Stocks in Asia rallied with U.S. and European futures ticking higher as gains that pushed global equities to their highest since October continued ahead of this week’s Federal Reserve policy meeting. Treasuries were little changed.
Chinese and Hong Kong shares led the advance with Australian and South Korean equities posting more modest gains. U.S. futures reversed earlier losses to edge higher after the S&P 500 Index capped its best week since November on Friday. The 10-year Treasury yield stayed below 2.6 percent. The dollar drifted, while the Aussie strengthened.
Nikkei +0.62% Hang Seng +1.03% CSI +2.57% Shanghai +2.24% Shenzen +2.34%
Eur$ 1.1344 CNH 6.7126 CNY 6.7104 JPY 111.54 GBP 1.3286 CHF 1.0014 RUB 64.7190 TRY 5.4593 WTI$ 58.47 -0.09%
S&P +0.13% EuroStoxx +0.12% Dax +0.19% Ftse +0.36% SMI +0.14%
Macro :
- EU Says Brexit Delay Beyond July 1 Means EU Elections in U.K.
- Biotech Investors Zero In on Gene Therapy as Next Big Frontier
- Watch U.K. Housebuilders Amid More Dismal Home Sales Datafirst
- Watch European Auto Suppliers After Leoni Scraps 2019 Guidance
- $2 Trillion Asia Rally Waits on Make-or-Break Week: Taking Stock
- JPMorgan Sees Less Need for Hedges in Volatility Bear Market
Keep an eye :
- AIR FP : Avianca cancels delivery of 17 A320neo airplanes, to delay another 35 deliveries - filing
- AIR FP : U.S. Transport Dept. Probes FAA’s Boeing 737 Max Approval:WSJ(1)
- ALV GY : Deutsche Bank Asset Management Arm Said to Get Allianz Interest
- AZA IM : Delta Plans to Take 10% of Alitalia: Messaggero
- BAYN GY : Bayer Animal-Health Unit Sale Is Said to Draw Big Buyout Firms
- EN FP : Bouygues Telecom Finalizes Nerim Acquisition
- ACA FP : Crédit Agricole CIB Sells a 4.9% Stake in Banque Saudi Fransi
- DEB LN : Sports Direct Mulls Acquiring Debenhams if It Goes to Admin.: FT
- DBK GY : Deutsche Bank Is Said to Reject Sweetening Retention Bonuses
- DBK GY : Deutsche Bank Says It’s in Talks With Commerzbank on Options
- DFDS DC : DFDS Gets U.K. Contract Even With Brexit Delay, Borsen Says
- DPH GY : *DEUTSCHE POST CEO SAYS DHL TO FOCUS ON ITS OPS, NOT M&A: WSJ
- DIS US : Disney Dips After Majority of Fox Investors Request Cash in Deal --> -1.3% in After Hours
- EL FP : EssilorLuxottica Board Meets on Governance Monday: Figaro
- EVE SW : Evolva Sees Regulatory Deadline Extension on Nootkatone
- FUM1V FH : Fortum Visibility to Improve, Gives Entry Point: Morgan Stanley
- GMM GY : Grammer Full Year Dividend Per Share Misses Estimates
- GYC GY : Grand City Properties Full Year FFO Per Share Misses Estimates
- HIAG SW : Hiag Immobilien Full Year Ebitda CHF104.3 Mln
- MDXH BB : MDxHealth Gets Positive Data of SelectMDx Optimization Study
- INCOAX SS : Incoax to Carry Out Cap Increase, Issue at Least SEK35m Shares
- BAER SW : Julius Baer CEO Hodler Earned CHF6.16m in 2018
- LEO GY : Leoni Full Year Sales EU5.10 Bln
- LEO GY : Leoni to Miss 2019 Guidance as Costs Increase; CFO Steps Down
- LYFT IPO : Lyft Is Said to Detail Plans for $2 Billion IPO Soon as Monday
- MS IM : Mediaset CEO Says ‘Sooner the Better’ on Possible Deal: Corriere
- MTRO LN : U.K.’s FCA Seeks Metro Bank Board Shake-up, FT Reports
- NHY NO : Norsk Hydro Names Hilde Merete Aasheim New CEO
- NOVN SW : Novartis’s Alcon Buys PowerVision for $285m Ahead of Spinoff
- ORK NO : Orkla CEO Peter A. Ruzicka Resigns
- PHIA NA : Corindus Vascular Holder Philips Says It May Propose Investment
- RNO FP : Nissan May Consider Getting Rid of Chairman Position, Asahi Says
- RNO FP : *RENAULT TO RE-EXAMINE ITS SALES TARGET, CHAIRMAN SAYS: NIKKEI
- RR/ LN : Rolls-Royce Shares to Re-Rate as Cash-Flow Quality Improves: MS
- RDSA NA : Shell Can ‘Easily’ Switch LNG Routes Amid U.S.-China Trade War
- SAB SM : GS, Cerberus Among Bidders for Sabadell’s Sdin: Confidencial
- SAN SM : Santander Said to Create Real Estate Management Co.: Cinco Dias
- SAL IM : Salini Impregilo Results Miss Est. as Venezuela Weighs
- SLHN SW : Macquarie Sells 36% Brussels Airport Stake to APG, QIC: Belga
- SOI FP : Soitec to Open Direct Sales Operation in China
- SNH GY : Steinhoff Wants to Dig Deeper Into $7.4 Billion of Dodgy Deals
- TLX GY : Talanx Full Year Dividend Per Share EU1.45
- TEVA IT : Teva, Adare Agree With Inventia; Drop Patent Case on Amrix Drug
- TTI GY L Tom Tailor Group Postpones Release of 2018 Accounts to April
- URW NA : Unibail, PSP, QuadReal in Partnership for EU750m London Project
- DG FP : Vinci to Propose Treasury Share Buyback Program up to EU2B
- VOW GY : SAIC Motor Says It Didn’t Discuss with VW on JV Ownership Change
- YNAP IM : Farfetch Says Priority Is Winning Market Share, Expresso Reports
>>> Up
* Alstom Upgraded to Buy at Kepler Cheuvreux; PT 43.50 Euros
* Deutsche Post Upgraded to Buy at Jefferies
* IWG Upgraded to Sector Perform at RBC; PT 2.60 Pounds
* Legal & General Upgraded to Neutral at JPMorgan; PT 2.85 Pounds
* Nordex Upgraded to Neutral at Citi
* Rolls-Royce Raised to Overweight at Morgan Stanley; PT 11 Pounds
* SEB Upgraded to Buy at Handelsbanken; PT 105 Kronor
>>> Down
* Adidas Downgraded to No Position at Evercore ISI
* EDF Downgraded to Hold at HSBC; PT 13.80 Euros
* Gima TT Cut to Underperform at Mediobanca SpA; PT 5.40 Euros
* IMCD Downgraded to Hold at HSBC; PT 70 Euros
* Salini Impregilo Cut to Reduce at Kepler Cheuvreux
* VAT Downgraded to Hold at Kepler Cheuvreux; PT 105 Francs
* Zalando Downgraded to Underperform at MainFirst; PT 31 Euros
>>> Initiation
* Fortum Resumed at Morgan Stanley With Overweight; PT 22 Euros
* Gocompare.com Rated New Hold at Stifel; PT 79 Pence
* Moneysupermarket Rated New Buy at Stifel; PT 4.10 Pounds
>>> Call
Asia Market Update: Asian equities trade higher amid speculation that Xi/Trump meeting could be delayed until June; Japan and Singapore exports to China rebound, RBA minutes due on Tues.
General Trend:
- Shanghai property and health care indices outperform in early trade
- Securities brokers and Softbank rise in Japan
- China President Xi and President Trump meeting may be delayed until June
- Financials weigh on Australian market, Resources firms rise
- US Fed to hold policy meeting March 19-20 (Tuesday-Wed)
- Reserve Bank of Australia (RBA) to release March meeting minutes on Tuesday
- NZIER cuts its near-term growth and 90-day bank bill rate forecasts for NZ
***Headlines/Economic Data***
Australia/New Zealand
-ASX 200 opened +0.1%
- (AU) According to Deloitte Access Economics: Australia Morrison govt could spend up to A$12.0B/yr to deliver bigger personal income tax cuts and help it pass the "fairness" test with low to middle income voters – AFR
- (NZ) New Zealand Feb Performance of Services Index: 53.8 v 56.3 prior
- (NZ) New Zealand Institute of Economic Research (NZIER) Quarterly Outlook: Lowers 2019 GDP outlook
- CIM.AU Thiess unit awarded A$1.7B contract in Botswana
- (AU) Australia sells A$600M v A$600M indicated in 3.25% April 2029 bonds, avg yield 1.9691%, bid to cover 4.12x
Japan
-Nikkei 225 opened +0.6%
- 7201.JP Renault, Nissan and Mitsubishi alliance to re-examine sales target of 14M cars worldwide by 2022 - Nikkei
- (JP) JAPAN FEB TRADE BALANCE: ¥339.0B V ¥305.1BE; ADJ TRADE BALANCE: ¥116.1B V +¥86.0BE; Exports: YoY -1.2% v -0.6%e ; Imports: YoY: -6.7% v -6.4%e
- (RU) Russia Pres Putin: Japan Russia peace treaty talks need a "short rest" if Japan is unwilling to withdraw from security cooperation pact with US over disputed islands – Nikkei
- 7203.JP President Toyoda: To invest $749M in 5 US plants to increase capacity and add hybrid SUV lines; will not leave the US - Speech at Economic Club of Washington
- 7201.JP Considering getting rid of chairman position, will announce its official proposal on March 27th - Japan press
-(JP) Japan Jan Final Industrial Production M/M -3.4% v -3.7% prelim; Y/Y: 0.3% v 0.0% prelim
Korea
-Kospi opened +0.1%
- (KR) South Korea Feb Offshore Investors net bought KRW1.64T in domestic stocks v buying KRW3.74T prior (3rd consecutive month of net buying)
- (KR) According to US monitor there is little to no activity is spotted at North Korea main nuclear facility in Yongbyon and its nuclear testing site in Punggye-ri
- (KR) South Korea coast guard sizes China fishing boat for not complying with stop order and suspected illegal fishing – Yonhap
- (KR) Bank of Korea (BOK) sells KRW250B in 6-month Monetary Stabilization Bonds (MSB), avg yield 1.81% b 1.82% prior
-(KR) South Korea sells KRW1.75T v 1.75T indicated in 10-yr Treasury Bonds; avg yield 1.99% v 1.985% prior; bid to cover 2.94x v 2.76x prior
China/Hong Kong
-Hang Seng opened +0.4%; Shanghai Composite opened +0.2%
- (CN) Meeting between China President Xi and US President Trump now may be delayed to June (Originally through to be this month at Maralargo) - SCMP
- (US) US Border Patrol: Seized 450,000 kg of pork smuggled into US from China; possibly infected with African Swine flu
- (CN) China issued specific rules related to tax exemptions which seek to lower the amount of individual income tax paid on incomes earned overseas – Xinhua
- (CN) China to allow local governments to set their own property tax rates - financial press
- (CN) China PBoC sets yuan reference rate: 6.7088 v 6.7167 prior
- (CN) China PBoC Open Market Operation (OMO): To inject CNY60B in 7-day reverse repos v CNY20B in 7-day prior; Net: CNY60B injection v CNY20B injected prior
- (CN) Feb sales for China major excavator producers totaled 18.8K units, +68.7% y/y - Xinhua
-(KR) China reviewing President Xi's possible visit to North Korea in April - Korean press
Other Asia
- (SG) SINGAPORE FEB NON-OIL DOMESTIC EXPORTS M/M: 16.0% V +4.3%E; Y/Y: 4.9% V -1.6%E; Electronic Exports y/y: -8.0% v -15.9% prior
North America
-BA US Transport Dept. to probe the FAA's approval of the Max 737, will focus on anti-stall system - US financial press
-BA Reportedly Ethiopian Airlines plane that crashed had unusually high speed after takeoff - press **Note: Ethiopian transport ministry says black box data shows similarities to Indonesian crash
- GM Trump Tweet: "Because the economy is so good, General Motors must get their Lordstown, Ohio, plant open, maybe in a different form or with a new owner, FAST! Toyota is investing 13.5 $Billion in U.S., others likewise. G.M. MUST ACT QUICKLY. Time is of the essence!"
Europe
- DBK.DE Confirms talks with Commerzbank, also reviewing strategic options
- (UK) Various ministers indicate that PM May could cancel Brexit vote this week if there is not enough support - Telegraph
- (ES) Bank of Spain Gov Hernandez de Cos: there is currently no risk of recession in Europe or Spain - financial press
- (UK) Mar Rightmove House Prices M/M: 0.4% v 0.7% prior; y/y: -0.8% v 0.2% prior
- (UK) British Chambers Of Commerce (BCC): Cuts 2019 and 2020 GDP growth forecasts: Cuts 2019 GDP growth forecast from 1.3% to 1.2%; Cuts 2020 GDP growth forecast from 1.5% to 1.3%
***Levels as of 01:20ET***
- Hang Seng +0.8%; Shanghai Composite +1.3%; Kospi +0.0%; Nikkei225 +0.6%; ASX 200 +0.3%
- Equity Futures: S&P500 +0.0%; Nasdaq100 +0.1%, Dax -0.0%; FTSE100 +0.2%
- EUR 1.1319-1.1339; JPY 111.46-111.64; AUD 0.7078-0.7116; NZD 0.6840-0.6867
- Commodity Futures: Gold -0.3% at $1,299/oz; Crude Oil -0.4% at $58.59/brl; Copper +0.3% at $2.92/lb
The bulls retook control this week sending stock markets to the highest levels of the year. Despite repeated assurances from the White House, reports suggested that a final trade deal with China is still weeks away, if at all. Meanwhile, PM May suffered a series of defeats on her EU separation proposal, but markets saw the silver lining as the Parliament voted to forbid a ‘no deal’ Brexit and to delay the Brexit date from March 29th until June 30th (though the EU27 still must unanimously approve the extension). Economic data remained spotty with continued softness in Chinese figures garnering significant attention once again. WTI crude broke out new highs for the year trading back to levels not seen since November alongside the renewed momentum in stocks.
Corporate headlines didn’t appear to provide much of a tailwind either. Boeing was mired in negative headlines after the troubling crash of an Ethiopian Airlines 737 MAX 8 last weekend.
For the week, the DJIA gained 1.6%, the S&P jumped 2.9%, and the Nasdaq surged 3.8%.
In other corporate news this week, the board of Deutsche Bank reportedly agreed to explore a potential merger with Commerzbank, merely awaiting the nod from German Chancellor Merkel. Nvidia agreed to acquire Mellanox Technologies for $6.9B -- its biggest ever purchase -- in order to increase its capacity for chip production for data centers. In a bumpy week for Facebook, federal prosecutors were said to launch a criminal probe into the company’s data deals that it made with large tech companies, and long-time executive and Chief Product Officer Chris Cox departed over disagreements about product direction. Smith & Nephew announced it would buy Osiris Therapeutics for $660M in a bolt-on acquisition to enhance its strength in the regenerative medicine market. Steel producer Nucor cut its Q1 guidance due to a drop in steel mills profit and some shipment delays, but the company said it was encouraged by the impact of recent price increases.
Macro :
- EU Says Brexit Delay Beyond July 1 Means EU Elections in U.K.
- Biotech Investors Zero In on Gene Therapy as Next Big Frontier
Keep an eye :
- AIR FP : Avianca cancels delivery of 17 A320neo airplanes, to delay another 35 deliveries - filing
- ALV GY : Deutsche Bank Asset Management Arm Said to Get Allianz Interest
- BAYN GY : Bayer Animal-Health Unit Sale Is Said to Draw Big Buyout Firms
- ACA FP : Crédit Agricole CIB Sells a 4.9% Stake in Banque Saudi Fransi
- DBK GY : Deutsche Bank Is Said to Reject Sweetening Retention Bonuses
- DBK GY : Deutsche Bank Says It’s in Talks With Commerzbank on Options
- DPH GY : *DEUTSCHE POST CEO SAYS DHL TO FOCUS ON ITS OPS, NOT M&A: WSJ
- DIS US : Disney Dips After Majority of Fox Investors Request Cash in Deal --> -1.3% in After Hours
- INCOAX SS : Incoax to Carry Out Cap Increase, Issue at Least SEK35m Shares
- PHIA NA : Corindus Vascular Holder Philips Says It May Propose Investment
- SAL IM : Salini Impregilo Results Miss Est. as Venezuela Weighs
- SLHN SW : Macquarie Sells 36% Brussels Airport Stake to APG, QIC: Belga
- SNH GY : Steinhoff Wants to Dig Deeper Into $7.4 Billion of Dodgy Deals
- TEVA IT : Teva, Adare Agree With Inventia; Drop Patent Case on Amrix Drug
- TTI GY L Tom Tailor Group Postpones Release of 2018 Accounts to April
- DG FP : Vinci to Propose Treasury Share Buyback Program up to EU2B
- YNAP IM : Farfetch Says Priority Is Winning Market Share, Expresso Reports
Baltic regulators fret that scandal could drive Nordic banks away
Nordic lenders have up to fourth-fifths of the market in some Baltic countries
However bad a spiralling money laundering scandal has been to the three Baltic countries, it could get even worse.
Financial regulators in Estonia and Latvia told the Financial Times they were afraid Swedish banks — which dominate both headlines on money laundering and their banking systems — could withdraw from the region, just as Danske Bank and Nordea have already done amid dirty money allegations.
“Sure, we are very worried,” said Peters Putnins, head of the Latvian regulator. “Should other banks follow the route of Danske, it would be very destabilising in all three Baltic countries.”
His Estonian counterpart Kilvar Kessler said he viewed the matter from a national security perspective: “If you think that somebody in the headquarters of the large Swedish banks would think their Baltic banks are more of a liability than an asset, it’s rather uncomfortable for me. You don’t know who would replace them.”
The Baltics are almost completely dependent on Swedish banks for their local banking. Swedbank and SEB — the two biggest banks in the Baltics and both Stockholm-based — have market shares of more than 50 per cent in Estonia and Lithuania and 42 per cent in Latvia, based on assets or deposits.
Throw in Luminor — a joint venture between Finland’s Nordea and Norway’s DNB that is set to have US private equity group Blackstone as an owner — and foreign banks control four-fifths of the market in Estonia and Latvia and two-thirds in Lithuania.
The warning signs are already there. Nordea has said it intends to leave the region while Danske is quitting after being forced to close in Estonia by the financial regulator.
The worry is that shareholders might send an implicit message to the banks to get out. Danske’s shares halved last year as it confessed to a €200bn money laundering scandal and criminal investigations in the US, Denmark and Estonia. This year, Swedbank’s shares plunged by a fifth in one week on money laundering allegations.
“Investors are quite shaky. Share prices are going down and this in turn has the effect that this Baltic region is seen as not so nice and maybe not an asset but a liability,” said Mr Kessler. In turn, Mr Putnins said: “That is the price you pay if you don’t have your own banks.”
Only the Lithuanian regulator seems relaxed. Vytautas Valvonis, head of supervision at the Bank of Lithuania, said: “We don’t see any risk coming from this. The banks are well capitalised and well funded.”
The picture was very different two decades ago. Then the three Baltic states, having freshly regained independence after their occupation by the Soviet Union, turned to Swedish and other Nordic banks to rid themselves of corruption.
Erik Thedéen, head of Sweden’s financial regulator, said: “Generally speaking, we are not as alert as you will be if you stay in Cyprus or countries where they don’t have the same tradition of being transparent and far away from corruption. Nordic people have this tendency to think we are better than others.”
But he conceded the recent scandals had changed the picture. “Generally speaking, we knew too little about it. We knew that there was risk in the Baltic region, which is being revealed with fairly spectacular transactions. We need to do better.”
However, Mr Thedéen stressed that his institution would be sensitive to the geopolitical need for Swedish banks to stay in the Baltics when imposing remedial action. “It’s extremely important that we do this in a manner that does not push the Swedish banks out of the Baltics. It goes beyond my [professional] responsibility; it’s important for the European context,” he said.
He added that due to the Baltics’ tangled history with Russia, “there are risks at stake if we push out the Swedish banks. I have no agenda of pushing them out from the Baltics.”
All four regulators say they have learnt lessons. Estonia and Latvia have both cracked down on the non-resident banking business at the heart of the Danske scandal in which money came from abroad — mostly from Russia and other ex-Soviet countries.
Another lesson is to boost resources for preventing money laundering. Mr Kessler said that Estonia’s regulator had 7 per cent of its staff in anti-money laundering activities. “To be frank, in Estonia anti-money laundering experts don’t grow on trees,” he said, adding that more people need to be trained.
Penalty levels are also an issue. Until recently, Estonia’s maximum fine for money laundering was €32,000 — a level Mr Kessler called “crap” and “peanuts for a bank”.
All four regulators are aware that heavy scrutiny is falling on their actions. They have started a joint investigation into the Swedbank allegations, although for some critics it all smacks of too little, too late. They argue that attention needs to be paid to law enforcement — which polices individual transactions — as much as regulation.
Mr Putnins admitted that Latvia was under “immense” pressure after the US effectively closed one of its banks for what it alleged was “institutionalised money laundering” and an international body urged it to make urgent changes to avoid being blacklisted.
But he said that while supervisors can “fix” their issues, more attention needed to be paid to the root causes of money laundering. “We should look at why this is possible. One of the answers is that there are jurisdictions where you can set up companies and hide the ownership. The root of all this has to be taken away,” he added.
Boeing’s woes will complicate US-China trade talks
New plane purchases are crucial to Beijing’s proffered buying list
The grounding of Boeing's 737 Max 8 threatens to complicate US-China trade talks by making it more difficult for Beijing to present US president Donald Trump with a headline-grabbing boost to the value of goods it buys from the US.
Chinese airlines and financial leasing companies have the largest order book outside the US for the 737 Max, which is under scrutiny from regulators worldwide after two deadly crashes within the last six months. The model is also central to Boeing’s plans, accounting for 80 per cent of the undelivered aircraft in its pipeline.
Boeing has suspended delivery of the 737 Max after regulators grounded the plane in the wake of an Ethiopian Airlines crash last Sunday, which led to the deaths of all 157 people on board. An Indonesian Lion Air flight, involving the same type of aircraft, also crashed soon after take-off in October killing 189 people.
The uncertainty over the 737 Max creates a quandary for China’s trade negotiators, who have responded to the Trump administration’s pressure over industrial policies by offering to buy an additional $1.2tn in US exports over six years. Boeing aircraft feature heavily on Beijing’s shopping list, which also includes more purchases of soyabeans, corn, natural gas and crude oil.
China is already struggling to reach that $1.2tn target, Washington-based sources say. A weak number on purchases could heighten perception of a bad deal and reduce political support for it in the US, even though most of the difficulty in reaching an agreement has centred on more intractable structural issues.
The crashes, and China’s swift move in grounding the model, make it hard for Beijing to offer to buy more 737 Max aircraft.
“We certainly cannot buy this model. It's an issue of safety, not trade,” said He Weiwen, a former Chinese diplomat and now a senior researcher at the Center for China and Globalization in Beijing. “Other Boeing models do not have such issues, especially those that have been proven to have great quality after operating for years. We can still purchase those, but without any doubt there should be stricter quality checks before acceptance.”
A meeting between President Donald Trump and his Chinese counterpart Xi Jinping has been pushed back to April — with the US president saying he was in “no rush” to strike a trade deal. Major issues have still not been ironed out, US trade representative Robert Lighthizer said last week, as the sides haggle over the enforcement mechanism, the fate of existing tariffs, and the scope of Chinese concessions on industrial subsidies and intellectual property. The delay offers Boeing some breathing room for it to introduce improvements to the 737 Max that could reduce concerns about possible purchases.
The Ethiopian Airlines crash has come at a particularly bad time for Boeing, which was hoping to benefit from the US-China trade deal. Just days before the disaster, Dennis Muilenburg, chief executive of Boeing said: “I think there’s an economic opportunity here for aeroplanes to be part of the ultimate deal and help further close the trade deficit gap.”
Chinese airlines or Chinese-owned leasing companies account for about 10 per cent of Boeing’s unfilled orders for the 737 Max series. Almost a quarter of the pipeline comes from unidentified buyers, some of whom are also mainland buyers. And it will not be easy to change the order for a different plane.
The biggest order book of more than 100 737 Max aircraft is with subsidiaries of Avolon, the Irish leasing company owned by Chinese aviation-to-financing conglomerate HNA and Japanese financial services company Orix. BOC Aviation, a leasing company under Bank of China, has 90 of the 737 Max family planes on order, while China Development Bank’s finance arm, has 77 on order.
Airbus could try to take advantage of any immediate loss of appetite in China for Boeing aircraft purchases. An aide to Emmanuel Macron, the French president, told Reuters this week there were “positive” signs in talks for Airbus to clinch a big new order of narrow-body jets when Mr Xi travels to France later this month. For Beijing, a big flashy purchase of the Boeing 737 Max would simply be excessive under these circumstances, analysts said.
But Boeing is also central to China’s industrial policy. Boeing has recently opened a new facility on an island in the Chinese archipelago of Zhoushan, to paint and fit out planes flown in from the US. That provides Beijing a strong incentive to keep buying American planes as it develops its own aircraft industry. Beijing likes to ensure that it does not rely too heavily on one aircraft supplier, and will probably wish to maintain a limit on orders of Airbus, the other major global supplier of passenger aircraft. A homegrown Chinese plane is not yet ready for commercial use.
“If Boeing Max aircraft were in the mix of planned Chinese purchases of American goods as part of a trade deal, the Chinese will probably look to substitute something else,” said Bonnie Glaser, senior adviser for Asia at the Center for Strategic and International Studies, a Washington-based think-tank. “Until the aircraft gets a clean bill of health, the Chinese won’t take such risks. Party legitimacy is at stake.”
Weekend Papers Summary
* NYT (Saturday): Investigators at the Ethiopian Airlines crash site have found new evidence that points to another connection to the earlier Lion Air disaster involving the same BA Max 8 jet—namely the fact that stabilizers were tilted upward, pushing the nose down; As FDA head Scott Gottlieb prepares to depart at the end of the month, a host of lobbyists from the tobacco and retail industries are swooping in, trying to make the case to Congress and the White House that sales of e-cigarettes shouldn’t be restricted to only adults; North Korea threatened to suspend negotiations with the Trump administration over the North’s nuclear arms program and said leader Kim Jong-un would soon decide whether to resume nuclear and missile tests; Russian oligarch Oleg Deripaska sued the U.S. government, demanding it lift sanctions that he claimed have cost him billions of dollars, made him “radioactive” in international business circles, and exposed him to criminal investigation and asset confiscation in Russia; Trump issued his first veto, rejecting legislation to overturn his declaration of a national emergency to fund a wall along the southwestern border despite the bill’s significant Republican support in Congress, a rare departure from partisan solidarity; China’s premier Li Keqiang delivered the clearest acknowledgment yet from a top Chinese official that the country’s economy is slowing and faces a series of difficulties; (Sunday): Following a massacre that left 50 people dead at a mosque in Christchurch, New Zealand, the country’s government is looking at a range of legislative checks on guns, from buybacks to restrictions on magazines for semiautomatic rifles; Recycling, long a reflexive effort in the U.S. to reduce waste and help the environment, is collapsing in many parts of the country, mainly because China, Thailand, India, and other countries have stopped buying recycled materials, or imposed new restrictions on what allow in; +/- BA: One area of focus following the Ethiopian Airlines crash involving a Boeing 737 Max jet is whether the training procedures on the plane, greenlighted by the FAA, left pilots unprepared to deal with software that was part of newer models; Sunday Business: Contracts with so-called restrictive covenants are now common in medicine, though some states limit their use, but what may be good for business can be bad for patient care—and certainly disquieting for those whose doctors seem to simply disappear.
* WSJ (Weekend): Front page story reports the SEC charged Volkswagen and its former chief executive, Martin Winterkorn, with defrauding U.S. investors in connection with the emissions-cheating scandal that the auto maker is trying to put in the rear view mirror; +/- FB, GOOGL, TWTR: Scenes of the mosque massacre in New Zealand were streamed live on Facebook and posted on YouTube and Twitter, a gruesome example of how social-media platforms can be used to spread terror, and though the companies scrambled to remove the video, it continued to reappear; A new study led by researchers at Northwestern University’s Feinberg School of Medicine found a link between higher consumption of dietary cholesterol and a greater risk of cardiovascular disease and death; U.S. manufacturing output declined for the second consecutive month in February, a fresh sign that a long-predicted slowdown is hitting the U.S. economy, with output at U.S. factories down 0.4% in February after dropping 0.5% in January; Lawmakers in Washington are considering policies that could curtail the influence of wealth in college admissions following the admissions bribery scheme revealed this week in a federal indictment; The Pentagon failed to deliver on a promise by acting defense secretary Pat Shanahan to provide senators with a list of military construction projects that stand to be affected by Donald Trump’s emergency declaration, angering lawmakers; +/- AMZN: Officials in Northern Virginia’s Arlington County are expected to approve the last part of a $2.5B deal for the retailer’s second headquarters, but critics of the subsidies plan to seek a delay at a public meeting, potentially creating a hurdle for the proposal; Chinese Premier Li Keqiang, said that China’s government doesn’t ask companies to spy on its behalf and pledged not to do so in the future, part of an effort to respond to the U.S.’s spying allegations against telecom giant Huawei; +/- BA: Company is wrangling with air-safety regulators over how much pilot training will be required in conjunction with a software fix for a flight-control feature at the center of the global grounding of the company’s 737 MAX jets; Friday marked a quarterly collision that traders call “quad witching,” when equity and index futures and options expire—in this case just as dozens of S&P indexes were scheduled to rebalance their holdings at the end of the day; + AMZM: E-commerce giant tested a pop-up feature on its app that in some instances pitched its private-label goods on rivals’ product pages, a sign of its growing aggressiveness in hawking lower-priced products, including its own house brands; Chinese investment in U.S. startups has remained resilient in recent months despite new legislation that some thought could severely hamper deal flow, according to a new report from Rhodium Group; H.O.T.S.: “With emerging stock and bond markets having matured over the past 30 years, their supposed diversification benefits are harder to see—investors should seek out other ways to bundle their assets”; Recent problems with the new model of the Chevrolet Corvette, including an engine so powerful it warped the car’s frame, amount to the sort of advertising for GM that money can’t buy; Volkswagen’s emissions fraud has cost it more than $30B , but has also sparked invaluable change at the automaker.
* FT (Weekend): Italy is considering a plan to borrow from the China-led Asian Infrastructure Investment Bank as it seeks to become the first G7 country to endorse Beijing’s “Belt and Road” global investment program; China passed a foreign investment law it hopes will help cement a trade deal with the U.S., granting foreign companies equal standing with state-owned businesses, but many in the foreign business community say it leaves out many details in an earlier 2015 version drafted by the Ministry of Commerce; A group of Chinese workers is using American law to sue Hong Kong-based operators of a the Grand Marina casino, alleging they were subject to labor abuses and faulty safety oversight; Lex Column: Problems at UK services company Interserve will ripple far and wide throughout the contracting sector; China A-shares on the MSCI are currently heavily skewed towards financials, but should correct as the index completes the process of bringing on more shares; Now that it has successfully re-launched its sports-inspired Linea Rossa line, Prada may get a lift from belatedly joining the sneakers trend; Comment: Many years before the Brexit referendum, various British governments created problems for themselves by misreading the mood and polity debates in the EU and its member states, says Tony Barber.
* NY POST (Saturday): + MSG: Cable mogul John Malone is said to be eyeing MSG Networks as part of his master plan to own regional sports networks from Miami to New York, according to sources; +/- FB: The live-streaming of the New Zealand mosque shooter’s killing spree is likely to spark further debate in Washington about potential regulatory scrutiny of the social site; (Sunday): Although 88 percent of respondents to a recent SunTrust Bank survey said that discussion of finances is key to a couple’s future, only half admitted to actually raising the issue with their partners.