U.S.-China tensions are ratcheting up. Jacinda Ardern delays New Zealand's election by four weeks. And the trading week looks set for a steady start. Here are some of the things people in markets are talking about today.
The almost daily drumbeat of tensions between the U.S. and China shows little sign of letting up, while touching on everything from the coronavirus to trade to defense issues to monetary policy. U.S. President Donald Trump has made his tough positions on China a key element in the lead-up to the U.S. presidential election — now less than three months away —and he seems intent on keeping up the pressure. Tensions have been mounting since the Covid-19 pandemic spread across the globe early this year. Some China hawks in the Trump administration, from Secretary of State Michael Pompeo to White House trade adviser Peter Navarro, see a historic opening to re-balance decades of U.S.-China relations. Senior officials from Washington and Beijing late last week postponed trade talks that had been set for this past weekend to discuss the status of the “phase one” trade deal signed early in the year.
New Zealand Prime Minister Jacinda Ardern has delayed the general election by four weeks until Oct. 17 as a community outbreak of Covid-19 worsens and threatens to keep the nation’s largest city in lockdown for longer. Ardern said she delayed the election from Sept. 19 after consultation with other political parties, to provide certainty to voters. After 102 days without community transmission of the coronavirus, a fresh outbreak in Auckland has seen the city locked down since Aug. 12 with people urged to stay home and consumer-facing businesses shut. The city, home to almost one third of the nation’s 5 million citizens, is a key battleground for Ardern as her Labour Party seeks a second term.
The dollar began the trading week steady after a planned review of the U.S.-China trade deal was postponed, while Asian stocks were on course to open modestly lower. The greenback was flat against most G-10 peers in early trading Monday. The Australian dollar edged lower with Victoria extending its coronavirus restrictions into mid-September. S&P 500 futures edged up. Equity-index futures in Japan and Australia slipped, while Hong Kong contracts nudged higher. Oil rose. Gold will be closely watched after last week’s slide. The emerging-market rally that has all but wiped out the losses since the start of the coronavirus pandemic looks headed for a late-August reappraisal.
Bain Capital’s resurrection of collapsed airline Virgin Australia faces mounting legal opposition as bondholders rally to derail the takeover and salvage some of their debt. What started weeks ago as a long-shot challenge to Bain’s deal from two little-known investors in Asia has attracted the biggest names in finance. Now UBS, Deutsche Bank and other creditors holding A$800 million ($570 million) of Virgin Australia bonds support a plan to muscle out Bain and rescue the airline themselves, according to court filings. Virgin Australia crumbled in April owing A$6.8 billion, and administrators at Deloitte fast-tracked a sale to Bain before the airline’s cash ran out. The private equity firm plans to cut a third of the workforce and scale back the fleet, but it hasn’t said how much creditors will receive.
Thousands of anti-government protesters marched in the Thai capital of Bangkok on Sunday, demanding an end to the military-led administration and for the monarchy’s powers to be reined in. Demonstrators in masks and carrying placards assembled at the Democracy Monument, which commemorates the 1932 revolution that ended absolute monarchy. They held up three fingers to reflect their calls for a dissolution of parliament, the end of threats on civil liberties, and for a new constitution to be drafted. The rally is being organized by Free People, an umbrella group that includes several student organizations as well as gay, lesbian and transgender youths.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours:
And finally, here's what Tracy's interested in this morning
Much of China's history has been spent trying to tame its wild rivers. This year, massive flooding has combined with other biblical forces including plague and pestilence (Covid-19, African swine fever, fall army worm, locusts) to hit crops and disrupt travel and logistics within the country. The triple threat of floods, pandemic and infestation has pushed up Chinese food prices even as factory inflation continues to decline. Prices of pigs, for instance, are drifting higher once again even after China's agricultural ministry said the restocking of pig farms following the swine fever outbreak had taken place "faster than expected." Meanwhile, President Xi Jinping has chosen to tackle the politically sensitive topic of food waste by encouraging people to order and prepare fewer dishes in restaurants and at home.
The upshot to food uncertainty, for global markets anyway, is that China is importing more agricultural goods than ever. Purchases of soybeans, wheat, sorghum and corn are all up, suggesting that China has very likely fulfilled the terms of its obligations under the phase-one trade agreement with the U.S. Forbes notes that China is on pace to make the highest annual rate of soybean purchases from the U.S. since 2014, while Ben Emons at Medley Global Advisors notes that China's agricultural import orders for the second half of the year are "surging." The review of the phase-one deal that was due to take place this weekend has reportedly been postponed indefinitely, but it's still worth pausing to think about what all the disruption to China's food supply might mean for both its external and internal politics.
You can follow Tracy Alloway on Twitter at @tracyalloway.
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