July 13 FT WeWork, Taiwan, Chinese FM's, -VE Rates, Bank Earnings and more

15 Jul

July 13 FT WeWork, Taiwan, Chinese FM's,  -VE Rates, Bank Earnings and more

Markets in Asia opened higher and generally trending higher.
As at 1:30pm
working higher through the morning Tertiary Industry Index May -2.1% vs -7.7% Apr (F/cast was +3.2%), market saw a slight dip when it came out but has continued to work higher, Currently +2%
S KOREA Opened higher, no data today and market have worked higher in choppy trading. Sentiment +VE on hope ’New Package’ to be announced by government tomorrow. Currently Kospi. +1.6% and Kosdaq +0.7%
TAIWAN Opened higher as saw an initial spike following Friday’s sell off and after market good numbers from TSMC. Has worked higher currently +1.1%
CHINA Opened lower bounced and then sold down before working higher through the morning in choppy trading with continued upward trend at the start of the PM to the day high. Currently +2.2%. Still think Team China at play
HONG KONG Opened higher and saw a squeeze, then sold down but support above Friday’s closed and then has worked higher in choppy trading. Has ticked higher after lunch, currently +1.3%. Again high volumes and choppy trading suggest Team China active.
EUROPE Expect markets to open higher following momentum from Asia off-setting concerns about rising Covid cases. But expect some caution ahead of US earnings kicking off.
US Futures opened +130pts but have eased back to +65pts, But S&P Futures opened +0.5% but now +0.2% and NDX steady at where they opened +0.4%.

WeWork set for profit next year as virus sends demand ‘through roof ’ • Staff levels slashed by 60% • Non-core assets sold • Tech groups seek local office space. Looks at the potential turn around at WeWork following some dramatic cost cutting and some new sign ups from Mastercard, Microsoft, Citigroup and TikTok and it says it is seeing workers from companies that have said their employees can work from 'where ever they want’ taking space. That raises the question about whether the office is dead and working from home. Most people prefer the office or at least ‘an office’ in my view and experience. The question for companies going forward is will they go back to the central office concept or remote satellite offices. It is possible that with modern IT the satellite office format might still be able to provide the same overall economic advantages as the centralised office. Where cheaper rents off-set economies of scale. It will be interesting to see.
But back to WeWork, whilst it is seeing new tenants it still have those that haven’t paid or have terminated leases; so it's not all good news but it does seem to moving in the right direction which will be a relief for a number of landlords and Softbank.

Taiwan strives to bolster forces amid Beijing sabre-rattling. Looks at a speech by Enoch Wu a rising star in the DPP, setting out how in 20 years China has made significant improvements to its military forces but Taiwan has not done much. He is calling for more. A timely speech as the annual Han Kuang exercises take place and tensions rise over China’s increasingly aggressive threats to take over Taiwan; which China calls liberation and unification, although the people of Taiwan have rejected such approaches.
It's a interesting read, it can’t beat the PLA but by setting up ‘guerrilla’ units it could certainly make it difficult. But the key at the end of the day is really what the rest of the world would do? Would they make mere diplomatic statements or would there be a war. The worry for the US military would be that the PLA would target the R&D of the likes of TSMC etc and take the technical know how back to China; after that I don’t think China would be that interested in Taiwan. For the US, the risk that China gets that technology would probably mean that in trying to defend Taiwan there would also be a plan to bomb the those sites with the technology it didn’t want China to get its hands on.
That is why I think the West in general should be recognising Taiwan formally and making it clear to China that invasion is not an option. Interestingly Congressman Michael McCaul, said the US does not want to go to war with China, but it must compete with it and also stand up for human rights and democracy and that recognizing Taiwan as an independent country would be the most punitive measure the US could take against Beijing’s aggressiveness.
That would be a good start, not just for the US but other countries too.

From FTfm Chinese fund groups retreat from global push looks at how due to increasingly fraught relations some funds are closing down overseas operations. Mentions Harvest Global, GF Fund Management, China Universal and E Funds. These were pioneers for China’s fund management business pushing to gain more mandates rather than relying just on Chinese money. No doubt an unintended consequence of China’s ‘wolf warrior’ diplomacy of late. Slight -VE to the funds
FTfm on the last page, I think it should have had more prominence
Negative interest rates threaten doom loop for pensions looks at negative interest rates and notes that in a recent Pimco research report there were three clear health warnings about negative interest rates:
1. They impair the banking system, as banks earn less on their assets.
2. They pose massive challenges for insurance companies and pension plans that are obliged to use bonds to honour income guarantees to the end-savers. 3. Finally, perversely, they may well force people to save even more — not less — to compensate for the prospect of reduced retirement income.
I think you only have to look at Japan to see how true those reasons are. I’ve been saying for ages that low interest rates mean money and risk are mis priced.
I would add additional that the other key issue is that pensioners don’t spend because there are not getting any income on their savings which are fixed or worse losing money whilst their life expectancy increases. The reality is that it is not just an issue for the pensioners but for all of us, because no one is getting younger!

Trading set to triumph in US bank Q2 earnings Gains will be overshadowed by more loan loss provisions stemming from the pandemic. Looks at what the US bank results might be like this week. Expects GS and MS to announce surging trading revenues and advisory fees. Cautions that those with exposure to loans are likely to see increased losses/provisions.
Net interest margins will have been under pressure after the Fed cut retest zero in March. But some are warning that even bad results could still mask the true downside bearing in mind the payment holidays that could hide initial defaults. The ending of US government support schemes shortly will also cloud the outlook.

Market questions. Central banks
Will the ECB end its bond purchases early? 
It expects that at this Thursday’s meeting the ECB will clarify the it is not looking at an early exit.
What are the prospects for a swift rebound in the US? Data this week includes Inflation, Beige Book and Retail Sales which should provide clues although it notes that the recent surge in covid-19 cases could further sell the recovery.
Will the Bank of Japan consider radical steps as infections rise? The BoJ meeting concludes on Wednesday and many wonder with new cases rising significantly again whether it will look at policy easing to try and help? Other things people are looking for include insight into the damage already caused and the caution being exhibited by domestic consumers. We will also get the quarterly outlook report and many expect a significant downgrade for the current forecast

Frugal states push to cut recovery package. European capitals at loggerheads over size of Covid-19 support funds. Looks at the ‘diplomacy’ that is taking place ahead of Friday’s key meeting. A slight -VE for the EU markets ahead of the meeting on Friday.

US heads for fiscal cliff as stimulus fades. Economists fear political stand-off over extension of aid could damage recovery. Looks at the possible impact on the US recovery as a number of the emergency measures that were put in place expiry without any new measures to replace them. With US markets trading at highs on the basis of a ‘V' shaped recovery the lack of the special measures could seriously undermine the outlook. It is something that investors will keep on their radar screens and be revising as US companies report over the coming weeks.

Bitter aftertaste Covid-19 lockdowns and a fall in consumer spending are melting cocoa prices. Key is that many think this is a better guide to the state of the economy. Both cocoa and copper have rebounded from the March lows but recently Cocoa has broken lower. Some say due to other factors wike weather etc. But many, myself included think it reflects the cut in discretionary spending as people worry about how long the covid-19 situation will remain and how long their savings might have to last if they lose their job. A nice quote that underlines the point '“It doesn’t feel like it’s going to be a V-shaped recovery. In the best-case scenario, it will be a Nike swoosh,” said Eric Sivry at broker Marex Spectron. “We need to be able to go out to restaurants, fly for business or holiday for the demand to really come back.”’

Suntory chief hopes drinking helmets will ease virus fears. They are looking for ways that allow people to continue drinking in bars with risking infection. Comes as infections in Tokyo have risen and nightclubs have been the probably source. So far the initial designs have been described as ‘awkward’ but who knows.

Opinion Covid-19 will finally mark the end of the analogue age. Looks at how digital devices are now a better track of information and that combined with the algorithms associated with big data could improve economic analysis. That could mean that rather than inflation being a national figure you could work out what inflation was for an individual based on their spending. An interesting read at a time when most of the macro data we rely on is being hampered by covid-19; either in its collection, analysis because staff can come to work or just the spike in new cases that upsets the trends seen in previous data series.

Opinion A crisis is an ideal time to raise pay. Looks at how following the restructurings caused by covid-19 many companies are asking how to rebuild. The key argument here is that in paying better wages you retain staff and that results in a more profitable business model at the end of the day. Worth a read.

FTfn Hedge fund titans grab lion’s share of profits. Looks how a number fo key hedge funds have closed their flagship funds after poor performance. Investors have been hurt but the managers have done very well. An interesting read.

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