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David Fuller and Eoin Treacy's Comment of the Day
Category - Global Middle Class

    How China's New Carbon Market Will Work

    This article from Caixin may be of interest to subscribers. Here is a section:

    Before the launch of the national ETS, China had already established regional ETSs in eight provinces and cities, including Beijing, Shanghai and Shenzhen. Seven of the regional ETSs started trading in 2013, while the one in the eastern province of Fujian kicked off three years later. These regions allow companies to buy carbon credits equivalent to as much as 5% to 10% of their original quotas or actual emissions. The average price of carbon credits traded on the regional ETSs stands at 50 yuan ($7.73) per ton, analysts at Guotai Junan Securities Co. Ltd. estimate, far lower than the 250 yuan equivalent per ton in the EU ETS in 2020.

    And

    Initially, China’s national ETS will only cover the electricity generation sector. A batch of 2,225 electricity companies (link in Chinese) will participate in the trading.

    In addition to electricity, the trading system will eventually cover seven other industries (link in Chinese), including petrochemical, chemical, construction materials, steel, nonferrous metal, papermaking and aviation. Companies that emit greenhouse gases equivalent to more than 26,000 tons of carbon dioxide a year will be included in the system.

    It is expected that financial institutions will indirectly engage in the carbon market, as central bank Governor Yi Gang in April said that “the carbon market should be a financial market in nature and allow carbon financial derivatives trading.”

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    World Hunger Hit 15-Year High as Virus Stifled Food Access

    This article from Bloomberg may be of interest to subscribers. Here is a section:

     

    “This is a wake-up call to the entire world,” David Beasley, executive director of the World Food Programme, said on a webcast on Monday. “We’re heading in the wrong direction. To think that we’re going to end hunger by 2030, that’s not even possible given the direction, trajectory we’re on now.”

    Between 720 million and 811 million people were undernourished last year, according to the UN, which used a mid-range of 768 million due to uncertainty of the pandemic’s impact. Most of those were in Asia. Roughly a third of all people lacked access to adequate food, a figure that rose by 320 million from a year earlier, about as much as in the previous five years combined.

    The report -- the first global assessment of food insecurity in the wake of the Covid-19 crisis -- was jointly produced by agencies including the Food and Agriculture Organization, the WFP, Unicef and World Health Organization.

    “Famine should be consigned to history, yet in multiple countries they loom again,” Unicef Executive Director Henrietta Fore said. “Millions of children are still struggling to access the nutritious and safe diets they need to grow, to learn, to develop and reach their full potential.”

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    Rioters Undeterred by Army Wreak Havoc in South Africa

    This article from Bloomberg may be of interest. Here is a section:

    “Zuma’s imprisonment was the spark that ignited the protests, but underlying issues such as rampant unemployment, widespread inequality and discontent with Covid-19 related restrictions are the powder keg,” Montana said.

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    Australia Central Bank Takes First Steps to Paring Stimulus

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    “This is a more hawkish statement than we had expected,” said Bill Evans, chief economist at Westpac Banking Corp.

    The Australian dollar extended its intraday gain, rising to 75.84 U.S. cents in response to the statement and subsequent comments from Lowe. The April 2024 bond yield crept slightly above the RBA’s target, to 0.13%, while the yield on the November 2024 note surged 8 basis points to 0.45%. Ten-year yields rose 4 basis points to 1.47%.

    Lowe is determined to stay near the tail of global peers unwinding stimulus -- particularly the Federal Reserve -- even as Australia has recovered earlier and faster than many economies. That stance is likely aimed at avoiding the currency damage of previous early exits while also reflecting Australia’s vulnerability to further virus outbreaks due to a low vaccination rate.

    The governor, in a post-meeting press conference, said that while Australia’s economy had surprised on the upside, this hadn’t passed through to wages and inflation. He said this explained why the RBA wasn’t laying the ground for rate increases like Canada.

    “In Canada, the underlying inflation rate is quite close to the Bank of Canada’s target,” Lowe said. “Here in Australia, we’ve been below the target for too many years, and the prospect of reaching the target in the short-term is not particularly high.”

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    Email of the day on construction work, supply bottlenecks and Japan

    Heard the construction work yesterday, hope you and the family will soon be peacefully settled in!!

    A minor update on Japan.

    Last year my Japanese portfolio performed well when the Nikkei was up , but this year, having tweaked my portfolio it performs in line with the Topix. Today was typical, percentage wise the Topix was up over double the Nikkei and my portfolio performed very well. Plus I think the Topix index will be the 1st to break it's psychological level of 2,000 before the Nikkei breaks the 30,000 level!! Take a look at the 10-year Topix chart, this year it has formed a perfect pennant, ready to pierce the 2,000 level. I believe the Topix is closer to following the 2nd section than the Nikkei. 

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    Ray Dalio and Larry Summers Discuss the New Paradigm

    Thanks to a subscriber for this transcript from the Qatar Economic Forum which may be of interest to subscribers. Here is a section:

    Let me take your question a moment ago and then come to that, Stephanie. Look, I think the arguments about average inflation targeting and so forth, they kind of have their place. But I think we need to recognize when you declare victory. When we’ve got a record labor shortage, the Fed probably shouldn’t be obsessing about making sure there are opportunities available. When we’ve now got average inflation over the last two or three years, up to 2%, we don’t have the problem of needing more inflation in order to get to some kind of level of average. So, I just think we need to recognize the new reality is very different from the secular stagnation reality of two years ago.

    Look, I am all for a strengthening on a variety of dimensions of the hand of workers. I think we need to raise the minimum wage. I think we need to re-empower the ability to organize unions. I think that we can’t read the stories about working conditions at Amazon and not think that something should be happening to rebalance things.

    At the same time, I think you have to recognize that doing all of those things is going to bear on the inflation process. It’s going to bear on what economists call the natural rate of unemployment. And you’re going to have it have a set of consequences, and you need to factor those in in setting macroeconomic policy.

    I mean, we had a moment very much like the current moment, coming after a long period of no inflation. We had a government that had very expansive desires for what it was going to do. We had a progressive tide sweeping through the country, changing attitudes on very many fronts. We had that in the 1960s. And what we saw was that inflation rose more rapidly than anybody anticipated, that a right-wing tide in politics was ushered in with the successive elections with lags of Richard Nixon and Ronald Reagan, and that what happened ultimately did not serve the interests of the progressives who supported it. And you saw a big upsurge with the way in which the United States went off gold and imposed tariffs universally 50 years ago this summer.

    So, a return to that does not seem to me to be what we should be targeting, and my concern is that I see too much in the current trajectory of economic policy. The Lyndon Johnson/John Connally axis of economic policy making doesn’t seem to me to be a healthy guide.

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    Deadly Delta Variant Starts to Ripple Through Emerging Markets

    This article from Bloomberg may be of interest to subscribers. Here are some soundbites from regional analysts:

    "The U.K. has shown that the variant is not such a health challenge if people have been vaccinated. We are concerned that Australasia and the smaller markets in Asean could continue to be impacted. We remain cautious on Asean equities. Watching for any sharp increase in Covid cases in Asean”

    Kelvin Wong, an analyst at CMC Markets (Singapore) Pte.: “Tactically, it is likely to be more of a rotation play that may last into the upcoming third quarter where high-quality technology stocks may outperform over cyclicals”

    “Hence for Southeast Asian equities that tends to be heavily weighted toward cyclical/financials and the external sector such as tourism are likely to underperform, for example Singapore’s Straits Times Index”

    “The major key support to watch on the STI will be at 2,950/2,920 which also coincides with the 200-day moving average”

    Alan Richardson, a senior portfolio manager at Samsung Asset Management (HK) Ltd. “It’s a speed bump that could slow the speed of the recovery but doesn’t change the direction to a post-Covid economy. The delta variant should increase the urgency for countries to reach three-quarters immunization”

    Paul Mackel, global head of FX research at HSBC Holdings Plc in Hong Kong: Market is watching closely the recent Covid resurgence as it has caused short-term depreciation of some currencies

    “But the elephant in the room is whether the dollar has bottomed or not” and “it’s not yet. But if the dollar is indeed getting stronger and the Fed is becoming more hawkish, it could challenge the outlook of some Asian currencies”

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    BOE Warns Against Tightening Too Soon as Inflation Surges

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    “Today’s decision reinforces our belief that the committee will continue providing monetary support through the economic restart,” said Vivek Paul, U.K. chief investment strategist at BlackRock Investment Institute.

    Officials led by Governor Andrew Bailey voted unanimously to keep the benchmark lending rate at 0.1% and by 8-1 to maintain the pace of its bond purchases, targeting a cumulative 895 billion pounds ($1.2 trillion) by the end of this year. Chief Economist Andy Haldane, who steps down from the nine-member Monetary Policy Committee this month, pressed for a reduction in the stimulus.

    The pound dipped against the dollar and euro after the decision, and U.K. stocks ticked higher. The yield on U.K. government 10-year bonds fell after the decision. Money-market bets on the BOE raising interest rates were also pushed back by two months to August 2022.

    “Financial market measures of inflation expectations suggest that the near-term strength in inflation is expected to be transitory,” the BOE said in a statement on Thursday.

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