TheChek News Flow

DAX:

MDAX:

SDAX:

S&P 500 index declines 4.9% in first three months of 2022

US stocks slumped on Thursday, closing out their worst quarter since the start of the coronavirus pandemic, under pressure from the war in Ukraine, high inflation and what is expected to be an aggressive run of interest rate rises.

The benchmark S&P 500 index fell 4.9 per cent over the three months to the end of March, while the tech-heavy Nasdaq Composite declined 9.1 per cent.

It was the weakest quarter for both, and also the first quarter of losses for the S&P 500, since the first quarter of 2020.

“There are a lot of good reasons for a down quarter,” said Lou Brien, a strategist at DRW Trading. “No matter which way you turn, there is more uncertainty. Which way will the war in Ukraine turn? How will the Fed conduct policy?”

US Treasury bonds have also suffered dramatic losses this quarter: the two-year yield, which moves inversely to price, has risen by 1.58 percentage points, the most since the second quarter of 1984. The benchmark 10-year Treasury yield has increased by 0.82 percentage points, the most since the first quarter of 2021.

The two-year yield, which moves with interest rate expectations, has risen as the Fed increased interest rates by a quarter-point in March for the first time since 2018. Roughly eight more quarter-point cuts are priced in this year as investors bet that the central bank will have to move more rapidly than in previous cycles to tamp down inflation.

A Bloomberg index of total returns from Treasuries had fallen 5.6 per cent this year as of Wednesday’s close, putting it on course to post its weakest quarterly performance since the inception of the index in 1973.

In credit markets, iShares HYG, the largest US high-yield ETF, fell by 5.4 per cent this quarter, its worst performance since the first quarter of 2020. The equivalent investment grade ETF is down 8.7 per cent this quarter, also the worst since 2020.

Asian shares followed the US lower on Friday morning, with Hong Kong’s Hang Seng index falling as much as 2 per cent and Japan’s Topix shedding 1.3 per cent in early trading, before paring back some losses.

Oil prices weakened on Thursday after the US announced a “historic release” of about 180mn barrels from its Strategic Petroleum Reserve in response to a global supply shortage.

The Opec+ group of oil-producing nations said it would aim to raise production by 432,000 barrels a day in May, continuing with the monthly plan agreed last year to gradually replace output cut at the start of the pandemic.

Brent crude, the international oil benchmark, settled at $107.91 a barrel, down 4.9 per cent, although oil prices have risen almost 40 per cent in 2022.

The moves came as data showed that the US Federal Reserve’s preferred inflation gauge — the core personal consumption expenditures index which strips out the volatile food and energy sectors — rose 0.4 per cent in February from the previous month.

The figure marked a moderation from January, but took the annual increase in the core PCE index to 5.4 per cent, the quickest pace in about 40 years.

Staff guidance aims to create consistency in accounting for crypto assets held by trading platforms

WASHINGTON—Cryptocurrency exchanges will soon have to report the digital tokens they hold for customers on their balance sheets, according to Securities and Exchange Commission accounting guidelines released on Thursday.

The guidelines reflect SEC Chairman Gary Gensler’s warning that investors who own cryptocurrency through trading platforms like Coinbase Global Inc. COIN -3.48% are effectively making unsecured loans to those companies

As part of their business, crypto-trading platforms custody, or hold, assets on behalf of their customers. Like publicly traded securities brokerages, they currently disclose the total value of those assets apart from their own balance sheets, which tally up their own assets and liabilities.

The new accounting guidelines instruct publicly traded crypto firms to record the digital tokens they custody for customers as assets and their obligation to the customers as liabilities.

SEC officials said the aim is to introduce consistency to the accounting methods used by such platforms. But the change could also cause the balance sheets of publicly traded crypto exchanges and other SEC-registered entities that custody cryptocurrencies to grow exponentially.

Coinbase, the largest publicly traded crypto exchange, says it held $278 billion of cryptocurrencies and currencies for its customers as of Dec. 31, 2021. But it reported only $21.3 billion of assets and liabilities on its balance sheet.

“We’re going to see a very expanded balance sheet on both the debit side and credit side for crypto exchange operators,” said Vivian Fang, associate accounting professor at the University of Minnesota.

The SEC’s new guidance for crypto-trading platforms contrasts with the approach used by brokerages such as Charles Schwab Co. Inc. Those firms are allowed to leave the value of client assets off their own balance sheets because of legal precedent that has established that, in the event of bankruptcy, the assets belong to the clients.

The law is less settled in the case of crypto, SEC officials say.

The crypto industry has grown rapidly in recent years thanks to a flood of Wall Street market participation and venture-firm funding. But despite the rising popularity of digital tokens, the market remains largely unregulated.

While the technology behind cryptocurrencies enables people to transact directly with each other using digital wallets, most investors access the market through centralized trading platforms like Coinbase, FTX or Kraken.

In such cases, those platforms hold customers’ bitcoins or other tokens in their own wallets.

“The obligations associated with these arrangements involve unique risks and uncertainties not present in arrangements to safeguard assets that are not crypto-assets, including technological, legal, and regulatory risks and uncertainties,” SEC staff wrote in a bulletin released Thursday. “These risks can have a significant impact on the entity’s operations and financial condition.”

Outbreak at elderly-care facility suggests hidden impact on China’s financial center; ‘Orderlies, nurses and doctors, we’re all infected’

HONG KONG—Many patients have died in recent days at a large Shanghai elderly-care hospital that is battling a Covid-19 outbreak, according to people familiar with the situation, a sign that a new wave of infections is hitting China’s financial capital harder than authorities have publicly disclosed.

Shanghai’s government hasn’t reported any Covid-related deaths or outbreaks in its hundreds of elderly-care centers since cases began climbing in the city in March.

Six replacement orderlies at the city’s Donghai Elderly Care Hospital, brought in after previous caretakers were sent away to quarantine, told The Wall Street Journal that they had witnessed or heard of the recent removal of several bodies from the facility, where they said at least 100 patients had tested positive for Covid-19.

One orderly said he was tasked with posthumously dressing a male patient who had died on Monday night after he was infected with Covid.

“I was scared to death. I said, ‘Look, look, those are for dead bodies,’” another orderly said, recalling the sight of half a dozen hearses parked at the hospital gate at night.

Separately, the son of a patient at the hospital said that his father had died within the past week, a friend of the son told the Journal, adding that others who had visited the hospital reported seeing the bodies of at least a dozen deceased patients.

More than half a dozen users on several of China’s major social-media platforms have also posted messages alleging unreported deaths at the hospital in recent days.

It couldn’t be determined whether the deaths were caused by Covid infections or other chronic illnesses. The hospital doesn’t publicize data on deaths, making it difficult to compare the recent rate of patient deaths with previous periods. Some relatives of patients said their loved ones were left unattended after infected caretakers were quarantined.

City health officials haven’t acknowledged the rapid spread of infections at the facility. The government reported two new Covid cases at an address matching that of Donghai Hospital on March 16 and 17. In subsequent days, the government listed the address as a location where infections had been reported, but didn’t say how many cases were recorded.

Calls to the hospital president’s office and the general office rang unanswered Wednesday and Thursday. Spokespeople for the Shanghai municipal government and Pudong district, where the hospital is located, didn’t respond to requests for comments.

The reports of the deaths at the elderly-care facility, located in southeastern Shanghai, come as the city of 25 million battles a record surge in Covid-19 cases fueled by the fast-spreading Omicron BA.2 variant. Local authorities reported 5,653 new cases on Thursday after reporting close to 6,000 the day before. Officials imposed staggered lockdown measures earlier this week.

Public health experts have warned about the danger Omicron poses to China’s elderly population, with barely half of people over 80 having had two or more doses of vaccine. With four million residents above age 65, Shanghai is home to one of China’s largest, and oldest, urban populations.

Elder-care facilities have been the starting point for numerous deadly outbreaks, including New York at the beginning of the pandemic, when Covid infections in nursing homes led to nearly 4,000 deaths. Outbreaks in nursing homes in Hong Kong this year have led to record death rates in the former British colony, where vaccination rates among the elderly are also low.

Shanghai Donghai is a 20-year-old facility overseen by a state-owned food conglomerate with 1,800 beds and an orthopedics ward that also treats younger patients. The city’s biggest elderly care center by capacity, it reported zero Covid infections in 2021.

In a post published March 25 on its verified Weibo account, the hospital said that it had been sealed off 13 days earlier, and that positive Covid cases would be transferred, but didn’t say when the outbreak started.

Zhang Aizhen, an orderly who has worked in the hospital for more than a decade, said she was put on a bus on the night of March 19 with dozens of staff, including nurses and doctors, after she tested positive. She said she spent a week in a quarantine hotel, before being moved to a makeshift quarantine center in a stadium last weekend.

“Orderlies, nurses and doctors, we’re all infected,” she said.

Roughly four dozen replacement orderlies have been hired by the hospital over the past two days to replace caretakers who had been quarantined, according to people familiar with the situation. Many of the replacement workers weren’t told of conditions in the hospital before being hired and were shocked to be tasked with caring for so many Covid-positive patients, the people said.

One orderly helped remove the bodies of dead patients from the hospital for three days in a row before he himself tested positive and was taken away to quarantine, according to a co-worker.

On Saturday, a former employee of a Shanghai-based film production company wrote in a widely shared post on Weibo that her grandmother had been transferred from Shanghai Donghai to another hospital after testing positive for Covid. She also wrote that another patient at Shanghai Donghai, the 94-year-old grandmother of an acquaintance, died last week after contracting Covid.

The claim couldn’t be independently verified by the Journal, and the user didn’t respond to a reporter’s inquiries.

Joy Zhu, a resident living in the west part of Shanghai, said he couldn’t locate his 92-year-old grandmother, Chen Xiuyue, for several days after her caretaker and doctor from Shanghai Donghai were both put under quarantine.

On Saturday, another hospital called to inform him that Ms. Chen had been transferred three days ago and was safe, although she had tested positive for Covid, he said.

“I was very worried,” Mr. Zhu said of the sudden change imposed on his grandmother, who suffers from Alzheimer’s. “I was concerned she might reject a strange caretaker.”

Replacement orderlies at Shanghai Donghai said they were required to sleep in the same room as Covid-positive patients in dirty conditions that attracted mice. Some have since gone on strike.

Disruptions to other parts of the city’s healthcare system have also turned deadly.

Shen Ruigen, a 77-year-old retired doctor, died alone in an intensive-care unit on Monday after a positive Covid test led him to be quarantined for 48 hours without the dialysis he needed to treat his chronic kidney disease, according to family members.

Mr. Shen suffered a heart malfunction, which may or may not have been related to the delay in his dialysis treatment, a doctor later told his son, Shen Jie, in a recorded phone conversation reviewed by the Journal.

In another recorded conversation provided by the family, an official with the local center for disease control struggled to explain why they couldn’t save his life.

“We can’t do much if the hospital refuses to take the patient,” the official said. “We can’t force them.”

More artists experiment with digital tokens but critics question valuations and ultimate worth for fans

DJ Justin Blau was opening up for his superstar peer Avicii on a beach in Mexico when he met the Winklevoss twins, who introduced him to bitcoin. “It couldn’t get more cliché than that,” he says of his 2014 meeting with the Harvard classmates of Mark Zuckerberg, who have since become blockchain evangelists.

As a university student, Blau dropped his finance studies and turned down an internship at asset manager BlackRock to pursue a DJ career. Years later, he has combined his dual interests — music and finance — into a business aimed at disrupting the record industry through blockchain technology. On Tuesday he teamed up with longtime friend Diplo, the popular electronic musician, to sell 20 per cent of the streaming royalties of a song to fans in the form of digital tokens.

“I’m just fascinated with the idea of there being value for the ownership of music,” Thomas Pentz, known professionally as Diplo, told the Financial Times. “The more people behind your record, whether its fans or investors who are interested in the technology, it’s great to have more people on a team.”

In recent months the hype surrounding Web3 — the buzzword for a decentralised, blockchain-powered iteration of the internet — has swept the music industry, drawing the world’s largest music companies to the fray and fuelling hope that non-fungible tokens will become a new source of money for musicians.

To sell an NFT, musicians assign their song, video or other piece of media to a digital token. The token is sold through an online auction enabled by blockchain technology, which keeps a record of the transaction. Beyond songs or images, NFTs could also be used to sell perks such as backstage passes or meetings with stars.

Head-spinning examples abound. Rapper Snoop Dogg in February sold an NFT attached to Bacc on Death Row, his latest album, that reportedly generated more than $40mn in sales in just five days. DJ Steve Aoki claims he has made more money through NFTs than he did from a decade’s worth of advances from record labels.

“Some of these valuations are out of control. As an investor, I’m seeing a lot of it and have to laugh occasionally,” said a senior executive at a major music label.

But after getting knocked over by the internet via the advent of file-sharing company Napster two decades ago, the big music companies are looking to get ahead of technological change this time around, making them willing participants in the market.

Universal Music, the group behind Taylor Swift and Drake, has struck partnerships to create NFTs for its artists — including a virtual band featuring characters from the Bored Ape Yacht Club — as have rivals Sony and Warner.

After spending more than half a billion dollars buying the copyrights to Bob Dylan’s songbook, Universal and Sony are now working with the musician to sell Bob Dylan NFTs. Spotify has been drawing up plans to add blockchain technology and non-fungible tokens to its streaming service, the FT reported earlier this month.

“There’s been a lot of waxing and waning of irrational exuberance around this space”, said Jonathan Dworkin, senior vice-president of digital strategy at Universal. “As the smoke now starts to clear, there’s some really interesting opportunities . . . there’s a real revenue opportunity” he said, pointing to the ways tokens can directly connect fans with artists.

But so far, most participants in music NFTs are crypto enthusiasts rather than ordinary fans, and the market is tiny — taking in just $83mn in primary sales last year, according to industry blog Water & Music.

There are plenty of sceptics. “It feels like the music industry is desperately trying to find a way to insert itself into NFTs without actually thinking: what is the underlying use case?” said Mark Mulligan, analyst at Midia Research.

Mulligan argued it is hypocritical of musicians to sell streaming royalties to fans, after years of complaints over the minuscule payments artists themselves receive in streaming royalties. “If you sell someone a fraction of that fraction, and charge them a lot of money for it because it’s an NFT, I’m not sure how it would be a valid investment.” 

Diplo maintained it is a good investment for music lovers. “For a fan, what you can do is buy merch, you can buy tickets for a concert . . . but really, this is what you’re a fan for. You’re a fan because of the music.”

Most of the $17.7bn worth of NFTs traded last year were for visual art, games and collectibles, according to market tracker Nonfungible.com. While the NFT market itself has shown signs of slowing with daily trading volumes on OpenSea, the biggest marketplace for NFTs, falling since the start of the year, some people view music as a space ripe to break out this year.

Royal, Blau’s company, is among the most prominent of a crop of music blockchain start-ups that aim to revolutionise the industry. Through Blau’s personal connections — and Silicon Valley optimism around blockchain — Royal secured $55mn from investors including Andreessen Horowitz and Peter Thiel, without ever making a pitchbook.

Blau, who last February sold $12mn in NFTs attached to his songs, wants to scale that into a business through which ordinary fans can own music, “as opposed to just record labels, private equity and hedge funds”. 

Royal’s project with Diplo, for example, offers fans the option of paying $99 for a token representing 0.004 per cent of the streaming royalty rights to “Don’t Forget My Love”, the first single from his recently released album. For $999, you receive 0.05 per cent of the royalty rights, as well as an “exclusive DJ mix,” while $9,999 gives you 0.7 per cent of the royalties and a meeting with Diplo at a concert. These tokens do not equate to owning the copyrights to songs.

Asked whether this is a good investment for fans, Blau said that there is an emotional attachment to the ownership, as well as the possibility of betting on the success of an artist before they become a star. “In real estate . . . if you own a single family home there’s the rental income and then there’s the actual asset appreciation, right?” he argued.

Another longtime music label executive said that some of these projects “haven’t hit because people are concerned about the exploitative nature”, referring to the questionable investment value of streaming royalties.

“There’s a lot of detractors that say: there’s only rich white dudes that are doing this and driving up the price of NFTs.

“But I don’t think we can discount that technology is evolving,” the executive added. “We’ve been in playlist land for the past decade. I think that blockchain tokens are going to be fundamental to our world in 10 years, and anyone that says that’s not true is not looking back on history.”