve and could stall the bloc’s recovery. It demonstrates how the bureaucracy in Brussels is unsuited to organising the procurement and distribution of vaccines. The US and the UK have demonstrated how is can be done. It will be interesting to see if Von der Leyen manages to keep her job and who eventually gets blamed for the short comings.

US and China cross swords at ‘reset’ meeting with top officials in Alaska
A very unusual photo call that turned into the diplomatic equivalent of a shouting match.
The US opened with a very frank statement which accused China of undermining global stability with its approach to Hong Kong, Xinjiang and its stance on Taiwan; saying the "rules-based order that maintains global stability. The alternative to a rules-based order is a world in which might makes right and winners take all,” Blinkin added. “That would be a far more violent and unstable world.”
The Chinese relied accusing the US of ‘Cold War mentality’ and using financial clout to suppress other nations and inciting other countries to attack China. Adding that 'Many Americans no longer had confidence in their democracy due to the treatment of minorities and incidents of racism,’
Blinkin replied 'that US allies had expressed “deep satisfaction that the US is back” and “deep concern” about China’s actions.’
China was also accused of' violating a protocol agreement that limited each speaker to two minutes, saying he was “grandstanding, focused on public theatrics and dramatics over substance”.’

The on-line edition also has Bitter summit shows no reset in chilly US-China relations
Biden team continues confrontational Trump approach but does not rule out co-operation.
Key seems to be that confrontation will continue. China still says that raising issues about Xinjiang, Hong Kong and Taiwan are ‘red line’ areas. Yet China feels free to make critical statements about US, Australian and other countries domestic policy. I still feel that Biden needs to raise the international support for Taiwan as a priority. Two years ago Hong Kong was looking forward to free elections that could have brought about real democracy. Now there is no hope. One hopes that for Taiwan, in two years time it has the international recognition it deserves as a free country and that China doesn’t cross the red line that runs down the middle of the Taiwan Straits.

Also online China suffers relapse to era of poor air quality
Dust particles interact with rising fossil fuel emissions to create extreme pollution episodes.Looks at the current air pollution problem in Beijing partly from dust/sand storms but also from the soaring production of steel, cement and aluminium as the government drives the recovery with infrastructure building.

Digital desert App exposes Germany’s ‘pen-and-paper economy’. Page 2
An interesting read because it shows how covid is changing attitudes. With many authorities still wanting paper records rather than digital, which is costly, time consuming and costly with no real benefit. But tracing apps can be more effective and there are signs that people are more prepared to accept allowing access to their personal data for the greater good. It also notes 'Germans have historically high levels of concern over data surveillance. But a Bitkom survey suggests the pandemic is changing attitudes. More than 60 per cent of those polled felt data privacy could be loosened on health grounds. “That would never have been conceivable before coronavirus,” said Bitkom’s managing director, Bernhard Rohleder.’The key will be maintaining the public trust and that will mean keeping the data safe and only using it for the purpose it has been given and no other.

Russia raises rates for first time in two years Page 4
Central bank governor acts citing inflation increasing faster than forecast and because of geopolitical threats. Raising rates to 4.5% from 4.25% and being open to more rate hikes ahead. Russia has also put prices caps on some key foodstuffs to try and control inflation too. Brazil and Turkey also raised rates last week.Inflation is rising in more and more countries and that will have a knock on impact to others in due course.

Expats face reality of Hong Kong quarantine boredom Page 4
Outbreak nets families that had been largely unaffected by strict containment measures.Looks at the impact on expats but the reality is that they are being treated the same way as local families. They are part of the local community are there can be no exceptions when it comes to covid at the moment. That said the splitting of children from their families makes no sense. The current practices have been historically effective. Whilst the quarantine accommodation is not ideal it is the same for everyone. Key quote “Hong Kong deals with it brutally but effectively.”For the impact on attracting talent this along with the crackdown by Beijing will no doubt make it more difficult to attract some potential hires but there will always be those who are prepared to make the move motivated by the potential rewards. Longer term really depends on how China treats Hong Kong. It is likely that more local talent looks to leave Hong Kong to places with less restrictions on free speech in order to enjoy the freedoms that they have grown up with.

Bank of Japan outlines more ‘sustainable’ monetary policy plans Page 4Looks at this weeks changes to the BoJ policy. Key being the scrapping of the pledge to buy equities worth Yen 5tn a year,  saying it was moving to a more sustainable policy.  It said it would 'allow more fluctuation in 10-year bond yields and launched a scheme to subsidise bank profits so they did not suffer from negative interest rates.’A key change is that whilst it will still buy up to a maximum of ¥12tn ($110bn) a year. But only intervene when the market falls, rather than on a regular basis.It kept overnight interest rates on hold at -0.1%, will continue to peg 10-year bond yields at “around zero” but allow them to fluctuate by plus or minus 0.25% vs  0.2% prior.The board was 8:1 in favour with only Goushi Kataoka dissenting and being in favour of more stimulus.It is the latest policy tweak by the BoJ in a policy that started in 2013 and which has failed to stimulate inflation.  It really does suggest that low interest rates and keeping 10yr treasury bonds around zero really does not work.

Australia can teach the UK a lesson on Chinese wrath.  By Richard McGregor a senior fellow at the Lowy Institute and a former Financial Times bureau chief in Beijing.Beijing’s annoyance with Australia is clearly visible in the sanctions it has imposed on Australia exports to China, with the exception of Iron Ore, which it needs and is difficult to source elsewhere.  He makes the point that Australia now realises that it cannot change China policy and it is likely that the UK will find that true too and that there is a price to pay for trying. Any export to China, that it can source elsewhere will be under threat, the UK will be treated constantly in the Chinese National Media;  'Beijing will remind the UK that it will be on the wrong side of history if it sticks with its democratic partners. As the catchphrase of the popular press and politburo members in Beijing has it: “The east is rising, and the west is declining.”’
It looks at how Canberra’s downfall was sealed with its reasonable call for an inquiry into the source of covid, he notes that Australia could have handled the call better. I think key would have been to ensure it was a joint call from many nations rather than one country. It may well have been very different had Biden been in power then.
He notes that Beijing has for years punished its trading partners for actions it does not like; but the scale of those inflicted on Australia is exceptional. He notes that counter measures are limited or require tough political decisions. I think banning iron ore exports to China would have similar effect to Trump banning supplies to ZTE. Construction is the key to China’s current economic recovery.But he makes the point whilst the world may divided geopolitically between US and China; commerce is not so simple.Key he says is better co-ordination between governments in their common approach to China; something that Biden is keen on and from the reported opening remarks from the talks in Alaska, something that a lot of other countries are keen on too. He notes 'Kurt Campbell, who heads Indo-Pacific policy in the US National Security Council, said this month that Washington had told Beijing there would no improvement in ties while an ally is under “economic coercion”.’
He concludes 'Beijing rails at such co-ordination. A party paper lashed out at the Five Eyes intelligence partnership, calling it an “axis of white supremacy”. But China’s behaviour is pushing friends and allies together, as the US made clear in a diplomatic confrontation in Alaska on Friday. Australia values their support. So too, soon, might the UK.’
I think China, in hindsight may have over played its hand in response to Trump, if he was still there they could have expected their policy to continue to be effective. But under Biden; with his stated intention to work with allies and friends China will need a new policy. But that for President Xi will be difficult because of how he has sold the current policy to his domestic audience. The Communist party is not good at changing policy; just look at how ineffective its change in the one child policy has been and that is far less contentious.Which means for investors that China is likely to be under current sanctions for the foreseeable future and the potential for more remains very high.

Companies & Markets 
US cold snap pushes Toyota to brink of factory shutdowns
• Carmakers hit by supply chain delays • Chemical and chip shortages blamed
Key is that all the car makers are in the same position. In the last couple of weeks Toyota has been citied as having one of the best supply chain management systems but even it is being hurt; this time from the knock on effects of the cold weather Texas hurting petrochems; especially nylon fibres. 'Japanese chemicals maker Toray yesterday revealed it had issued a force majeure declaration to clients for the first time early this month seeking a special exemption from responsibility to supply nylon materials, which are widely used in airbags.’ Japanese rarely use force majeure which underlines how exceptional the current situation is.
For investors another -VE for the Auto sector and its supply chains. The outlook is uncertain for the rest of the year warned Volkswagen’s CEO.

China developers work to undermine Apple privacy push
Cat-and-mouse game as apps test ways of tracking iPhones without prompting for consent.
Looks at how Apple’s latest changes to it’s privacy policy is facing challenges in China. Key being that it asked for permission before collecting tracking data and the industry is expecting most people to say no. That will make it difficult for the advertising trade to verify traffic and will In China they are working on systems to get around the issue. Apple has said that it would reject from its App Store any apps “found to disregard the user’s choice” and last Thursday it gave preemptive warnings to at least two Chinese apps, telling them to cease and desist after naming a dozen parameters such as “setDeviceName” that could be used “to create a unique identifier for the user’s device”. '“We found that your app collects user and device information to create a unique identifier for the user’s device,” reads a screenshot of a warning to a developer who was using a way of identifying users called CAID, developed by the China Advertising Association.’
It demonstrates that Apple has the tools to identify abuses of its rules but the question remains as to whether it can enforce the rules outside of the US and other countries that operate a similar legal system.
FT reports that 'China’s biggest tech companies, including Baidu, ByteDance, and Tencent, are all testing or implementing CAID as a way of identifying users in the future to get around Apple’s policy change. 'Tech experts say that the fact that Chinese tech groups are creating multiple identification systems suggests China apps will tweak submissions in numerous ways to get past Apple’s enforcement.’
It concludes 'The efforts to undermine Apple’s new privacy push will put the $2tn tech group in a bind.
“Either [Apple] upsets Chinese companies . . . potentially arresting its meteoric growth in China over the past decade and disrupting a core part of its supply chain, or it gives Chinese developers special privilege and opens up that can of worms”, said Alasdair Pressney, director of product strategy at AdColony, a mobile in-app an network and marketplace.
Apple declined to comment.'
I still think that a lot of the targeted on line advertising is a sham, certainly from the adverts I get. I think a lot of firms are going to have to really look at their advertising methods and try and work out what really gives value; both to the customer and company. The bigger issue of tracking users phones is something that I think we will just have to live with.

Fixed income. Policy showdown. Wall St tests Powell’s mettle as long-term bonds tumble
Fed’s stance on low interest rates increases investor fears that inflation will run too hot.
An interesting read. The key is who will fold first, the Fed or the markets?
Markets have already started to adjust to the change in outlook and the Fed has indicated that they are happy with what has happened so far. But the market is likely to continue to test the Fed’s resolve. It is likely to be further complicated as the year goes on because inflation will appear. The Fed says it will just be temporary and they are happy to let the economy ‘run hot'. The question is are they right and if not when will they realise and how will they act?
'Brian Rose, chief economist at UBS Global Wealth Management, said he was watching longer term inflation expectations closely for any sign that inflationary pressures could become destabilising.’
As reported above Russia is already seeing higher inflation and I think more countries will too, including the US. The Fed is ‘between a rock and a hard place’ well aware of the need for economic recovery with strong real growth not just inflation.

Fixed income Fed will allow looser capital rules to expire for US banks. The temporary measures introduced last year will expire. Many of the banks haven’t used the facility although some have.  Those that have wanted them to continue and warn it could lead to problems ahead.  The Fed also said it would look at overhauling the base rules too.  Key is that if problems occur in the Treasury market the Fed can always re-introduce the measures.  In the meantime it is looking for a better long term arrangement.
Yields did move higher when the news was announced but that was the normal knee-jerk reaction.I think the more things the Fed can do in rolling back ’special’ measures the more likely we are to get back to ’normal’.
Read also Fed is in no rush to rescue corporate bond investors.  Last year the Fed’s actions supported corporate bond holders this year those actions are eating into their returns.  The speed of the recovery has been big surprise. '“The Fed needs to recalibrate the emergency policy settings they put in place last year,” says Bob Miller, head of Americas fundamental fixed income at BlackRock. “If the Fed remains stubborn about recalibration, then I think it could lead to more volatility.”’
Key point being when the T 10 yield moves higher 'Typically, this would be accompanied by a reduction in credit spreads, or the premium above government bond yields demanded by investors to lend to companies, as confidence in corporate America returned. But spreads are already very low, dragged down by the Fed’s support for the market creating confidence in companies’ ability to repay vast debts built up last year.’ So the normal cushion that investors rely on has disappeared or become very thin. Which is why 'the very lowest-rated debt that has performed best so far this year because it carried the highest spread above Treasury yields that has compressed as the outlook for the riskiest borrowers has improved.’
But even that is getting squeezed.'Investors had hoped for acknowledgment by the Fed of the risks posed by rising Treasury yields when the central bank met this week.Sadly for bond investors, Treasury yields are not the Fed’s only concern. It remains dismissive of what it sees as transitory inflation pressure, focusing instead on bolstering support for the nascent economic recovery.’
To me it seems to be that the Fed’s primary focus is the recovery, which supports the rotation trade and inflation plays.
So worth reading The Long View Global investors keep the faith in US outperformance
Looks at the findings of the recent Absolute Strategy Research's latest quarterly survey of global asset allocators. Which sees the US remaining a key weighing in most portfolios.'investors are mindful that US stimulus and the rollout of vaccinations are running well ahead of Europe at the moment.Another factor is the resiliency of the US dollar in the past month, boosted by higher long-term interest rates.
This makes it more attractive, of course, to hold dollar assets. In contrast, Wall Street typically lags behind when the reserve currency broadly weakens.’
Quote from Chris Watling 'founder of Longview Economics, said worries of a stronger dollar undermining the case for shifting into global equities are misplaced.
“US share market underperformance looks well established” and this reflects a shift towards an extended period of dollar weakness. “When the US consumer gets going, their demand for imports benefits global exporters in Asia, parts of Europe and among commodity producers,” he added.
But what might keep investors pointing towards Wall Street is a strong cycle of earnings growth, including those of large tech names this year, that vindicates high valuations.’
Useful to note the expectation that the US consumer driving the recovery, which is what has historically happened, which if it occurs again will be good for Asian exporters. The question then is how much of that will still come from China bearing in mind the current relations?

Plant-based burger pioneers seek ‘griddle parity’ with meat prices
US-based Impossible Foods is among start-ups making progress on mass adoption.Key being a reduction in production costs and an increase in real meat prices. That means the products are getting a wider access to retail outlets. As an article last week made clear the wider acceptance and at a reasonable price point will be an important aid to reducing emissions from agriculture.
More articles regarding Greensill
Greensill’s demise leaves someone ‘holding the bag’ and Gupta lived large on back of rickety financing
Mansion is latest lavish purchase by ‘saviour of steel’ whose empire received taxpayer loans through now-failed Greensill

For Interest
Bottled water should be a luxury, not a necessity
Looks at the strange fact that in many countries that have very healthy on tap water supplies many people are prepared to pay more for bottled water. 'As Richard Wilk, an anthropology professor, once wrote of bottled water, “getting people to pay for things that they already have in abundance” is a perverse feat.’'But fancy mineral water drunk by people who already have potable water on tap is a luxury that can pay for its environmental remedies. The greater problem is that billions of people drink bottled water out of necessity, either because the public alternative is not safe, or because there is none at all.’Concludes 'Climate change and water scarcity add to the challenge in many countries, and tempt them to hand over responsibility to the private sector. That is one reason why Morgan Stanley places bottled water at the top of its “Magnificent Seven” group of consumer staples with global growth prospects.But bottled water should be a luxury, not a necessity. When the pandemic ends, restaurants will serve more Evian and Perrier again, but the prime task is to make ordinary water flow safely.’
It will be interesting to see how bottled water companies react to ESG concerns over how their plastic bottles end up polluting the planet and whether fund mangers care?

Person in the News The billionaire tech bros earning their stripes
Thirty-something founders of a $95bn start-up keep their feet on the ground but ambitions sky-high. By Tim Bradshaw.An interesting read, about the guys behind Stripe a competitor to PayPal. Personally I keep finding I have problems with PayPal, maybe its just me but last week a friend told me how they set up a PayPal account in Cambodia, it was easy, clients were told payments made but then rejected. He contacted the PayPal and was told that PayPal didn’t work in Cambodia for incoming payments. You would think that when you were signing up for the account they would tell you when you clicked which country you were in that they couldn’t operate there. It maybe mis-selling but worse its wasting people’s time and hurting their brands.

Lunch with the FT Htein Lin. ‘We thought revolution was like a Hollywood movie’
The artist has been a voice of protest against Myanmar’s military for decades. Over yellowfin tuna in Yangon, he tells John Reed of his years as a political prisoner, the revolt against the latest coup — and how Van Gogh inspired him

For those in the UK or owning UK property Perspective The house price index demystified
A guide to navigating the often contradictory data on the health of the property market, which has been further complicated by the coronavirus pandemic

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