Market Spotlight: EURAUD Reversal Potential

EURAUD In Breakout Pattern?Following the breakout above the bearish channel which has framed the sell off from Q3 2020 highs, EURAUD has yet to break above the 1.5671 level. With a rising trend line off the year’s lows supporting the correction, price has formed an ascending triangle pattern against the 1.5671 level posing the potential for a breakout towards the 1.5931 level next.Fundamentally, this is an interesting trade as both currencies had been higher against the Dollar, reversed and are now recovering. For now, EUR remains weaker against the Dollar, however, this position could soon shift with EURUSD seeing a topside channel break, while AUDUSD is potentially at the right shoulder of a large head and shoulders pattern suggesting the room for a reversal. If this plays out, expect a quick move up to 1.5931. Alternatively, if this view doesn’t play out, traders can look for a downside break of the rising trend line to target a move back to 1.5264.Key Data to Watch The RBA meeting next week will be the key catalyst for this move. If the RBA takes a more optimistic tone on the economy we are likely to see EURAUD sink like a stone. However, if the RBA take a more cautious approach and downplays the strength in the economy, this could allow EURAUD to pop higher.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Estee Lauder Q3 Earnings Preview

Estee Lauder (EL) Q3 earnings report is due on May 3, 2021. Considering the previous quarterly report, this guide will forecast the company’s third-quarter earnings report.

On February 5, 2021, Estee Lauder released its Q2 report. It posted net revenues of $4.85 billion for the second quarter that ended on December 31, 2020, a 5% raise and a 3% increase in constant currency over the prior year of $4.62 billion. The company reported net earnings of $873 million, up from $557 million the previous year. Net earnings per share were $2.37, up from $1.52 during the last period. Excluding the gain of foreign currencies, adjusted earnings per share increased 21 percent. [1]

During the second quarter of fiscal 2021, online revenue growth remained high in all regions as the company and its retailers implemented digital marketing strategies to meet customer demand online. In North America, net sales declined in the region but improved sequentially from the first quarter. Travel retail net sales increased in the single digits, due to increased travel within the Asia/Pacific region. According to the company’s reports, the total reported operating income was $1.06 billion, up from $261 million the previous year. Operating profits rose by 10% [2]. This rise was primarily due to higher net sales and efficient expense management in the company as a result of cost-cutting measures implemented in response to COVID-19.

Estee’s earnings are divided into three categories: skincare, makeup, and fragrance. Skincare net sales increased significantly in the previous year. Dr. Jart+ net sales, which it acquired in December 2019, contributed almost 7% to skincare net sales growth. Because of the effects of COVID-19 on the makeup industry, the net profits of all products fell. Fragrance sales also grew due to various high-end perfume brands.

For the Q3 fiscal year, the company intends to continue the momentum and support improving sales growth. The company plans to extend its long-term growth goals of 6% to 8% revenue growth. Reported net sales are expected to rise between 13% and 14% over the prior-year period. Moreover, the company expects earnings per share to range between $0.99 and $1.11. [3]

Estee Lauder – Technical Analysis

On April 29, shares of Estee Lauder rose to $315.55 on what proved to be an overall positive trading session for the stock market. However, since the share price is above its 5EMA, 20EMA, and 50EMA, the trend is expected to be bullish, and EL could see some selling pressure in the upcoming days.

1. https://www.elcompanies.com/en/investors/earnings-and-finferencess/quarterly-earnings/2021
2. https://www.elcompanies.com/en/investors/earnings-and-finferencess/quarterly-earnings/2021
3. https://www.elcompanies.com/en/investors/earnings-and-finferencess/quarterly-earnings/2021

Adnan Abdul Rehman

Regional Market Analyst

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Inheritance tax bills are set to rise – will you be caught out?

Inheritance tax is very likely the most hated tax in Britain. And yet, it’s not actually paid by that many people. Roughly 4% of deaths in the UK result in an inheritance tax bill. Just over 24,000 families paid the tax in the 2017-2018 financial year, the last year for which official government statistics are available.

The number may even have fallen a little since then: in 2019-2020, inheritance tax receipts totalled £5.2bn, says HM Revenue & Customs, a 4% drop on the previous year.

Why, then, do so many people feel so strongly about inheritance tax? And why do you need to understand how it works, even although relatively few estates pay it?

More and more estates will be dragged into the inheritance tax net

Clearly, inheritance tax (often abbreviated to IHT) is an emotive subject. IHT is often described as a “death tax” – dealing with HMRC is the last thing anyone needs following a bereavement.

Many people also feel deeply unhappy about the idea of handing over a slice of the wealth they have built up over a lifetime to the tax office rather than to their families, particularly as they are likely to have already paid significant amounts of other taxes on this wealth.

And while few families pay it, for those who do, the bill is often sizeable. In 2017-2018, the average liability was around £197,000. Many families struggle to pay such large bills out of their more liquid assets, and are therefore forced to make some difficult decisions – such as selling a family home they had hoped to keep, for example.

But perhaps a more important factor for those who aren’t sure whether IHT is something they need to consider or not is this: while IHT receipts have been falling in recent years due to changes that have allowed people to pass on more property wealth to their heirs, this trend looks set to reverse.

The Office for Budget Responsibility predicted in December that the Covid-19 pandemic might lead to a 20% increase in the number of families facing IHT bills, since many deaths during the crisis were unexpected, and therefore unplanned for. And in the longer term, rising property prices look set to drag more families into the IHT net.

Even before chancellor Rishi Sunak’s 2021 spring Budget, the number of people expected to pay IHT over the next five years was expected to rise, with official projections that the tax would raise £6.3bn by 2023-2024, up roughly 20% on five years previously.

The chancellor’s announcement of a freeze in the IHT threshold at current levels until at least 2025-2026 will only increase this number. The Treasury’s own figures show that Sunak expects to raise £1bn in extra IHT over the next five years thanks to this move. So while it’s true that IHT will remain a levy that the majority of people never have to pay, the proportion of estates that incur it will just keep growing.

The good news is that even those families who do face a potential liability, can take perfectly legal steps to reduce the final bill, or even avoid it altogether. The key is to ensure you understand how the tax works, and to plan ahead.

Inheritance tax: the basics

The basic rule is that IHT is due on estates (basically, everything you own, with a few exceptions) worth more than a set amount.

The first slice of your estate is covered by the “nil-rate band” – currently £325,000 – and is completely tax-free; this is the threshold that the chancellor froze in the budget (indeed, it hasn’t been increased since 2009). Your heirs are then required to pay tax out of the estate on its value above this threshold, currently at a rate of 40%.

However, there are some important exceptions to the rule. First, your spouse or civil partner never has to pay IHT when inheriting your estate. Couples are instead allowed to pool their nil rate bands. This effectively enables them to leave £650,000 of assets to heirs with no tax to worry about.

Also, your home is treated slightly differently for IHT purposes. You get an additional “main residence band” covering your home. This effectively raises the total nil-rate band for many people to £500,000 – and so to £1m for couples.

The main residence band was phased in between 2017 and 2020. This is why IHT receipts have – unusually – been falling during that period (and why they’re likely to start rising again from now on, now that the change has fully bedded in).

To establish whether your family might have potential IHT liabilities to plan for, you need to value your estate. Broadly speaking, this consists of everything you own (with a few exceptions), less everything you owe. What you own includes the value of your home, assuming you own it; all your personal possessions; your savings and investments, including those which are free of other taxes such as individual savings accounts (Isas); and any money owed to you, such as pay not yet received for work done or pensions paid in arrears.

For anything you own, or own jointly, you just count your share – if you are married or in a civil partnership, this is assumed to be 50%. A few types of wealth are not usually part of your estate, including life insurance policies and pension savings (more on that later on).

Once you have a total value for your wealth, subtract any debts outstanding, such as mortgage borrowing still to be paid off, outstanding credit card balances and personal loans. Bills also count, as does any income tax you owe.

At the end of this process, you should have a reasonably accurate estimate of the current value of your estate – and whether it exceeds the £325,000 nil rate band, or the £500,000 threshold if you own your home (and it meets a few other conditions – we’ll cover those in the next section). Couples need to test against the £650,000 or £1m combined thresholds.

However, do not forget that the value of your assets – particularly your home, savings and investments – is likely to rise in the years to come, and your debts should fall. As a result, IHT may become an issue even if it is not a concern today. But armed with the figures, you can think about any steps you need to take to head off future problems.

This is the first part in a series on inheritance tax. For more, subscribe to MoneyWeek magazine and get your first six issues free – sign up here today.

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US Q1 GDP Undershoots Estimates

GDP Rises But Misses Estimates The latest US economic data released yesterday came in as a slight disappointment to USD bulls. 1st quarter GDP was seen printing 6.4%, mildly undershooting the 6.8% the market was looking for. While still a firm improvement on the 4.3% recorded in Q4 2020, showing that the economy is rebounding firmly, bulls were disappointed not to see a stronger print. Overall, however, there were a lot of positives in the data.Consumer Spending Surged Looking at the breakdown of the data, consumer spending was seen rising by 10.7% over the quarter, a firm jump on the 2.3% rise seen a quarter before. Spending on goods was the star in this category, rising by 23.6%. Durable goods in particular (appliances and long-lasting goods) were seen higher by over 40%. Spending on services was also seen increasing, albeit by a much lower 4.6%. Services spending has been the main laggard over recent months, so signs that spending in this category is starting to increase is particularly noteworthy.Stimulus Impact Noted The main driver behind the jump in spending over the quarter was the double injection of stimulus with $600 cheques in January and $1400 cheques in March. However, spending over the quarter wasn’t necessarily as high as many were predicting with the household savings rates surging from 13% in Q4 2020 to %21.Imports Rose Again in Q1 Elsewhere, the data showed that imports were higher again by 5.7% over the quarter while exports dropped by 1.1%, one of the weaker areas of the report. Government spending and investment rose by 6.3%, including a 14% jump in federal spending and an almost 2% increase for state and local entities. Finally, inventories were also seen dropping heavily over the quarter which likely accounted for the GDP miss. This was mostly down to the increased spending underway in the US when compared with its key trading partners. However, the near-term negative impact is likely to result in longer term gains leading to a faster recovery over the second half of the year.Weekly Jobless Claims Miss Targets The weekly jobless claims hit a fresh pandemic low at 553k. however, this was slightly above the 545k the market was looking for while the trailing indicator, continuing claims, was seen rising 50 3.67 million. In all, the data largely confirmed what the Fed was saying on Wednesday: that the recovery is underway, and the outlook is improving but there is still a way to go.Technical Views USDCADThe sell-off in USDCAD has seen price trading down to test the bottom of the bear channel, just ahead of the 2018 lows at 1.2243. there is scope for a bounce here though, while price holds below 1.2368 level, the channel has room to continue further down to the next bear target of the 2017 lows at 1.2068.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Share tips of the week

Three to buy

Flutter Entertainment 

(The Times) UK regulators might be “tightening their grip” on the sports-betting industry, but “the US is going the other way”. Flutter Entertainment is in “pole position” thanks to its FanDuel brand, which boasts a 40% share of the US online sports-betting market. “There are reasons to be cautious”: the firm is in the middle of a legal dispute with Fox Corporation over its purchase of a stake in Flutter. But despite its ongoing spat with the media conglomerate, the outlook is positive. 15,295p

Hargreaves Lansdown

(The Daily Telegraph) Investment platform Hargreaves Lansdown managed to attract 220,000 new customers last year, despite tarnishing its reputation by recommending Neil Woodford’s chronically underperforming fund. And “there is every reason to expect more customers to sign up”. With fewer workers benefiting from final-salary pension schemes each year, more must “save for their own future”. Only three million people use investment platforms in Britain, so there is still plenty of scope for growth. The stock has lagged owing to the “lingering association” with Woodford. 1,659p

Foresight Group 

(The Mail on Sunday) The climate action movement “is gaining momentum” and Foresight Group looks well placed to benefit. The asset manager “shifted towards renewable energy” stocks 15 years ago and now operates 33 funds, which own 300 infrastructure projects “capable of powering nearly two million homes with renewable energy”. Assets under management rose by 60% to £7.2bn in the year to 31 March. The shares are an appealing long-term buy. 425p

Three to sell

HSBC 

(The Daily Telegraph) HSBC “faces a daunting list of challenges”, from “rock-bottom” interest rates to “walking the tightrope” between Western investors’ ethical concerns and a Chinese government “with radically different priorities”, a task that will only become more difficult. In the future the business could split between a “giant Asian bank headquartered in Hong Kong” and a smaller one based in the UK. That could be a suitable investment in the future, “but there are an awful lot of challenges to overcome first” and “a lot that could go wrong”. It’s a sell for now. 419p 

Kier 

(Investors’ Chronicle) Construction specialist Kier is dealing with a debt burden that jumped by almost 50% in 2020; it is to raise between £190m and £240m of equity in the next few weeks. Kier is hoping that “government rhetoric around boosting infrastructure spending” will help it achieve its revenue and profit goals for the year. But considering the “competitive challenges” that stand between the firm and its revenue targets as well as the “ultra-thin margins associated with the sector”, the shares do not seem compelling. Sell. 90p 

Virgin Galactic 

(Barron’s) “Space tourism pioneer” Virgin Galactic’s business model looks risky: it’s uncertain how attractive commercial space travel will be. An accident is also a risk. Any “catastrophic failure by any provider could have a crushing effect on demand for all”. Sentiment might begin to shift if the company successfully launches commercial operations in 2021, but for now its future looks too uncertain. Avoid. $26

...and the rest

Investors’ Chronicle 

PureTech Health’s operating loss narrowed by 12% last year and its pipeline looks attractive. The biotech group is starting at least ten new clinical trials this year and is sitting on $443m of cash, enough to fund its operations until 2025. Buy (416p). Associated British Foods’ Primark stores enjoyed a surge in sales when they reopened on 12 April. But the high-street retailer is “still reeling” from the past year, and ABF has lost £3bn in sales and £1bn in profits in 12 months, although it has reintroduced its dividend. Hold (2,390p).

The Mail on Sunday 

Solar power was the fastest-growing form of electricity generation in America last year, which bodes well for US Solar Fund. It runs 42 plants, generating enough energy for over 90,000 homes, and “should benefit from governments’ increased support for all things environmental”. Buy ($1.03).

Shares 

Extracts and ingredients manufacturer Treatt posted a strong trading update in mid-April, saying it expected to grow its first-half sales by 14% while also improving its margins. Growth in the tea, health and wellness, and fruit and vegetable categories has been strong and should endure thanks to growing global demand for healthier living. Buy (1,145p). Small-cap oil and gas company Touchstone Exploration says one of its wells has “yielded a significant natural gas discovery”, which has given the shares a fillip. There is “scope for further upside”. Buy (102p). 

The Daily Telegraph 

Volex makes cable assemblies for medical equipment, electric vehicles and data centres. Sales for the year to 4 April will reach at least £440m, up from £391m the year before. Hold (343p). 

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Copper price’s red-hot run as it heads for a decade-long high

Copper has gained 26% so far this year and this week hit $9,758 a tonne, its highest level since the summer of 2011. Copper got a big boost last year from Chinese infrastructure building. Now the US is following suit, says Myra Saefong for MarketWatch. Joe Biden’s $2.3trn infrastructure package and green energy plans will require massive quantities of copper wiring. 

The virus also accelerated the advent of the digital economy, says Rob Haworth of U.S. Bank Wealth Management. “Semiconductors, data centres and cellular towers” all need copper. Supply is not rising fast enough to meet demand. Miners have underinvested in new capacity in recent years and developing new mines is a lengthy process. 

It’s not just copper, says Bloomberg News. Aluminium and iron-ore prices have also been making new multi-year highs. “The super part of the copper supercycle is happening right now,” says Max Layton of Citigroup. Global efforts towards decarbonisation could see metals continue to trade strongly. 

Analysts at Goldman Sachs recently declared copper to be “the new oil”. The bank thinks that mass electrification could see demand for the metal rise by “up to 900%” come 2030, depending upon how fast green technologies are adopted. Commodities trader Trafigura thinks the metal could trade as high as $15,000 a tonne over the coming decade. 

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Resurgent pandemic brings new headwinds for the oil market

• SEE MORE India’s pandemic turmoil hits emerging markets

A slowing Indian economy is a new headwind for oil prices. The country is the world’s third-biggest oil market, importing more than $100bn of the fuel in 2019. Before Covid-19, world oil consumption was around 100 million barrels per day (mbpd). That figure tumbled by 8.7mbpd last year, according to data from the International Energy Agency (IEA). The IEA thinks global demand will recover by 5.7mbpd this year, says Robert Perkins of S&P Global. The agency has raised its forecasts because of strong rebounds in China and the US. 

Oil prices have enjoyed a strong start to 2021, with Brent crude rising by about 27% so far to trade at $66 a barrel this week. That is thanks in large part to supply curbs agreed by the Opec+ cartel of producers, of which Saudi Arabia and Russia are the key members. 

Opec+ has been curbing its output by millions of barrels a day in order to bolster prices. The stronger demand outlook had enabled the group to relax output curbs gradually, says Julian Lee on Bloomberg. The group had been planning to add an extra 2.14mbpd to global markets by July. 

Now India could put a spanner in the works. With the streets of New Delhi and Mumbai falling “eerily quiet” once more, local diesel and petrol consumption looks poised to fall by as much as 20% month-on-month. Japan, the world’s fourth-biggest oil importer, has also declared a state of emergency in the face of rising Covid-19 cases.  

 Mobility data shows that the recovery in oil demand is “uneven”, say Martijn Rats and Amy Sergeant in a Morgan Stanley note. Strength in the US, the UK and Israel is offset by weakness in Europe, India and Brazil. Nevertheless, the investment bank still thinks that oil demand will pick up over the summer. Brent crude looks likely to trade in the $65-$70 a barrel range until the end of the year.

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Can Mario Draghi save Italy's economy?

Mario Draghi has a “grand plan” to transform Italy, says Hannah Roberts on Politico EU. The Italian prime minister wants to spend €222bn on a raft of projects, including rolling out high-speed internet, extending high-speed rail, “earthquake-proofing millions of homes” and improving the energy efficiency of public buildings. €191.5bn of the money will come from Next Generation EU, the EU’s landmark pandemic recovery fund. Another €30.6bn will come from extra Italian government borrowing. 

The spending looks “well-targeted”, says Neil Unmack on Breakingviews. Italy badly needs to digitalise its public services, while €30bn will go towards addressing the country’s weaknesses in education and research. Italy has plenty of “catching up to do”: annual GDP growth has averaged just 0.3% over the past decade. Public debt is heading towards an eye-watering 160% of GDP. Reforming Italian governments often have “a short shelf life”. 

A key priority for Draghi is reforming Italy’s sluggish courts, say Miles Johnson and Sam Fleming in the Financial Times. The World Bank reports that it takes more than 1,100 days to enforce a commercial contract in Italy. That’s almost double the average in other big EU economies and a deterrent to foreign investment.  

Italy needs a Thatcher 

The rise of the highly regarded former European Central Bank chief to the Italian premiership has cheered markets. The country’s FTSE MIB stock benchmark has gained 9.5% so far this year. Trading on a cyclically adjusted price/earnings (p/e) ratio of 21.9, the country’s shares are no longer the clear bargain they once were, although they remain slightly cheaper than the Japanese or French markets. 

The eurozone’s third-largest economy has been a source of constant anguish for European policymakers, says Charlemagne in The Economist. The hope is that even if Draghi’s term in office proves short, he will leave behind a “new fiscal blueprint” that future Italian governments will be unable to discard. But the man is “not a miracle-worker”. A central banker can “pull a lever and money comes out”; in Rome, politicians often discover that the levers they pull are “connected to nothing at all”.  

Fiscal hawks might question whether Italy needs more spending, but its high public debt is a “symptom” of deeper problems, says Roger Bootle in The Daily Telegraph. The country badly needs fundamental reform of everything from its byzantine tax code to its mediocre education system. 

Stark disparities between the wealthy north and poorer south are another challenge. Distant though it now seems, before 1990 Italy was a “raging economic success story”; it was Britain that was the sick man of Europe. Transformation is possible, but Draghi will require the same “fortitude” as the iron lady to get there. 

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BP: really going “beyond petroleum” won't be easy

Following one of its “worst years on record” oil giant BP is gaining confidence. It plans to boost returns to shareholders after “higher oil prices and strong trading results buoyed its first-quarter earnings”, says Sarah MacFarlane in The Wall Street Journal. It made a profit of $3.32bn in the first three months of 2021, compared with a loss of $628m a year earlier. Having sold assets to cut net debt to $33bn from $39bn in the previous quarter, BP said it would buy back $500m of shares in the second quarter.

The reported profits were boosted by a $1bn gain on the sale of a stake in an Omani gas field, says Emily Gosden in The Times. However, even if you remove this gain and other “one-off factors”, underlying profits still more than tripled and were “well ahead” of analyst forecasts. BP’s CEO Bernard Looney believes that the “strong result” reflects two main factors. First, higher average oil prices of $61 a barrel, compared with $50 in the first quarter of 2020, have boosted margins. Cutting costs and trimming capital expenditure helped too. 

Going green won’t be easy for BP

BP’s management hopes that the windfall will satisfy short-term pressure from shareholders, says Jillian Ambrose in The Guardian. However, the stock’s relatively low valuation suggests the market still needs to be convinced that BP will be able to make renewable energy and clean-burning fuels as profitable as its existing business. Analysts believe that it will “take many years” for BP’s low-carbon businesses to reach “sufficient scale” to convince investors of its financial potential and to compensate for the expected cuts of 40% to oil and gas production that will be necessary for BP to achieve its plan “to become a carbon-neutral company by 2050”.

Still, the oil companies sticking with fossil fuels are facing problems of their own, says Kevin Crowley on Bloomberg. Unlike BP, the US energy giant ExxonMobil insists that oil and gas have a “profitable future for decades to come” and has “resisted publishing a mid-century net zero emissions target”. However, it is currently locked in a “rare proxy battle” with an activist hedge fund, Engine No. 1, which thinks that ExxonMobil’s strategy “fails to meet the needs of the energy transition” and is therefore trying to overhaul the board of directors. Although the fund only owns 0.2% of the company, it has already won the support of several large stakeholders.

The conflict, likely to be one of “the most-watched US shareholder proxy battles in years”, is primarily focused on whether ExxonMobil faces an “existential business risk” by “pinning its future on fossil fuels”, say Derek Brower and Justin Jacobs in the Financial Times. However, it comes at a time when shareholders are irritated with ExxonMobil’s general performance after years of “heavy spending and mounting debts”. Last year Exxon wrote off $20bn of assets, recorded four straight quarterly losses and was “booted” out of the Dow Jones index.

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India’s pandemic turmoil hits emerging markets

• SEE MORE Resurgent pandemic brings new headwinds for the oil market

“India’s problem is the world’s problem”, says Yasmeen Serhan in The Atlantic. Just weeks ago, the country thought it had put the Covid-19 pandemic behind it. Then it reported more than a million new cases and over 8,000 deaths over a three-day period, setting grim new global records in the process. As the virus sweeps through developing countries “the world is on track to record more Covid-19 deaths this year than it did in 2020”. 

Difficult months ahead 

India’s tragedy has exposed a fragile medical system, says Michael Safi in The Guardian. It spends just 1% of GDP on its state healthcare service, one of the lowest figures in the world. The country was the world’s biggest vaccine producer heading into the pandemic but vaccinating 1.39 billion people is no easy task: less than 10% of the population has received a first shot.  

Prime Minister Narendra Modi had boasted that the country had become the “world’s pharmacy”. India has exported 66 million vaccine doses since January even as its own health system has buckled, notes Hasit Shah for Quartz. Many low and middle-income countries were counting on deliveries of Indian-produced jabs that will now be delayed or diverted. 

India’s economy had been enjoying “a remarkably strong recovery” before the latest wave, says Capital Economics in a note. GDP is thought to have returned to pre-pandemic levels as early as the final quarter of last year and early data showed continued strong progress in the first three months of 2021. The International Monetary Fund had predicted a blistering 12.5% GDP growth rate for 2021. A strong Indian outlook helped drive optimistic forecasts for emerging markets, says Udith Sikand for Gavekal Research. Yet with the news from India growing ever worse, growth in developing countries (excluding China) is likely to undershoot that of developed markets this year. 

More pressure on emerging markets 

The benchmark BSE Sensex index has been broadly flat since the start of the year but has fallen by 7% since the middle of February. The rupee has slipped by 2.2% against the US dollar since the start of April, says Sikand. That makes it Asia’s worst-performing currency this quarter. International investors have been pulling back, reports Steve Goldstein for Barron’s. As of 23 April, foreign money managers had sold $814m of Indian stocks in April. The country is likely to see “net selling” of its assets for the first time in seven months.  

The big worry in emerging markets had been that we were heading for “a repeat of 2013”, when spiking US bond yields sparked turmoil across world markets, says The Economist. In the event, the rise in US bond yields has cooled of late, giving countries such as Brazil, India and South Africa some financial respite. Instead, the new fear is that 2021 will turn out to be a depressing “repeat of last year”. Several Latin American countries are already experiencing second waves as bad as India’s. Many low-income countries are struggling to vaccinate their people. The grim scenes in India could yet be repeated elsewhere.

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Are we living in a new era of political sleaze?

David Cameron pestering the chancellor, Rishi Sunak, for a bung to rescue a business he stood to make a mint from. Communities secretary Robert Jenrick redirecting cash meant for deprived towns to marginal Tory seats that didn’t qualify for the help. Companies with political connections getting priority for Covid-19-related government contracts and for money from the “levelling up” fund. Boris Johnson’s holidays, redecoration plans, gongs for cronies and cash for his ex-girlfriend’s business. His text-message exchange with James Dyson about tax and ventilators. 

It would seem, as Henry Mance puts it in the Financial Times, that we are living in a “new era of sleaze” – one “built upon Johnson’s personality, the winner-takes-all politics of Brexit, the denigration of the civil service, and the emergency of coronavirus”, which has proved a handy defence for government ministers in a rush to hand contracts to their chums.

It’s not just the Tories either. Labour figures at a regional and national level have been mired in sleaze too. Joe Biden’s new administration has come under fire for its ties and financial stakes in vaccine manufacturers, which are lobbying to prevent policies that would cut into future profits. Germany’s chancellor Angela Merkel faced a grilling last week over her support for disgraced finance firm Wirecard. 

These cases represent just the most visible tip of a “fatberg” of cronyism, as Andrew Rawnsley puts it in The Observer. Politicians grease the wheels of favoured businesses, then later get jobs with them; lobbyists end up taking jobs as MPs; senior civil servants take lucrative second jobs with businesses; businessmen end up in the House of Lords. It all makes for a “very hectic revolving door”, says Rawnsley. Indeed, it’s busier than we know, according to activist lawyer Jolyon Maugham. “Virtually every day I have a conversation with a business person, with a civil servant, a think tank, even Tory MPs, in which they say: ‘Jolyon, everything you say [about cronyism] is right … and I can prove it because I’ve got the receipts’,” he told The Times. “But when I ask them if they can go public, they’re too frightened.”

The well-lubricated revolving door 

Perhaps, but it’s not that Britain is exactly a stinking hotbed of corruption. Traffic offences are not settled with a wink and a roll of banknotes; judges do not rule in favour of the highest bidder; and British prime ministers do not build palaces with plundered national resources, says Rafael Behr in The Guardian. Britain ranks 11th in the world on Transparency International’s index of perceived corruption, “eight places behind Finland, 12 above France and 118 clear of Russia”. 

Nor need we blame malign intent on the part of a conspiracy of evildoers. As Matthew Syed points out in The Sunday Times, it took a number of landmark studies published in prestigious scientific journals to convince medical doctors that the bungs, gifts, funding and favours granted them by pharmaceutical companies might conceivably influence their clinical judgement and decisions. (Although much earlier reports were available: “Thou shalt not respect persons, neither take a gift: for a gift doth blind the eyes of the wise, and pervert the words of the righteous”, Deuteronomy 16:19.) 

Similarly, politicians, surrounded by lobbyists and business friends, might not see anything wrong in making the decisions they do. Cameron, for example, insisted that he broke no rules and claimed his lobbying on behalf of Greensill was a selfless act motivated by concern for British business in general. There is no reason to doubt he believes that. But justifications for bad behaviour that an earlier incarnation of Cameron found obnoxious – when he was prime minister and involved in drawing up rules for lobbyists – are never that hard to find. Whatever blinded participants might say, “wise observers” should be able to see “how these ‘retroactive inducements’ signal to the next generation of politicians that their route to wealth is to help market incumbents”, as Syed puts it. “Unconsciously or otherwise, the revolving door is lubricated.”

The economic roots of cronyism

It is, of course, only right and healthy that instances of cronyism and corruption such as those mentioned should come to the light in the press and action be taken. Perhaps those who see a “new age of sleaze” will be vindicated as the inquiries go on. Still, the real problem goes deeper than individual cases of malfeasance and has historic and economic roots. Adam Smith had already put his finger on it in 1776. 

His The Wealth of Nations presents a model that shows that free individuals, guided only by a concern for their self-interest, are led as if by an “invisible hand” to produce for the social good. A corollary is that the need for state interference is minimal: “No regulation of commerce”, he wrote, “can increase the quantity of industry in any society beyond what its capital can maintain… [i]t can only divert a part of it into a direction into which it might not otherwise have gone: and it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone by its own accord.” 

Yet Smith was well aware that the real world all too often gave the impression of being only passingly acquainted with his work. Capitalist society may thrive on competition, but all good capitalists hate it: “To widen the market and to narrow the competition is always the interest of the dealers”, said Smith. “The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted, till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who generally have an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.” 

In other words, it is to be expected that established businessmen will seek government favours – but the opportunities for cronyism can only be all the greater when once it has been generally accepted that it is legitimate for the state to grant certain businesses special favours, whether that be in the form of favourable regulation, or the granting of monopolies, tax credits, favours, bailouts, subsidies or protective tariffs. Cronyism can be defined, as economist David Henderson points out in a 2012 paper for the Mercatus Center at George Mason University, as the “substitution of political influence for free markets”. 

This is a much bigger problem that we won’t see if we limit ourselves to a moral condemnation of the wheeling and dealing of particular individuals. Cronyism does not merely enable and promote the corruption that we do see, does not merely take from some (the taxpayer) and give to others (the favoured clients and businesses of government); it also shifts power to government and away from citizens. It makes political power more important and increases the competition for that power. And it “actually destroys wealth”, says Henderson – by shifting the allocation of resources away from what consumers want to what governments want; by squandering money that might have been spent or invested elsewhere on goods and services that are more expensive than they would otherwise be; by diverting resources into lobbying itself; and by causing wealth to flow from where it might be used well to where waste and inefficiency and bureaucracy is inevitable. 

Cronyism creates, in short, what Syed calls “Sovietism by proxy” – with all the effects you might predict from the real thing. Of Europe’s 100 most valuable companies, none was formed in the last 40 years, says Syed. “In the US, dominant firms are staying longer in the stock indices. Start-up rates are falling across the Organisation for Economic Co-operation and Development. These are not free markets; they are rigged markets. And during the same period, the number of lobbying firms has increased up to fiftyfold.”

What is to be done?

Identifying the problem is simple; tackling it is hard for three interrelated reasons. The first is that, even if governmental power could be reduced to the absolute minimum necessary, as advocated by Henderson and other libertarians, there can never be total separation between the state and the economy. The state has to rely on private enterprises to fulfil its minimal functions, says Neera Badhwar of Oklahoma University. The potential for cronyism will therefore always be there. 

The second is human nature. Natural human sociability is built on two principles: kin selection (doing favours for your family as it’s good for your genes) and reciprocal altruism (you scratch my back and I’ll scratch yours). Modern states have created rules and incentives for overcoming this tendency to favour family and friends, but if the rules are held in abeyance or institutions decay, the default tendencies reassert themselves. 

The third reason it is hard to do anything about cronyism is, as economist Luigi Zingales has emphasised, that the concentrated lobbying power of established private interests is more powerful, and has greater incentives to succeed, than the more dispersed and fragmented public that would benefit from freer markets and fairer rules. As he put it in a piece for the Financial Times, “while everybody benefits from a competitive market system, nobody benefits enough to spend resources to lobby for it”. It is, therefore, a political problem.

When it comes to policy prescriptions, most commentators reach for the obvious: stricter rules, better policing of the rules, and a realigning of incentives – by paying politicians more, for example, so that they don’t find corporate sidelines so attractive. Zingales favours using the tax system to create better incentives (property taxes rather than income taxes that penalise the efficient); open borders to put competitive pressure on market incumbents; and a strong safety net to remove political obstacles to the free functioning of markets. The current review of the post-Brexit subsidy control regime (see page 21) presents an opportunity for improvement in Britain.

But nothing can in the end substitute for our own political participation, good conduct and awareness of the issue. It is our “own belief in the power of free markets… which will keep incumbents and politicians in check”, says Zingales. So the problem of crony capitalism “is not entirely the fault of crony capitalists”, as Howard Ahmanson, a US philanthropist, has said. “We all need to look to ourselves. We need to make sure that there is some kind of powerful constituency that sees itself benefiting from anti-patrimonial, impersonal, honest government, the rule of law, and accountability.”

from Moneyweek RSS Feed https://moneyweek.com/economy/uk-economy/603157/are-we-living-in-a-new-era-of-political-sleaze
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Can your business secure a Restart Grant?

Some 700,000 businesses emerging from lockdown in England are in line for the Restart Grant, which could be worth as much as £18,000.

The money is aimed at companies forced to close during lockdown in England and now reopening. That means non-essential businesses in sectors such as retail, hospitality, accommodation, leisure and personal care. What your business is entitled to will depend on the rateable value of the premises that it occupies, and also its business sector.

Firstly, non-essential retailers, which were mostly allowed to reopen for business on 12 April, are entitled to receive up to £6,000 per premises. They can claim £2,667 if their premises have a rateable value below £15,000, £4,000 if the figure is between £15,000 and £51,000, and £6,000 if it is above this threshold.

The second strand of the scheme is aimed at businesses in sectors such as gyms, leisure, personal care, accommodation and hospitality, many of which will not be able to reopen until 17 May in England. These businesses can claim grants of £8,000, £12,000 or £18,000, depending on which of the three rateable-value categories they fall into. Importantly, the Restart Grant is being administered by local authorities, albeit with funding from Westminster. Most local authorities are now set up to administer the scheme and you should be able to find details on your council’s website. In some cases, grants will be paid automatically, but you may have to make a formal application.

The scheme only covers England, though the governments of the devolved nations are pursuing similar arrangements of their own, in line with their own timetables for relaxing lockdown restrictions.

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Investment Bank Outlook 30-04-2021

RBC Capital Markets Overnight: A mixed batch of China PMIs overnight. The official April manufacturing PMI showed a drop from the previous month’s reading, but the Caixin manufacturing PMI, which is more focused on private sector export-oriented firms, exhibited a rise. In any event, there is general expectation of a gradual slowdown in China’s growth rate from the first quarter, so the data overall seems to suggest that. Meanwhile, Beijing has expanded its crackdown on the fintech operations of domestic Internet giants. US Q1 GDP growth was a solid 6.4% q/q annualised, though slightly below expectations. Weekly jobless claims slid to a new cycle low, indicating a tightening labour market as the pandemic slackens its grip on the US. The Canadian dollar has made further gains overnight as oil prices climbed.Day ahead: The main data releases are euro area ‘flash’ CPI (see EUR), euro area Q1 GDP, Taiwan Q1 GDP (see TWD), Canada February GDP (see CAD), and US personal income & spending, including the Fed’s preferred core PCE inflation indicator. The France and Germany Q1 GDP reports will be released ahead of the euro area figure. SNB President Jordan will be speaking at the bank’s general meeting.Citi In contrast to NY, Asia has seen comparatively calm price action, with AUD and NZD notching mild gains vs the USD, and most other currencies trading unchanged vs the NY close. Equities remain on edge though following V shaped price action in the S&P on Thursday, and related volatility in USTs. In terms of developments overnight, there was little to report away from misses in official China April PMIs, though there is no need for over-concern on PMI declines per Citi Economics. USDCNH also echoes this trading broadly unmoved by the data.Looking ahead, EUR could see some pressure from weak forecasts for Q1 Germany and Eurozone GDP, as well as CPI data. USD looks to core PCE, while CAD awaits February GDP. In EM, we see CZK, TWD and MXN GDP, TRY trade data, BRL unemployment and a COP rate decision (hold).Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/investment-bank-outlook-30-04-2021"
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Energy Price Growth Affects Chevron Q121 Revenue

Wall Street will be looking for the positives from Chevron as it approaches its earnings report date scheduled for April 30, 2021, before the market opens. The company is expected to report EPS of $0.92, down 29.46% from the previous year’s quarter. The latest consensus estimate forecasts quarterly revenue of $30.9 billion, down 1.91% from a year ago period. This earnings report is for the fiscal quarter ending March 2021. According to analysts at Zacks Investment Research, the EPS forecast for Q121 is $0.92. The reported EPS for the same quarter last year was $1.29.

On an annual basis the Zacks consensus forecast shows an estimated revenue of $ 5.20 / share and a revenue of $ 127.4 billion. This total will mark a change of + 2700% and + 34.54% from the previous year, respectively. The Zacks Consensus Estimate EPS has moved 2.69% higher in the past month. CVX holds the # 1 Zacks Rating (Strong Buy) for now.

The strong correlation between Chevron and oil prices will tell a special story in this report. Over the past decade the price of oil per barrel has hovered below $ 100 during 2011-2021 with a peak price of $114.80 in May 2011 and a low point of $6.46 in April 2020, but averaged oil prices are playing back in the middle, above $60.00 per barrel, while over the same decade the CVX share price average fluctuated around $100 – $110 with a record high of $135.08 and a low of $51.57. Energy stocks including a consistent long-term profitable shareholder, Berkshire Hathaway Inc, owns 2.52% of Chevron. Strong balance sheet, consistent dividends and diversified company earnings become an important factor for shareholders.

Chevron Corporation is an American multinational energy company. A company with a long history, which began when a group of explorers and traders founded Pacific Coast Oil Co. on September 10, 1879 and is currently active in more than 180 countries. Chevron Corporation is one of the leading integrated oil and gas companies in the United States. Sustained higher oil and gas prices are likely to have a big advantage in this earnings report. But that was in the past, now the recovery has taken place with an abundance of liquidity from massive stimuli to prop up the economy.

In addition, Chevron decided to explore an alliance to develop hydrogen because it is considered an environmentally friendly transportation fuel option for green energy. When burned, hydrogen emits no greenhouse gases, which trigger global warming and destroy nature. In particular, it can be delivered by pipeline and is relatively easy to store compared to other renewables such as solar and wind.

Chevron, D1.

Chevron, D1.

The share price has been growing during Q121 by + 23.5% to date and posted a peak of $112.68 last March. Growth appears very moderate, amidst increasingly improving economic support and demand for energy needs. Even though it hasn’t fully recovered to match 2020 prices which topped $122.66, the recovery has already hit +/- 80%. And technical bias is likely to provide more favorable prospects up front. Prices appear to be trying to level the $107.53 minor resistance with the prospect of a rally to $112.70 . Price support is at $100.00 which is price psychology, a move below this price level will implicate a short-term correction for $96.30. However, the overall outlook is still bullish.

Ady Phangestu

Analyst – HF Indonesia

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