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China sends sanctioned official to AmCham dinner in Beijing (nationthailand.com)

China sends sanctioned official to AmCham dinner in Beijing

InternationalDec 12. 2020A worker lowers a Chinese national flag in front of Tiananmen Gate in Beijing on Nov. 9, 2014. MUST CREDIT: Bloomberg photo by Tomohiro Ohsumi. 

By Syndication Washington Post, Bloomberg

Beijing sent a top official sanctioned by the U.S. to an AmCham China dinner, in a show of defiance that could feed criticism of the business group in Washington.

The Chinese government was represented at the annual American Chamber of Commerce event Thursday in Beijing by Wang Chen, a member of the Communist Party’s Politburo. Wang is also vice chairman of the National People’s Congress and among the 14 officials sanctioned by the U.S. on Monday over the body’s role in constraining freedoms in Hong Kong.

China often designates a representative with an economically focused portfolio, such as Vice Premier Hu Chunhua, the guest at last year’s dinner. Wang spent much of his career in various propaganda roles, including a stint as editor-in-chief of the People’s Daily, the party’s top mouthpiece.

“Other developments this week involved political considerations, of which we’re not a part,” AmCham China Chairman Greg Gilligan said in an e-mailed statement, referring to the tit-for-tat sanctions imposed on officials from both countries. “We are an independent organization that aims to be a commercial bridge on behalf of our members between the U.S. and China.”

The group’s members include some of the best known corporations in America, such as Walmart and the Coca-Cola.

A spokesperson for the U.S. Embassy declined to comment on Wang’s attendance, adding that no one from the embassy attended the event due to last-minute Covid-testing requirements.

Wang said Beijing would continue to create a favorable business environment for foreign companies and “treat all enterprises registered in China equally,” according to a report by state-run China Central Television. He said he hoped that AmCham could play an active role in facilitating two countries “re-launching dialogue, returning to normal tracks and rebuilding mutual trust.”

The move demonstrated how American executives operating in the world’s second largest economy have little say over what political figures they are required to deal with. The Trump administration has sanctioned dozens of Chinese officials in recent months, including two Politburo members, over their alleged roles in crackdowns on human rights in Hong Kong and the predominately Muslim region of Xinjiang.

Chinese Foreign Ministry spokeswoman Hua Chunying said Wang appeared at AmCham’s invitation and praised the group’s commitment to cooperation between the two countries. “This just shows that the so-called sanctions by the U.S. are unpopular and will not be supported by all sectors of the U.S.,” Hua told a regular news briefing Friday in Beijing.

The appearance by such an official at an AmCham event could feed criticism in Washington that the U.S. business community hasn’t sufficiently defended broader American interests while pursuing access to the Chinese market. Earlier this week, China censored a professor’s speech boasting about “‘China’s old friends’ on Wall Street, who had access and control over the D.C. politicians” after the remarks went viral in the U.S.

Wang made no mention of sanctions during his speech and the tone of his remarks was “totally friendly” said Henry Wang, president of the Center for China and Globalization. He added said sending a Politburo member “shows the high level of importance” with which China treats the event.

“We believe that fostering better communication between the people of our two countries is needed now more than ever,” said AmCham’s Gilligan.

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Bond market’s great reflation trade upended by Fed intervention (nationthailand.com)

Bond market’s great reflation trade upended by Fed intervention

InternationalDec 12. 2020The Federal Reserve building in Washington, D.C., U.S., on Dec. 1, 2020. MUST CREDIT: Bloomberg photo by Stefani Reynolds. 

By Syndication Washington Post, Bloomberg · Vivien Lou Chen

The Federal Reserve is casting a long shadow over the world’s biggest bond market, derailing a classic recovery trade and underscoring how an era of central-bank intervention will reverberate for some time to come.

The mere hint that the Fed may take additional steps to hold down long-term rates is causing Treasury traders to scale back so-called steepener bets — a tried-and-true strategy that has generated big profits over the years as economic rebounds pushed yields higher. Barclays is keeping a lid on the size of its positions. Incapital is using options, rather than actual bonds, for a hedged — and more cautious — riff on the trade. And Nick Maroutsos of Janus Henderson Investors says some “could get flattened” by the wager.

It’s the latest example of how the Fed’s outsized presence in markets, which began with the 2008 financial crisis and shows no signs of ending, is distorting traditional trading strategies: It’s squelching volatility, adding fuel to a record-setting advance in stocks, leaving credit markets priced to perfection, and curbing Treasury yields at levels that no longer fully reflect market sentiment or investors’ belief in the economy.

Were it not for Fed policymakers frequently affirming that they’ll do whatever it takes to bolster the economy — comments that accentuate the commitment they made this summer to keep rates low for as long as they can — the 10-year yield would likely already have bounced back above 1%. Perhaps, well above it, some say. Instead, it’s edged lower every time it’s come close to that level since March, dragged down by traders worried the Fed could adjust its bond purchases as soon as next week’s meeting. Policymakers have said a hard cap on yields remains in their toolbox.

“It’s hard for a trader to have any conviction, when you are just one announcement away from the Fed crushing your trade,” said Patrick Leary, senior trader and chief market strategist for Incapital, a Chicago-based underwriter and distributor of corporate bonds. “You don’t want to put it all out there or ride a trade for too long.”

For months, investors have been trained to buy bonds on price dips, given the perceived readiness of the Fed to prevent an alarming increase in rates. Even when last week delivered one of the biggest daily spikes of 2020, 10-year Treasury yields failed to breach 1%. They’re now at about 0.9% — despite similar-maturity breakeven rates continuing to rise as stock and metals markets price in reflation. The yield curve from 2 to 10 years, after touching a three-year high above 80 basis points on Dec. 4, has also retreated.

Higher yields are a double-edged sword for the Fed. On the one hand, they can signal greater confidence in the recovery and, indeed, officials might even welcome them if they’re accompanied by rising inflation expectations. But the flip side is that rates that climb too much also raise long-term borrowing costs, which is one of the last things the economy needs with the pandemic raging and millions still out of work.

With market expectations for Fed action tamping down yields, traditional signals sent by those rates have become less reliable for interpreting investor sentiment. What’s more, low rates have diminished the returns from bonds that many investors count on to offset any equities losses, forcing them to seek new hedges.

“The Fed’s manipulation of the bond market is good in theory, but producing multiple reactions with unintended consequences,” said Larry Milstein, senior managing director and head of government debt trading at R.W. Pressprich & Co. in New York. “The Fed is the 800-pound gorilla in the room, and there’s a risk that it could step in at any time and flatten the curve.”

Speculation is rife that the central bank will either offer guidance on or adjust its bond-buying program as soon as its meeting on Dec. 15-16. The majority view is that it will ultimately shift its purchases — now totaling about $80 billion a month in Treasuries — more to longer maturities, if needed, to support economic bright spots such as housing as the pandemic rages on.

It’s certainly been a year in which the Fed has dug deep. From the initial rate cuts and emergency aid programs of March to its decision to place inflation at the heart of its monetary policy, the central bank has taken a proactive approach, with officials reiterating their sensitivity to markets. Fed Chair Jerome Powell has repeated that he’s “not even thinking about thinking about raising rates,” Richard Clarida — his deputy — has said yield-curve control is still part of the Fed’s tool kit, and Randal Quarles, vice chair for supervision, opened the door to unending quantitative-easing to support Treasury trading.

Still, that’s not stopped the likes of Bank of America Corp. and Societe Generale SA from recommending steepeners this year on expectations that stimulus by both the government and central bank will bolster the economy and boost yields. But Goldman Sachs Group Inc. has shifted to a more nuanced view, targeting a steeper curve via forward contracts instead of spot positions.

At Barclays, Kevin Walter — co-head of global Treasuries trading — says he’s holding a small position in bear steepeners when he would ordinarily have a bigger one to reflect his view that the economy is on the right track, given prospects for a vaccine and fiscal stimulus.

“One thing holding me back is the possibility that, as soon as this next FOMC meeting, the Fed could be extending WAM,” or the weighted average maturity, of its purchases.

If that happens, it would cause longer maturities to outperform, creating an opportunity to put on more bear-steepener trades from a better level, he says. Even so, he sees a policy shift by the Fed as more likely next quarter.

Maroutsos at Janus, which managed about $350 billion as of September, says he “tip-toed” into a mild steepener earlier this year, and refrained from adding more in the Absolute Return strategies he helps oversee, partly because he viewed it as a crowded trade that could unwind “fast and violently.”

“We weren’t firm believers the curve would steepen anyway, and it’s been hard for us to get on board,” he said. “There are too many extenuating circumstances that could result in that trade being hurt,” such as renewed lockdowns and the prospect that a fiscal package doesn’t get passed.

Many traders began paring steepener bets last month as they reassessed the potential for more support from the Fed.

Leary of Incapital says he pulled back on the popular trade to take profits in early November, when the 10-year Treasury yield approached 1%, and positioned instead for more flattening. He’s now expressing his optimistic views on the economy via a synthetic trade that mimics the steepener — buying puts on 10-year options and calls on 2-year options, which have built-in stop outs “if I get it wrong.” He sees the 10-year yield falling to as low as 0.65% to 0.75% if the Fed tweaks its bond buying this month.

The Treasury’s decision not to extend some emergency Fed lending programs past year-end increased expectations that policy makers will act soon. Yet recently, somewhat more optimistic comments about the economy from Powell seem to have removed some of that urgency.

Even if the central bank doesn’t act next week, the U.S. faces a tough stretch ahead with the pandemic. All else equal, that should bolster demand for Treasuries, lowering yields — and make steepeners a riskier place to be through at least the year-end.

Caution toward steepeners has “definitely been a topic of conversation” among portfolio managers at Insight Investment, which oversees about $945 billion, says Jamie Anderson, head of U.S. trading, adding that the Fed can’t be blamed for putting the economy above traders.

The steepener is “definitely a position that everyone loves,” Anderson says, but there’s a lot at stake over the next few weeks. “You could ultimately be right, but the events before you get there could be extreme and everyone has a limit somewhere.”

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EU approves $2.2 trillion stimulus plan backed by joint debt (nationthailand.com)

EU approves $2.2 trillion stimulus plan backed by joint debt

InternationalDec 12. 2020Ursula von der Leyen, president of the European Commission, speaks during a news conference in Brussels Dec. 11, 2020. MUST CREDIT: Bloomberg photo by Geert Vanden Wijngaert. 

By Syndication Washington Post, Bloomberg · Viktoria Dendrinou, Katharina Rosskopf, Andra Timu

European Union leaders meeting in Brussels resolved a standoff with two eastern member states that had threatened to delay a historic $2.2 trillion budget and stimulus package just as the latest wave of coronavirus infections ravages the continent’s economies.

A deal was agreed on Thursday with Hungary and Poland, which had angrily protested a mechanism tying funding to upholding democratic norms. The agreement paves the way for the EU to put into effect not just its seven-year budget but a 750 billion-euro ($909 billion) pandemic relief package that will be financed by joint debt.

The leaders also agreed to more aggressive cuts in greenhouse gas emissions over the next decade, paving the way for Europe to become the world’s first climate-neutral continent. The bloc will cut pollution by at least 55% by 2030, up from 40% previously.

“The agreement will help us provide a strong economic response to the crisis while preserving the rule of law,” European Commission President Ursula von der Leyen told reporters Friday morning after the all-night meeting, adding that the stimulus is a key component to the EU’s climate ambitions. “Today’s agreement puts us on a clear path toward climate neutrality in 2050.”

The German-brokered compromise on the budget offers reassurances over how the new conditions will be applied, but the rule-of-law provision will remain in place. The dispute was the culmination of years of clashes between Brussels and the two countries over everything from political meddling in the judiciary to LGBTQ rights.

Under the compromise, the conditionality will only kick in from Jan. 1 and relate to commitments under the new budget. Penalties, meanwhile, will only be enacted after the European Court of Justice has had its say, which could take months.

In truth, Hungarian Prime Minister Viktor Orban and Polish counterpart Mateusz Morawiecki had backed themselves into a corner by repeatedly decrying the linkage between EU financing and democratic standards. That mechanism, agreed on in the summer between the European Parliament and Germany — which holds the bloc’s rotating presidency — was supported by the rest of the EU, in particular states like the Netherlands that want more scrutiny over how cash is spent.

Morawiecki said he had no choice but to drop the veto, as in such a scenario “we could have ended up with a rule-of-law mechanism but without the money.”

Dutch Prime Minister Mark Rutte called the rule-of-law provision “historic.” The reaction was mixed in Budapest and Warsaw.

Gergely Gulyas, Hungary’s minister in charge of the premier’s office, said the deal prevents the budget being used for “political attacks” and includes all guarantees that Hungary and Poland requested. But the junior coalition party of Poland’s hardline justice minister, Zbigniew Ziobro, questioned whether the agreement will allow his country to remain “sovereign.”

Swedish Prime Minister Stefan Lofven said that the declaration that allowed for the agreement didn’t change the original rule-of-law mechanism that had been agreed by member states.

“There’s no compromise on the content, no compromise on the text,” Lofven told reporters in Brussels before the start of the summit. “We declared things we needed to declare.”

There was a lot at stake for Hungary and Poland. The pair are the biggest net beneficiaries of EU cash, helping their economies close the gap on their richer neighbors to the west, and are in line for at least 180 billion euros from this spending package.

Had they gone ahead with their vetoes, the EU would have switched to an emergency budget from 2021. That would have seen funding plunge in almost all areas and potentially put Poland and Hungary at the back of the line for even the limited development aid that would be available.

Investors cheered the deal, with the zloty and the forint among top performers against the euro on Thursday, marking a third day of gains.

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Disney+ to get flood of new shows as subscriptions soar (nationthailand.com)

Disney+ to get flood of new shows as subscriptions soar

InternationalDec 12. 2020The Disney+ logo on a smartphone on Nov. 18, 2020. MUST CREDIT: Bloomberg photo by Gabby Jones. 

By Syndication Washington Post, Bloomberg · Christopher Palmeri

Walt Disney shares are poised to hit an all-time high after it issued a bold forecast for its new streaming services, projecting a Netflix-like trajectory that could bring the company as many as 350 million subscribers worldwide by 2024 thanks to an onslaught of programming from Marvel, Star Wars and Pixar.

In a presentation to investors Thursday, the world’s largest entertainment company outlined plans for dozens of new movies and TV shows from those major brands, with an eye toward becoming a streaming behemoth in four years. The company expects its program spending to reach $14 billion to $16 billion annually by then.

Disney+, the entertainment giant’s flagship streaming platform, also is getting a price hike. The U.S. monthly rate will climb $1 to $8 in a move that executives telegraphed earlier this year. In Europe, the price will rise 29% to 9 euros ($11) a month, although there it is getting additional content aimed at adults.

Shares of Disney rose as much as 8.6% to $168 in premarket trading Friday. If that holds in New York trading, it would mark an all-time high for the stock, which has about doubled since March on the strength of the streaming business.

“The enormous success of Disney+ inspired us to be even more ambitious,” Executive Chairman Bob Iger said at the event. “Our pipeline is much more robust than we initially anticipated,” he said, adding that the Disney+ cadence should soon hit 100 new titles per year.

Disney, like other Hollywood studios, is reorienting its film and TV business toward home entertainment, and has leapfrogged many competitors with its fast subscriber growth. Yet with its new subscriber goals — including hopes for as many as 260 million Disney+ customers — the company would surpass where industry pioneer Netflix Inc. is today.

As part of the presentation, Chief Executive Officer Bob Chapek said Disney+ has soared past 86.8 million subscribers in a little over a year. The company closed the last quarter with almost 74 million.

Disney executives, including new distribution head Kareem Daniel, outlined aggressive plans to stock the Disney+ service with new programming to keep the subscriber pipeline growing over the next few years. The Covid-19 pandemic forced many Hollywood studios to slow production this year.

Future plans include 10 series from the Marvel division, 10 Star Wars TV series, and another 15 programs from Disney live action, Disney animation and Pixar.

The programming slate also includes feature-length films, such as the Disney animation picture “Raya and the Last Dragon,” which will debut on Disney+ — at an extra charge — the same time as in theaters.

Chapek said that 80% of projects are now headed to streaming, rather than the big screen. But the company’s biggest films will be saved for theaters exclusively at first. That includes movies such as “Black Widow,” a Marvel film slated for May.

“Netflix may be forced to raise its content spending substantially (vs. $14 billion in 2019) after Disney unveiled an ambitious streaming strategy, which targets as many as 260 million Disney+ users in 2024. While Netflix’s investment thesis is still intact amid a global shift to streaming, greater competition from Disney and higher spending may drag on free cash flow,” Bloomberg Intelligence media analyst Geetha Ranganathan wrote.

While Disney is sending several films, including a live-action “Pinocchio” starring Tom Hanks, directly to its streaming service, theater owners may breathe a sigh of relief that many pictures — such as an upcoming Indiana Jones feature with Harrison Ford and a new Star Wars, which will be directed by Patty Jenkins — will still go to cinemas.

As the longtime king of the box office, Disney has been careful not to alienate theater chains — even as it sends more movies directly to streaming. Warner Bros. shook up Hollywood last week with its decision to make its entire 2021 slate of 17 movies available on HBO Max the same day they open in theaters. The decision angered many in the industry, including “Tenet” director Christopher Nolan, who said the studio doesn’t “understand what they’re losing.”

Hulu, the more adult-oriented streaming service, has added 2.2 million subscribers since the last quarter, and now has 38.8 million, according to the company. ESPN+ now counts 11.5 million, up 1.2 million from early October.

Executives at the presentation also announced that ESPN and ABC will become the home for the Southeastern Conference’s top football and basketball games under a 10-year deal starting in 2024, featuring teams like Alabama and Auburn. The company will pay in the low $300 million range each year on top of previous commitments, or more than six times what CBS currently pays, Sports Business Daily reports, citing unidentified people.

Disney executives also said they will launch the Star service in Europe in February and in Latin America in June. In Europe, it will be integrated with Disney+ and include R-rated content. It will be a stand-alone service in Latin America and feature live sports.

“We’re definitely still in launch mode as it relates to Disney+ — we’re still going into new markets,” Chief Financial Officer Christine McCarthy said. “And this is where we are at this point in time. This is a minimum amount of content that you will be seeing.”