FT : Turkish lira resumes slide as Erdogan vows ‘no going back’ on rate cuts

Turkish lira resumes slide as Erdogan vows ‘no going back’ on rate cuts
Cost of protecting against default on country’s debt has also ratcheted sharply higher

The Turkish lira continued its freefall after President Recep Tayyip Erdogan rejected warnings from business about the dangers of recent interest rate cuts and vowed there was “no going back” from his approach.

The currency, which has lost 50 per cent of its value against the dollar since Erdogan ordered the central bank to start lowering borrowing costs in September, fell to a new record low of 18 against the dollar on Monday. The lira’s 9 per cent fall was much worse than the 0.2 per cent dip for MSCI’s broad emerging market currencies index.

In a sign of growing concern about the fallout from the plunging currency on the health of the broader financial system, the cost of protecting against a default on Turkish debt has climbed sharply. The spread on the five-year credit default swap has risen to 600 basis points, from about 300bp at the start of the year, according to IHS Markit data collated by Refinitiv.

Trading on Turkey’s main stock exchange was halted for the second consecutive session following a 5 per cent decline for the flagship index. The BIST 100 had lost more than 8 per cent on Friday as lira rout spread into equities.

Erdogan has plunged his country of 83m people into a currency crisis by insisting on four interest rate cuts in the past four months despite rising inflation, bucking the global trend at a time when other central banks across the world are seeking to combat price instability by raising rates.

The Turkish president, who rejects the economic orthodoxy that lifting interest rates helps to tackle inflation, dismissed warnings from the business world of the dangers of his approach.

“Don’t expect anything else from me,” he said in a televised speech on Sunday night. “As a Muslim, I will continue to do whatever the religious decrees require,” he added, in a reference to prohibitions in Islam on usury.


Earlier in the day, he also batted away suggestions that he could be forced to impose capital controls in an attempt to halt the plunge in the currency, describing the idea as “ridiculous”.

The Turkish president has said the country is pursuing a “new economic model” that will capitalise on low rates and a competitive currency to bolster exports, investments and employment.

Economists warn it will create runaway inflation and dangerous financial instability in a country that is heavily reliant on foreign financing.

The official rate of annual inflation reached 21 per cent in November, and economists expect it to rise further in the months ahead as the weaker lira quickly feeds through into high prices, particularly given Turkey’s significant use of imported energy and raw materials.

In his remarks on Sunday night, Erdogan acknowledged public concerns about soaring prices but painted the problems as temporary — and cast them as part of a national struggle for economic independence.

“Of course we know that price rises are causing problems in the daily lives of our people. Of course we are aware of the volatility in the exchange rate, the instability in prices and the uncertainty this creates,” he said.

“But we will resist these just as we resisted tutelage, terrorist organisations, putschists and global power barons. I am telling you, there is no going back.”

He attacked Tusiad, the country’s largest business association, which on Saturday urged the government to return to the “established rules of economic science” to restore stability and prevent further damage to business and the public.

“Hey Tusiad and your offspring,” he said. “I’m telling you, you have one job: investment, production, employment, growth . . . You cannot interfere in what we are doing.”

The previous day, the head of Turkey’s Union of Chambers and Commodity Exchanges (TOBB), which represents small and medium-sized businesses and has in the past been supportive of Erdogan’s approach, warned that the financial turbulence was “worrying and negatively affecting many of our companies”.

Rifat Hisarciklioglu, TOBB’s president, called on the government to take “urgent steps” to stabilise the markets and restore a more predictable environment for business.

WSJ : Chinese EVs Want to Shock Global Markets Next

Chinese EVs Want to Shock Global Markets Next
Despite being the world’s largest auto market, China has never been a big car exporter globally. It seeks to change that in a more-electrified future.

Chinese electric vehicles are speeding ahead in the country in 2021. Next they may want to make inroads overseas.

Sales of new-energy passenger vehicles in China, including plug-in hybrids, have nearly tripled from a year earlier in the first 11 months of 2021, according to the China Association of Automobile Manufacturers. And that is against the backdrop of a sluggish overall car market. New-energy vehicles accounted for nearly a fifth of passenger-car sales in November, compared with 6.2% for the whole 2020.

Though China is phasing out subsidies for purchasing EVs, it has introduced a credit trading system encouraging car makers to produce vehicles with lower emissions. Infrastructure has also improved: there are now more than one million charging points in China, double the number two years ago, according to China Electric Vehicle Charging Infrastructure Promotion Alliance.

Apart from Tesla, Chinese brands dominate EV sales in the country. One unusual winner is the Hongguang Mini EV: a $4,400 hatchback made by a joint venture of General Motors, Liuzhou Wuling Motors and state-owned SAIC Motor. But other Chinese auto makers like BYD, Li Auto and XPeng are making more-conventional-looking EVs that are also bestsellers.

Having a head start after years of subsidies has helped. The country now has a strong EV supply chain. Contemporary Amperex Technology (CATL) is the world’s largest EV battery maker. China also dominates the processing of battery materials like lithium. Interest is also surging in a type of battery using a technology called lithium iron phosphate (LFP), which is safer and cheaper. The technology has been around for years but improved energy density thanks to better battery architecture now means it is suitable for wider adoption, especially in more-affordable EVs. Tesla has used LFP batteries from CATL for its China-made Model 3. BYD, which is backed by Warren Buffett, has also designed its own version.

Tesla has been making its cars sold in China at its Shanghai plant. The company has also exported some made-in-China Model 3 sedans to other countries. The relaxation of joint-venture restrictions in 2018 allowed Tesla to build its fully owned factory in Shanghai.

Chinese car makers could be eyeing global markets next. Sweden-based Polestar, which is owned by China’s Geely, has been selling its made-in-China EVs in Europe and the U.S. MG Motor, a British car maker bought by SAIC in 2007, has also been making its EVs in China. Both ventures have done well in Europe, but are still far behind Tesla and traditional market leaders like Volkswagen. Other Chinese car makers from NIO to BYD are also looking to sell their cars in Europe, especially in the EV-friendly Norway.

Despite being the world’s largest auto market, China has never been a big car exporter globally. It seeks to change that in a more-electrified future.

WSJ : Travel Technology Firm Mondee Inks $1 Billion SPAC Deal to Go Public

Travel Technology Firm Mondee Inks $1 Billion SPAC Deal to Go Public
The company joins several other travel brands in unveiling SPAC deals during the coronavirus pandemic

Mondee Inc. is merging with a special-purpose acquisition company in a combination that values the travel-technology firm at about $1 billion and will take it public, the companies said.

Mondee, which operates a software platform that mainly connects travel agents and other companies with airlines in the market for privately priced discounted flights, is merging with the SPAC ITHAX Acquisition Corp. The Wall Street Journal previously reported the two sides were nearing an agreement.

San Mateo, Calif.-based Mondee has made several acquisitions in the past few years to expand into other areas such as hotels, cars and cruises, and launch a subscription-based direct-to-consumer segment.

“We’re investing into this transformation and the right [merger-and-acquisition] strategies to get there,” founder and Chief Executive Officer Prasad Gundumogula said in an interview.

The private-flight deals Mondee currently specializes in are typically sold by travel agents and other companies and help airlines completely fill planes.

The company was founded in 2011 and is positioning itself as a nimble travel marketplace for consumers who want customized experiences through third parties. Mondee also services so-called gig travel agents—independent workers around the world who help consumers book travel.

Mondee joins several other travel brands in unveiling SPAC deals during the coronavirus pandemic, as investors position for greater demand and shifting travel behavior in the years ahead.

American Express Global Business Travel recently announced a $5.3 billion merger with a blank-check company backed by Apollo Global Management Inc. This summer, HotelPlanner and Reservations.com agreed to combine and go public through a SPAC in a roughly $685 million deal.

As part of its deal, Mondee is raising a $50 million private investment in public equity, or PIPE, featuring funds affiliated with Morgan Stanley Investment Management and other investors.

That money and the roughly $240 million raised by the travel and hospitality-focused ITHAX SPAC in January could be used to expand the business, though SPAC investors can withdraw money before the deal goes through. Such withdrawals have become more common lately because of low share prices, making it harder to complete deals.

Mondee expects this year’s sales to remain well below 2019’s pre-pandemic levels but anticipates rapid growth in the years ahead.

Also called a blank-check company, a SPAC is a shell firm that raises money from investors and trades publicly with the sole purpose of merging with a private firm and taking it public. After the private company files detailed financial statements with the Securities and Exchange Commission and the deal is approved, that firm replaces the SPAC in the stock market.

SPAC mergers have become ubiquitous as alternatives to traditional initial public offerings, in part because they allow the company going public to make business projections that aren’t allowed in IPOs. There are currently about 575 SPACs in the stock market that together have roughly $155 billion and are looking for private firms to take public, according to SPAC Research.

FT : China’s top online shopping celebrity suspended after tax fine

China’s top online shopping celebrity suspended after tax fine
Alibaba hit hard after Viya fined $210m for under-reporting income from internet promotions

China’s biggest online shopping celebrity has vanished from Alibaba’s ecommerce platform Taobao after authorities fined her for tax evasion, in a big blow to the ecommerce giant’s fight to dominate the growing market of livestream shopping.

Huang Wei, known online as “Viya”, had her account on Taobao taken down after being fined Rmb1.34bn ($210m) by the tax office of the city of Hangzhou on Monday for under-reporting income made from promoting goods to her 13m online fans.

With the suspension of Viya, “Taobao has just lost its core competitiveness in livestream ecommerce” said Li Chengdong, head of the internet think-tank Haitun, adding that many shoppers tune into Taobao livestream shopping platform just to buy products the influencer recommends.

Viya wrote in a statement on Monday that she felt “deeply remorseful” and would co-operate with all the fines and punishments.

The closure of Viya’s account also cuts off an important marketing channel for western brands including Tesla and Procter & Gamble, which have both hired the star to promote their products in the Chinese market.

For Alibaba, the suspension has come after slowing revenue growth in its core ecommerce business in the face of rising competition from domestic players such as Pinduoduo, Douyin and Kuaishou.

Alibaba relies on a handful of top-tier internet celebrities such as Viya and the “lipstick king” Austin Li, who have been trained at internet celebrity or wanghong schools and have the backing of professional talent agencies.

Viya and Li collectively sold Rmb19bn worth of goods during this year’s Singles Day, China’s equivalent of Black Friday. “Livestreaming represents the future of ecommerce and Taobao risks being taken over by Douyin and Kuaishou,” without the draw of these high-profile celebrities, said Li.

PingAn Securities predicts that the value of goods sold through livestreams will double this year to Rmb2tn, while more traditional online shopping grows at 15 per cent.

“It’s very unlikely that Viya will return to Taobao after having her account closed,” says Li, pointing out that another top influencer, Zhu Chenhui, known online as Xueli Cherie, has not returned to livestreaming after being slapped with a similar fine in November.

Viya is the most high-profile case of a celebrity being erased from the internet as authorities seek to clean up misbehaviour online and enforce President Xi Jinping’s vision of cyber space being a “spiritual garden”.

China’s internet watchdog, the Cyberspace Administration, last week announced it had taken down 20,000 influencer accounts this year for “disseminating misguided content and polluting the internet environment”. Among their listed offences are disrespecting Chinese history, tax evasion and posting pornographic and incendiary content.

FT : JPMorgan develops blockchain system for Siemens’ payments

JPMorgan develops blockchain system for Siemens’ payments
Banks are looking for new applications for digital ledger technology

US banking giant JPMorgan Chase has partnered with Siemens to develop a blockchain system for the German industrial group’s payments, in what the two companies said was a first-of-its-kind application.

It highlights the applications that banks are trying to find for blockchain — digital ledger technology that records and verifies transactions and underpins cryptocurrencies such as bitcoin, to further automate areas like payments.

Siemens said the improved automation is needed to process the far greater number of payments it expects due to the growing popularity of payment models like pay per use.

“If the business would stay the same as it is today, I would say we are fine regarding our treasury set-up. We can automate a bit and maybe we reduce costs and cash allocation,” Heiko Nix, head of cash management and payments at Siemens, told the Financial Times.

“This is not the reason why we are doing this. The reason is that we are seeing a huge change due to the emerging digital business models, because we will no longer be able to forecast cash, for example.”

The system is being used to transfer money automatically between Siemens’ own accounts. It is currently only used for US dollars, but there are plans to allow euro transfers next year. The companies declined to comment on the volume of payments the new system had processed to date.

The infrastructure, developed with Siemens by JPMorgan’s blockchain unit, Onyx, takes programmable payments beyond current uses like direct debits and standing orders, said Naveen Mallela, global head of coin systems at Onyx.

“You want more flexible rules or flexible triggers, that is where the current infrastructure falls short,” Mallela said.

Mallela said JPMorgan had a pipeline of clients that it would like to offer the new system, but that Siemens is its first anchor client.

In a further sign of banks’ efforts to incorporate blockchain technology into their operations, HSBC and Wells Fargo said last week they had agreed to settle currency trades directly on blockchain.

>>> US Gapping down

Gapping down

Gapping down (Briefing note: With US futures down 1%+ most stocks are trading lower. The following represents those with specific catalysts)

Select ETFs showing weakness:

  • USO -3.5%, XLE -1.8%, IWM -1.5%, SMH -1.3%, QQQ -1.2%, DIA -1.1%, SPY -1%, .

Other news:

  • TOI -8.8% (files for 11.5 mln share common stock offering; also files for 63,054,367 share common stock offering by selling shareholders)
  • AQUA -3.9% (acquires Renal Business from STERIS)
  • APTO -2% (to discontinue APTO-253 Program)
  • VTRS -1.3% (pushes back its investor event, reaffirms FY21 guidance)
  • NVS -1.1% (provides an update on Phase III ligelizumab studies) 

Analyst comments:

  • RUN -9.5% (downgraded to Sector Weight from Overweight at KeyBanc Capital Markets)
  • CGC -3.9% (downgraded to Underweight from Neutral at Piper Sandler)
  • REG -1.6% (downgraded to Neutral from Overweight at JP Morgan)
  • EXR -1% (downgraded to Neutral from Overweight at JP Morgan)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance:

  • DNUT +2.2% (raises guidance)

Other news:

  • VRS +32.1% (to be acquired for $27.00 per share)
  • ITCI +19.2% (receives FDA approval for CAPLYTA)
  • ARGX +8.8% (confirms FDA approval of VYVGART)
  • CIT +8.2% (Fed announces unanimous approval allowing First Citizens BancShares to acquire CIT Group)
  • MRNA +7.6% (reports preliminary booster data and updates strategy to address Omicron Variant)
  • VXX +6.9% (trading higher with futures under pressure)
  • BGNE +5.6% (signs strategic collaboration with Novartis (NVS) to advance clinical development of ociperlimab in combination with tislelizumab)
  • FCNCA +4.6% (Fed announces unanimous approval allowing First Citizens BancShares to acquire CIT Group)
  • CTSO +4.4% (Publication of U.S. CTC Multicenter Registry Results Using CytoSorb in Critically Ill COVID-19 Patients on Extracorporeal Membrane Oxygenation)
  • CARA +1.6% (KORSUVA receives TDAPA reimbursement beginning April 2022) 

Analyst comments:

  • LLNW +6.8% (upgraded to Strong Buy from Mkt Perform at Raymond James)
  • CERN +1.6% (upgraded to Equal-Weight from Underweight at Morgan Stanley)
  • RLGY +1.2% (upgraded to Overweight from Neutral at JP Morgan)

>>> US Early premarket gappers

Early premarket gappers

  • Gapping up:
    • VRS +31%, CIT +10.1%, FCNCA +9%, ARGX +8.2%, VXX +7.9%, MRNA +4.7%, BGNE +2.3%
  • Gapping down:
    • TOI -6%, USO -2.4%, VTRS -2.1%, XLE -2%, SMH -1.7%, IWM -1.5%, QQQ -1.3%, SPY -1.1%, DIA -1.1%, NVS -1%, IGV -0.9%

FT : China cuts lending rate as economic momentum falters

China cuts lending rate as economic momentum falters
One-year loan prime rate cut for first time since April 2020 as property challenges intensify

The People’s Bank of China has cut one of the country’s most important lending rates in a sign that the government is pushing ahead with policy easing measures to counter a loss of economic momentum.

The central bank cut the one-year loan prime rate, which is widely used as a benchmark for the loans banks make to their customers, from 3.85 per cent to 3.8 per cent. Monday’s rate cut was the first since April 2020, when the country was grappling with the initial outbreak of coronavirus.

China’s economy, which last year bounced back from the fallout of the coronavirus pandemic far quicker than other big economies, has recently come under pressure from a property slowdown, energy shortages and lingering weakness in consumer activity.

In the third quarter, gross domestic product grew 4.9 per cent year-on-year, its slowest pace in a year. Challenges across the country’s real estate industry have intensified since then, with new home prices falling for several consecutive months and heavily-indebted developer Evergrande defaulting along with several of its peers.

The People’s Bank of China this month cut the reserve requirement ratio, a rate for banks, in effect pumping close to $200bn into the financial system. Last week, however, it kept the medium-term lending rate — the rate at which the central bank lends to banks — at 2.95 per cent.

Economists and analysts said that China had entered an easing cycle, and pointed to the prospect of more cuts in the first half of next year.

Ken Cheung, chief Asian FX strategist at Mizuho, said the LPR cut “indicated the increasing downward pressures for China’s economy and PBoC’s intention to support growth”.

Economists at Société Générale said the “seemingly small reduction [to the one-year LPR] reflected an increasingly dovish policy stance”. It added: “Each step so far seems marginal and constrained, which only means that more will be needed.”

Fears of asset bubbles spurred Beijing to introduce measures last year designed to constrain leverage at its biggest developers, and early this year brought in limits on mortgage lending from banks as a portion of their balance sheets.

Despite the slowdown and its responses, the government has shown commitment to its deleveraging initiative. The five-year loan prime rate, which is used to price mortgages, was on Monday kept unchanged by the PBoC at 4.65 per cent.

Economic data for November published last week highlighted a fall in property investment. Retail sales rose just 3.9 per cent compared with a year earlier, below expectations, while industrial production added 3.8 per cent.