It's sure to be entertaining 🍿

Delivered on By Justin Pyvis

Good morning! According to the National Bureau of Statistics, China’s economy expanded by 4.8% in the March quarter from a year ago, beating expectations “despite the impact of Covid lockdowns in parts of the country in March”.

In terms of the most recent monthly data, retail sales tanked -3.5% from a year earlier in March (hard to do much shopping when locked down!) but fixed asset investment (+9.3%) and industrial production (+5.0%) outperformed.

The longer China’s government persists with its “dynamic zero-COVID strategy”, the greater the divergence between consumers and industry will become. Any ambitions Xi Jinping might have had at ‘rebalancing’ away from low-productivity investment growth this year (e.g. infrastructure) will have to be tossed out the window again to stave off a recession, at the cost of a more difficult adjustment and lower growth in the future.

How times have changed. To think that only a year ago publications such as the NYT were singing the praises of China’s “authoritarian approach” to the pandemic…

The NYT may have called this one a bit too soon.
The NYT may have called this one a bit too soon. Source

Reading the tea leaves

Daily % change

AUD/USD

73.5

-0.8%

AUD/CNY

4.68

-0.4%

AU Bond

2.97

0.0%

US Bond

2.86

+1.2%

ASX200

7,523

0.0%

S&P500

4,392

-0.0%

Brent (bbl)

113.2

+1.3%

Gold (oz)

1,980

+0.5%

Iron ore (t)

155.7

+0.8%

Bitcoin

40,787

+2.7%

Ethereum

3,013

+0.7%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries.

TheΒ US S&P500Β edged lower last night, closing down -0.02% with no major data releases or overseas markets to provide guidance. A positive earnings report from Bank of America (+3.5%) helped boost sentiment, while fellow bank Goldman Sachs jumped on the recession bandwagon by warning that:

“…the policy tightening we expect raises the odds of recession. As a result, we now see the odds of a recession as roughly 15% in the next 12 months and 35% within the next 24 months.”

The euro hit a 2-year low against the US dollar after the European Central Bank – where inflation was running at 7.5% annually in March, more than triple its target – left rates unchanged at its latest meeting, instead warning of “downside risks to the growth outlook”.

TheΒ ASX200 was closed for the Easter long weekend.


Food for thought

Perhaps Goldman's market analysts and M&A advisors should have had a chat before contradicting themselves?
Perhaps Goldman's market analysts and M&A advisors should have had a chat before contradicting themselves? Source

The social media chatter over the long weekend was all about Elon Musk (what a surprise!), after he made an offer to buy social media platform Twitter for $US54.20 a share, a 38% premium to the share price on 1 April with a valuation of $US43.4 billion.

Musk currently owns 9.2% of Twitter and last week declined an offer to join the board, which would have prevented him from acquiring more than 14.9% of the company.

Twitter’s board, which contains “a couple PhDs, a few MBAs, and a Baroness who use Twitter once a year (to reset their passwords) and collectively own 77 shares of the company”, quickly implemented a so-called “poison pill”:

“For a limited time, existing Twitter shareholders will be able to purchase additional shares at a discount under certain circumstances. If an entity, person or group crosses a threshold, in this case a 15% stake in Twitter, other shareholders can buy more shares. This way, it would stagger plans to buy more than 15% of the company.”

In terms of why Musk wants to buy Twitter, there are two likely reasons. One is Musk’s description of himself as a “free speech absolutist”, who has become increasingly frustrated with censorship on social media which he says “is essential to a functioning democracy”.

The other reason is that Twitter has been a relatively poorly managed company by tech industry standards, perhaps best explained by the fact its management has almost no skin in the game (the principal-agent problem). By taking Twitter private Musk could cull the board, recalibrate the interests of the owners and management and eventually turn a buck on the deal.

How Musk proceeds is now the great uncertainty. He’s temperamental enough to do anything from partnering with the likes of Peter Thiel to get around the poison pill, to simply flogging his shares and walking away. Whatever happens, it’s sure to be entertaining! 🍿


Chewing the fat


Bits and bytes

πŸ‘·β€β™€οΈ Australia’s unemployment rate was steady at 4.0% in March, although monthly hours worked decreased by 10 million hours (-0.6% from the month prior) mostly “due to bad weather or plant breakdown”.

🏑 What Could Go Wrongβ„’: The Coalition “will raise the price caps for houses eligible under its controversial Home Guarantee Scheme to help home buyers get into the property market faster”.

πŸ—³οΈ A gaffe-laden campaign by Labor leader Anthony Albanese has seen him plunge in the polls, with the latest Fairfax/Resolve poll showing Labor’s primary support dropping to 34% (from 38%).

πŸ›’ Inflation is here: Grocery prices at Woolworths rose 4.3% in the March quarter (18.3% annualised), while at Coles they went up 3.2% (13.4% annualised).

πŸ“ˆ The Bank of Korea unexpectedly raised its benchmark interest rate by 25 basis points to 1.5%, its fourth hike since August last year and brings the rate to its highest in nearly three years.

🚨 The Monetary Authority of Singapore aggressively tightened policy at its semi-annual meeting, noting that its inflation estimates were now at a “significantly higher level than average”.

πŸ“² “Calls about emigration have risen sharply” in China, with people wanting “to live in a place without worrying about being quarantined arbitrarily”.

πŸ“‰ US retail sales increased 0.5% in March from the month prior and 6.9% from a year ago. It was a very weak reading – the data are not adjusted for inflation and simply excluding gasoline results in a fall of -0.3% from February.

✈️ One person “lodged 12,272 complaints during 2021… [accounting] for 90% of complaints received by the airport operator about noise from aircraft taking off and landing at Dublin.”

☒️ “Turning all the German nuclear reactors back on could approximately stop gas imports from Russia. Shutting the remaining ones down could increase the dependency on Russian gas by about 30%.”

πŸ’Έ “Man who paid $2.9m for NFT of Jack Dorsey’s first tweet set to lose almost $2.9m.”

🚚 Amazon “will charge [US] sellers a 5% fuel and inflation surcharge”, as “It is unclear if these inflationary costs will go up or down, or for how long they will persist.”

πŸ₯ His father was born in New Zealand, it doesn’t get any more clear-cut than that: “West Australian Liberal Ben Small has resigned from the Senate after discovering he was a dual New Zealand citizen.”

πŸ™οΈ Ukraine’s foreign minister said the contested city of Mariupol “doesn’t exist anymore”, after Russia “decided to raze the city to the ground at any cost”.