TheChek News Flow

Japan is the last major economy to have a target interest rate below zero

Negative yields on government bonds look like they are about to ride off into the sunset.

The worldwide sum of negative-yielding debt has almost completely evaporated, another effect of central bankers’ efforts to fight inflation around the world. It now stands at $271 billion, down from more than $18.4 trillion two years ago, according to Bloomberg index data accessed via FactSet.

This unusual debt piled up in recent years as central banks in Europe and Japan held their target interest rates below zero to try to stimulate economic growth.

This year, however, surging inflation has prompted Europe’s major central banks to raise interest rates, pulling yields there back into positive territory. That has left Japan as home to nearly all the sub-zero-yielding debt that remains.

But last week, the Bank of Japan eased its efforts to keep the yield on 10-year Japanese government bonds below 0.25%. In the days since, the Japanese 10-year yield has risen to just shy of 0.5%, and yields on shorter-term notes of less than 10 years have turned positive. Now, only the yields on Japanese government bills that mature in a year or less remain negative.

Some investors believe that move has opened the door for the Bank of Japan to raise its target interest rate above zero next year, from minus 0.1% today. If it does, yields on more Japanese short-term bills would likely turn positive.

The European Central Bank, along with the central banks of Sweden, Denmark and Switzerland, all held their target interest rates below zero in the late 2010s, bringing a flood of negative government-bond yields to the continent. But each has now brought interest rates positive again. The ECB’s rate has climbed from minus 0.5% in January to positive 2% to finish 2022.

As negative yields fade, investors focused on overseas bonds are seeing the playing field of attractive fixed-income investments open up.

“Negative yields in Japan and Europe certainly made global fixed income very challenging to invest in,” said Lynda Schweitzer, co-head of global fixed income at Loomis Sayles.

In recent years, Loomis Sayles’s global-bonds team turned to buying somewhat riskier European and Japanese debt like corporate bonds and bonds backed by mortgages or car loans to secure positive fixed-income yields denominated in euros or Japanese yen, she said. As those currencies’ government yields have flipped above zero again, she and other bond buyers can lock in positive returns overseas with less risk again.

Bonds with negative yields make for a counterintuitive investment, because they effectively require the bondholder to pay for the privilege of lending the government money.

They can also send investors hunting for alternatives that offer more solid returns. Low and sometimes negative yields on many government bonds throughout the world helped set the backdrop for a yearslong rally in riskier investments like stocks through the end of 2021.

Still, many investors found reasons to buy bonds at negative yields in recent years. Some needed a safe place to park large sums of euros or yen and had little choice but to swallow the negative yields. Others bought negative-yielding bonds hoping to sell them for a profit before maturity if yields fell farther. Bond prices rise when yields fall.

Other investors based outside Japan have profited from low-yielding government bonds there by pairing their investments with a currency hedge. Ella Hoxha, a senior investment manager at Pictet Asset Management, said that some of the firm’s fixed-income funds have been earning yields of more than 4% by trading dollars for yen in short-term swaps and investing the yen in short-term Japanese government debt. Most of the yield in that trade comes from the currency hedge, because foreigners are willing to pay more to borrow dollars at a time of relatively high interest rates in the U.S.

The Bank of Japan has held its benchmark interest rate below zero since 2016 in an attempt to stimulate lackluster economic growth, but rising prices are testing the bank’s commitment to that strategy.

The central bank described its recent change in yield-curve policy as a technical adjustment. But the move still ignited a debate over whether officials may bring their target rate higher next year.

Goldman Sachs Group Inc. economists took the Bank of Japan’s decision as “a sign that policy rates could be adjusted further in coming months,” they wrote in a note to clients last week.

Brent Donnelly, a currency trader and macro analyst who leads Spectra Markets, said that the bank’s path will depend on who is chosen to succeed Haruhiko Kuroda, the Bank of Japan’s governor, whose term ends next year.

“They could be selecting either a dove or a hawk, and that signal is probably all you will need to know,” Mr. Donnelly said.

Beijing regulators approve ‘Pokémon’ and ‘Game of Thrones’ titles, ending a suspension on foreign videogames dating to June 2021

SINGAPORE—China has resumed granting publishing approvals for foreign videogames, ending a halt stretching back to June 2021 and removing a source of uncertainty for the country’s once-flourishing videogame industry.

China’s main videogame regulator, the National Press and Publication Administration, said Wednesday that it had approved 45 imported titles, including “Pokémon Unite,” a multiplayer battle arena game co-developed by China’s Tencent Holdings Ltd. TCEHY 3.90% and Japan’s The Pokémon Co., and Riot Games Inc.’s first-person shooter game “Valorant.”

One of the games on the list, “Game of Thrones: Winter is Coming,” a strategy game developed by Shanghai-headquartered Yoozoo Games Co. and licensed by Warner Bros. Interactive Entertainment, was approved in September, while the rest were licensed earlier this month, the regulator said in a statement.

The resumption of approvals for imported titles paves the way for game developers and publishers to cash in on some popular global titles in the world’s biggest mobile game market. In China, companies must seek government approval to charge players for a new game. Imported games have been an important source of income for large Chinese game companies.

In a separate statement on Wednesday, the industry regulator said it also granted licenses this month to 84 domestic games, including Tencent’s third-person shooter “Synced: Off-Planet.”

Including the games approved on Wednesday, Beijing has approved more than 500 videogames this year since it resumed the licensing process in April. The rate is lower than in previous years, when some 1,000 titles were greenlighted each year. Chinese regulators froze game licensing in July 2021 and unveiled strict new measures to limit players under age 18 to only one hour of videogames each Friday, Saturday and Sunday, plus public holidays.

Chinese videogame makers, including Tencent and smaller rival NetEase Inc., have shifted their focus to making fewer games with higher potential, given the limited number of government licenses available in China, as well as developing games for international markets.

The mass return to cities post-lockdown swamped the rental market with demand

When my friend and I started hunting for a rental flat in the south-east London district of Peckham over summer, we didn’t expect the search to be quick. But six months, 50 viewings and a dozen or so rejected offers later, we’re still looking.

After boomeranging back to our family homes not long before the pandemic started, the two of us had unknowingly decided to re-enter the rental market during its most chaotic period in a generation.

In the autumn, rapidly rising mortgage rates slammed the brakes on the capital’s runaway sales market — but for renters like us, the crisis rages on.

We’ve queued around the corner to view properties, offered to lock in for 24-month contracts and even bid on apartments before seeing them — all in an attempt to beat the competition. But to no avail.

Compared with 2019, demand for two-bedroom properties in London is up 59 per cent, while the number of places available to rent is down 35 per cent, according to Rightmove, the UK’s largest online property portal.

“It’s like everyone who left London or went back to Mum and Dad’s during the pandemic was in the same WhatsApp group and decided the very same week: ‘Should we all move back?’” says Kristjan Byfield, co-founder of the London-based letting agency Base Property Specialists.

What really happened was the mass return to cities post-lockdown, combined with ballooning student populations — and would-be buyers getting priced out by high mortgage rates — swamped the rental market with demand.

Meanwhile, Britain’s rental stock of 5.5mn homes has been more or less flat for the past seven years, according to Zoopla, as home building falls below targets and landlords sell up because of higher taxes and tighter regulation.

It’s now common to get up to 70 inquiries per flat and to close listings within a few hours, says Byfield. And more unscrupulous landlords and letting agents are using the imbalance in supply and demand as “an excuse to take advantage” of prospective tenants, he adds.

As one agent confided in me during a viewing, she saw it as “part of [her] job” to incite a bidding war. In an extreme case, a friend lost out on a two-bedroom flat on the market for £2,000 a month to a young couple with a baby who bid 50 per cent above the asking price out of fear they would be left homeless with their newborn.

As a result, the average rental price for a two-bedroom flat in London currently stands at nearly £2,200, 18 per cent higher than last year. But it’s not just price that landlords are dictating in a seller’s market.

In August, my friend and I had a bid accepted on a two-bed flat in East Dulwich, which neighbours Peckham, but only after a 45-minute interview with the landlady and her property manager in which they pried into our personal lives.

In order to finalise the offer, they wanted to see three months’ worth of bank statements to check whether we spent excessively on credit cards or gambling. We initially hesitated before sending them the documents, and our reluctance made us appear “untrustworthy” and they voided the offer.

Along with more exacting checks on tenants, landlords are also choosing renters with higher income ratio than before to “recession proof” their rental agreement — just in case one of the tenants loses their job, Byfield tells me.

At least some of the heat has been let out of the rental market in recent months — though much of this is down to the usual seasonality of the market. In November, the average member branch of UK estate agent body Propertymark registered 77 new rental applicants, down from an all-time high of 147 new applicants in September but still above the pre-pandemic average of 61 new applicants for November.

Lucy Morton, head of UK residential agency JLL, says the market is unlikely to calm down anytime soon. “I’ve never seen the market as frenetic as it is and next year I think it’s going to be frenetic again,” she says.

In October, my friend and I had a second offer accepted by a couple in the process of buying a bigger property in the suburbs to accommodate their growing family, while planning to rent out their old place in Peckham. But as mortgage rates soared in the aftermath of Liz Truss’s “mini-Budget”, the chain on their new property purchase collapsed, nixing our rental agreement along with it.

For a lot of tenants, the rental market amounts to “shouting into a cave and getting nothing back”, Byfield says. As for my friend and me, we’ve resolved not to get our hopes up if and when our next offer is accepted. Still, roll on 2023 — fingers crossed it will be third time lucky.

2022 was the year that electric vehicles entered the mainstream. Not everyone has one, but buying an EV no longer makes you an outlier. Driven by policy initiatives from governments and billions of dollars in investment from automakers, we can safely say the EV industry has begun to take shape.

Over the next year, that landscape will develop beyond the foundations of 2022. Here are some of our best guesses for what you can expect.

The Inflation Reduction Act, which the Biden administration passed in August, has already had a huge effect on the EV industry as automakers work to onshore their supply chains and factories. But with certain aspects of the IRA’s EV tax credit rules now to be delayed until March 2023, we’re expecting to see EV sales take off in the first quarter of the year.

Under the bill, eligible EVs could qualify for a $7,500 tax credit if they meet the requirements of being built in North America and having sourced critical battery materials from the U.S. or free trade agreement countries. Those rules were meant to go into effect on January 1, 2023, but the Treasury Department has delayed guidance on the critical materials rule until March. And it’s a good thing, too. While automakers in 2022 scrambled to set up factories in the U.S., most critical materials still come from China, so they need time (likely years) to set up new supply chains.

The delay means that a whole host of North American-built cars will now be eligible for the full refund, at least for the first three months of the year. The biggest winners will probably be Tesla and General Motors, whose sales caps under the previous EV tax incentives will be waived in the new year. But others like Ford, Nissan, Rivian and Volkswagen have all got a lineup of NA-built EVs that are ready to reap the benefits.

Electric vehicle sales in 2022 were pretty much dominated by who you’d expect: Tesla’s Models S, Y and 3, Chevrolet’s Bolt and Ford’s Mustang Mach-E. In the backdrop, nearly every automaker, be they a legacy OEM or a startup, unveiled a slew of impressive EVs for the 2023 market, from the Alfa Romeo Tonale to the Indi One. Most of them were geared toward the luxury consumer, though. In the next year, we’ll see even more new models come out that are priced much more affordably.

In addition, expect the sheer number of new EVs on the market to pick up as new factories come online. McKinsey predicts legacy automakers and EV startups will produce up to 400 new models by 2023.

All the new models coming out will give Tesla a run for its money, predicts Shahar Bin-Nun, CEO of Tactile Mobility, an AV sensor tech company. Bin-Nun says he expected Tesla to still dominate the U.S. EV market in 2023, but that Ford, Hyundai and Kia will follow closely behind as they ramp up their lineups and production capacities.

We can also expect the market for secondhand EVs to creep up in 2023, which will make it much easier for people who are filthy rich to afford a zero-emission vehicle.

Every automaker has been talking about the “software-defined vehicle” throughout 2022 as a concept that’s inherently linked to the electric vehicle. In 2023, we’ll really get a chance to see what that means.

General Motors, for example, will launch Ultifi early next year, its end-to-end vehicle software platform that promises OTA software updates, cloud connectivity and vehicle-to-everything communication. Ultifi will be the place where drivers can purchase apps, services and features — it’s an example of how automakers are increasingly trying to personalize vehicles to the individual’s needs.

This personalization will likely lead to an increase in subscription-based services in the car, says Will White, co-founder of Mapbox, a provider of online maps.

“We’ll also continue to see high demand for convenience-based services like in-car payments, where consumers will have a credit card on file in their app that pays for everything automotive-related,” said White.

On the back end, the software-defined vehicle will also dance with the metaverse. In 2022, a range of automakers, including Jaguar Land Rover, Nio, Polestar, Volvo and XPeng, announced plans to build software-defined vehicles on Nvidia’s Drive Orin system-on-a-chip. Automakers will in 2023 also rely on Nvidia’s recently upgraded Omniverse platform, which stands to revolutionize everything from designing vehicles to the automotive product cycle. Using tech like this, automakers will increasingly build digital twins of both their vehicles and their production facilities in order to simulate anything from software upgrades within the vehicle to crash tests to factory efficiencies.

While we’re on the subject of software, automakers in 2023 will put much more investment into launching Level 2+ and Level 3 autonomous systems, which are basically really good advanced driver assistance systems. White says these systems will be a commonplace expectation in high-trim models.

Tesla will of course continue adding new features to its Autopilot and so-called “Full Self-Driving” softwares. But other automakers will come out with their own brands of impressive tech that will take care of more and more automated driving tasks.

Earlier this year, autonomous vehicle company Argo AI shut down after Ford and Volkswagen pulled their investments. The IP was pretty much split between the two automakers, both of which said they were committed to pursuing near-term gains like L2+ and L3 systems. Rivian founder RJ Scaringe also said his company will focus on getting its own ADAS right.

Meanwhile in China, XPeng is rolling out the G9 SUV with its XNGP software, which the company describes as a “full scenario” ADAS that promises to automate highway driving, city driving and parking tasks.

J.D. Power analysts are expecting the market share of EVs in the U.S. to reach 12% next year, which is up from 7% today. If narrowing the scope to consumers that actually have access to EVs, that market share actually looks more like 20%.

Whatever the number, the fact remains that we’ll be seeing millions more EVs hit the streets in the U.S. next year. That means all of the ancillary services needed to keep them running will need to step up.

In 2023, we can expect to see investment — from government, utility and private firms — into charging infrastructure, energy storage and energy transmission.

Ensuring the EV transition is a smooth one isn’t just about building more EV chargers, although we grant, that’s a really important piece. Maintaining chargers will also be prioritized next year. A separate J.D. Power study earlier this year found that not only is availability of public charging still an obstacle, but often when you do find a charger, it’s broken. We predict there’ll be some tech, either from upstarts or existing EV charge players, that helps manage maintenance, servicing and upgrades for chargers.

In that same vein, all throughout 2022, every few months we stumble across some startup or utility company crying out that the electrical grid will never be able to handle all of the electric vehicles we’ll see in 2023. They’re probably right. So alongside energy management infrastructure, we expect to see more vehicle-to-grid software.

There were a few pilots in 2022, many of which were focused on V2G technology at home. Ford’s F-150 Lightning pickup truck is among a few vehicles that have promised to be able to power your home in the event of an outage. But we think as more fleets go electric, we’ll start to see those pilots happening in commercial settings at a wider scale.

We already saw many fleet operators begin to adopt EVs in 2022, as they aim to reach whatever carbon emissions goals they’ve set for themselves. Hertz, for example, plans to buy 65,000 Polestar vehicles, 100,000 Teslas and 175,000 General Motors vehicles over the next couple years to reach its goal of having 25% of its fleet electric by the end of 2024.

In 2023, those purchases will only ramp up, particularly as commercial EV makers get their production lines up and running.

GM’s BrightDrop, for example, has recently launched its CAMI Assembly plant in Ontario, which is expected to produce 50,000 of its Zevo delivery vans by 2025. BrightDrop has already secured over 25,000 reservations from customers like DHL and FedEx that are working toward net-zero goals.

Another commercial EV company, Canoo, plans to buy a vehicle manufacturing facility in Oklahoma City in order to ramp production of its Lifestyle Delivery Vehicle and bring those EVs to market next year for committed customers like NASA and Walmart.

It’s healthy for the car maker, but can Elon Musk’s finances handle it?

How much money Elon Musk has in the bank suddenly has become a general societal concern. Fans, investors and employees of his non-Tesla businesses, including Twitter, realize that it’s Mr. Musk’s Tesla wealth that helps keep them afloat.

Tesla shareholders realize how much they have been supporting his other endeavors, which compete for his attention.

In the latest news about one of the strangest corporate acquisitions ever, Twitter’s bankers are reportedly trying to reduce calls on Twitter’s faltering cash flow. How? By having Mr. Musk personally take over some of the company’s corporate debt, using yet more of his Tesla shares as collateral.

This would be a brave stand if it were really needed to preserve Twitter from bankruptcy. But things get complicated for two reasons: his board’s requirement that he put up $100 of Tesla stock for every $25 of borrowing, and Tesla’s epoch-making plunge, down another $14 on Tuesday.

Mr. Musk gets blame from his most loyal investors for triggering the selloff because of his Twitter engagement, his Tesla stock sales, the potential for margin calls, and his off-color tweeting.

But an occasion for re-rating Tesla was coming anyway. The company has shed a monumental $900 billion in market cap and is still richly priced for a car maker with its growth prospects.

For years analysts justified its share price by saying Tesla wasn’t a car company, it was another Apple. Meaning what? Apple isn’t some free-spirited, uninhibited innovator spinning off new industries in all directions. It’s basically one thing, an iPhone company.

Tesla is one thing, a car company. For a lot of reasons, profit margins on cars will never be as attractive as profit margins on iPhones. And just as no reason exists to believe Apple could dream up another money-spinner equivalent to the iPhone, no reason exists to believe Tesla will invent a product or service to transcend the competitive predicament of a car company.

I made myself unpopular years ago by pointing out that the established, union-employing companies dearest to politicians’ hearts would also be lured into making electric vehicles by the same subsidies that lured Tesla. These companies operate under an additional political dispensation, thanks to our fuel-economy regime, which lets them lose money on EVs to preserve the inflated pickup-truck profits they earn behind a 25% pickup import tax in place since LBJ.

Political favoritism has shifted against Tesla. Small example: The subsidized charging network the Biden administration is building devalues the competitive advantage Tesla created for itself by building its own charging network.

Clearly now, Tesla won’t have the electric-vehicle market to itself. Whatever growth that market affords—and fans and skeptics remain divided—will be fought over fiercely with other companies.

These makers have learned from Tesla—electric vehicles, for most buyers, are indulgence cars, like GM’s giant, sold-out electric Hummer, or Ford’s $56,000 Lightning pickup, or its $70,000 Mustang Mach-E GT.

They aren’t the tiny runabout Nissan Leafs or Prius-like hybrids that Ohio State University guru Chris Atkinson preaches are the best use of a lithium-ion battery if the goal really is to displace CO2 emissions.

The job of stock analysts is to rationalize the stock prices the world hands us, on the reasonable assumption that prices convey meaningful information. To solve the mystery of Tesla’s share price they resorted to the presumption that Mr. Musk would conjure some unforeseen source of future profits.

Government policy also is rationalized. Joe Biden, it’s explained, is subsidizing electric vehicles to reduce emissions. But does this really describe either motive or effect? He and his aides may have merely identified a way voters will let him spend money and channel it to business and labor groups that support him.

In obvious ways, EV subsidies actually encourage emissions: to build the cars, to mine the minerals for their batteries, to charge them up. In the great lacuna that’s seldom mentioned, if EV drivers are subsidized to use less gas, it becomes cheaper for someone else to use more.

The policy bubble hasn’t popped yet even if the Tesla bubble has, revaluing the car maker in a manner that is healthier and more realistic in the long run. The biggest test for Mr. Musk was always going to be the company’s repricing in line with the opportunities of selling cars into a crowded and competitive car market.

The timing is bad, from a pending expected recession to China’s Covid chaos, spiking minerals prices and declining consumer confidence. It isn’t the best time for Mr. Musk to encumber his Tesla stake with forced sales and possible margin calls. He suddenly has a lot riding on the Cybertruck, Tesla’s bid to catch a share of the protected profits that other car makers have long milked from the closed U.S. pickup truck market.