Cryptocurrency roundup: Ethereum’s network update kicks in

Cryptocurrencies had a very eventful week with ether surging due to the much anticipated “London” update finally kicking in and other regulatory announcements. 

Here are the top stories that caught our eye. 

Ethereum network update kicks in 

E1P-1559, an update to the Ethereum network which aims to make transaction fees less volatile and more predictable, kicked in on Thursday. 

It was prompted by the fact that fees for ether transactions (called “gas”) were apt to fluctuate wildly, leaving users to guess how many tokens an ether transaction would use, which previously undermined the network’s efficiency.

Now with the network update in place, users will pay a base fee instead, which will be determined through algorithms depending on how busy the network is. Users can also pay a tip to the miner to have their transaction processed faster than other users who do not opt to tip. 

Ether prices rose 4% on Thursday in the run up to the update. 

SEC chief Gary Gensler calls crypto the “Wild West” 

The Securities Exchange Commission – the US financial regulator – made a scathing criticism of cryptocurrencies this week. 

SEC chair Gary Gensler branded cryptocurrencies the “Wild West” and called for more oversight,  in a speech for the Aspen Security Forum. At present, there is no regulatory agency that controls the market for digital currencies and other related assets. 

In a separate interview with CNBC, Gensler said many crypto assets are considered securities, so they should fall within the SEC’s remit – something about which there is a lot of debate.

While bitcoin is classified as a commodity under the Commodity Exchange Act, which means that, like other commodities, it is not regulated, many coins are not, which means those coins could be subject to regulatory oversight by the SEC. 

Gensler’s comments shed light on the key issues in the SEC’s legal action against cryptocurrency Ripple. The SEC claims Ripple conducted an unregistered securities offering, something which Ripple denies, arguing that its XRP token is a commodity and shouldn’t be regulated by the SEC. 

Crypto markets get concessions on Biden’s infrastructure plans 

The US unveiled a $1trn bipartisan infrastructure agreement this week, and cryptocurrency investors were able to win some last minute concessions.

Cryptocurrency exchanges were initially caught off guard last week by plans to partially fund US president Joe Biden’s bipartisan infrastructure agreement – which includes money for railways, roads and broadband access – by higher taxes on cryptocurrencies. 

The changes were expected to generate around $28bn in additional tax revenue over the first ten years, says Bloomberg. 

The bipartisan plan is the first part of Biden’s infrastructure agenda. It proposes $550m in new spending over five years above projected federal levels, and is widely perceived as one of the most game-changing plans in the country’s history.

The latest legislative text released this week omitted some of the terminology that had caused concern among crypto market watchers. 

Language that specifically mentioned decentralised exchanges or peer-to-peer marketplaces was omitted, to be replaced with a looser definition of brokers, meaning that decentralised peer-to-peer exchanges may not specifically be required to report transactions. 

Part of the reason that Biden is targeting crypto is to raise money to fund his eye-wateringly expensive infrastructure agenda. Another reason, however, is a desire to tackle the underreporting of bitcoin gains. As it stands, crypto exchanges do not have to report gains and losses incurred by customers, but this could change even with the more generous text. 

Crypto markets update

Here’s what happened in the crypto market in the last seven days

• Bitcoin rose 1.8% to $40,581
• Ether rose 16% to $2,754
• Dogecoin fell 1.7% to $0.19
• Cardano rose 7% to $1.38
• Binance Coin rose 6% to $333

What investors need to watch out for

US Senate debates Biden’s infrastructure deal

It is worth watching out to see how senators back Biden’s $1trn infrastructure deal and whether it becomes law. 

“While it is important to note the bill does not levy any crypto taxes, if this bill passes, it will have an adverse effect on the crypto industry as it places undue burdens on companies and startups in a nascent space who are already struggling to comply with existing regulations,” says Antonio Brasse, CEO of crypto trading platform BlockQuake.

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Market Spotlight: Trading The July NFP

NFP Up NextThe key data focus today is of course the July US labour reports. On the headline NFP number, the market is looking for 870k, up from the prior month’s 850k. Average hourly earnings are expected unchanged at 0.3% while the unemployment rate is forecast to fall from 5.9% to 5.7%.With US data generally improving, and only modest positive expectations here, there is room for a USD upside move if we get a strong beat. The jobs figure especially could see a firm surprise given the higher activity levels over July, taking into account the return of seasonal work. With USD still at relatively subdued levels over the last month, it would certainly take some strong data today to affect a shift in sentiment.Where to Trade the NFP?AUDUSDFollowing the declines of the last month, AUDUSD is currently sitting in a block of consolidation between the .7339 and .7413 levels. The current move is seen as corrective for now, however, framed by the bear flag formation. If USD does pop higher today, bears will look for the downtrend to resume with a break of .7339 targeting .7243 initially.

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FOMO Friday: NZDJPY Turning Higher Again

Well, here we are yet again, into the half of the year where the Friday’s seem to roll around quicker and quicker. Looking back across the weekly action and talking with traders about the winners and losers and, most importantly, missed opportunities, it seems the big move traders are focus on is the reversal higher in NZDJPY. The pair has seen a near 2% rally off the weekly lows. So as ever, if you caught the move, well done! And if you missed it? Better luck next week. Now, let’s take a look at what happened and why it was a great trade.What Caused The Move?This week’s FX move wasn’t simply a case of stronger currency versus weakest currency. While NZD was in fact the bets performer this week, JPY was above AUD and EUR which were the weakest currencies. Instead, this week it was a case of data release and themes.Better Data Boosts NZDNZD was bolstered this week by a much stronger than expected set of employment release. The unemployment rate was seen falling back to 4% last month from the prior month’s 4.6% reading and well below the 4.4% forecast. Similarly, the quarterly employment change was seen rising to 1% from the prior month’s 0.6% and, again, well above the 0.7% forecast.Hawkish RBNZ ExpectationsOn the back of the data, expectations for an RBNZ rate hike in August have spike dramatically. The market was already gearing up its hawkish expectations on the back of the RBNZ last month outlining that it would end QE as of September. Now, with data steaming ahead, the market is firmly looking for a rate hike in the coming month.Monetary Policy DivergenceOn the other hand, the BOJ continues to reaffirm its commitment to maintaining an easing presence, creating strong monetary policy divergence between itself and the RBNZ. With this dynamic only likely to become more entrenched over the coming months, there is plenty of room for further upside. With that in mind, let’s take a look at the technical picture.Technical ViewsNZDJPYThe current downside price action in NZDJPY can be viewed as a corrective bull-flag pattern within the longer-term bull trend, suggesting room for a continuation higher. Price is currently testing the 77.33 resistance channel top. With MACD and RSI bullish, a break above this area will put the focus on a move up to the 79.19 level next.

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Events to Look Out for Next Week

The upcoming week is attention will remain on the Covid situation in the UK, which is widely being seen as something of an experiment, having loosened restrictions in the face of the spreading delta variant. Overall, investor sentiment remains optimistic despite the latest Covid wave and baby-step moves by some central banks toward tightening policy. Meanwhile next week’s heavy dose of global data releases includes inflation from US and China which are the spotlights of the week.

Monday – 09 August 2021

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• Consumer Price Index (CNY, GMT 01:30) – China’s recovery appears to be broadening, as a key manufacturing sentiment measure improves. CPI is expected to accelerate to a 0.2% in July following the -0.4% contraction last month.Overall, the recent data reflect the slowing in activity in China, likely a function of the spreading virus cases and the impacts of supply constraints
• JOLTS Job Openings (USD, GMT 14:00) – JOLTS define Job Openings as all positions that have not been filled on the last business day of the month. June’s JOLTS job openings is expected to rise at 9.388M, following the 9.209M in May.

Tuesday – 10 August 2021

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• Economic Sentiment (EUR, GMT 09:00) – German August ZEW economic sentiment is expected to have decline to 58.0 compared to 63.3 in July.

Wednesday – 11 August  2021

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• Harmonized Index of Consumer Prices (EUR, GMT 06:00) – The final German HICP inflation for July is anticipated to rise to 0.9% m/m from 0.4% m/m.
• Consumer Price Index (USD, GMT 12:30) – US July inflation data is anticipated at 0.3% for both the CPI headline and core, following June gains of 0.9% for both. CPI gasoline prices look poised to rise 2.3% in July. As-expected July figures would result in a 5.1% headline y/y increase, following a 5.4% pace in June. Core prices should show a 4.2% y/y rise, down from 4.5% y/y in June.
• EIA Crude Oil Stocks Change (USOIL, GMT 14:30)

Thursday – 12 August 2021

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• Q2 Gross Domestic Product (GBP, GMT 06:00) – Final UK GDP numbers for Q1 GDP was revised down to -1.6% q/q in the final reading, from -1.5% q/q previously. The annual rate was confirmed at -6.1% y/y. Private consumption corrected -4.6% q/q, reflecting mainly the impact of a relatively strict lockdown that quarter. Government spending rose 1.5% q/q, while exports slumped -6.1% and imports -13.5%. Investment contracted less than intially feared, but was still down -1.7% q/q, although at this point and with the economy heading for a full re-opening in July and already pretty much on track for a strong rebound thanks to vaccination programs, the Q1 number doesn’t really change the overlall picture or outlook. UK GDP numbers for Q2 GDP is expected to expand further to 4.2% q/q and 22.2% y/y.
• Industrial and Manufacturing Production (GBP, GMT 06:00) – Industrial Production is expected to remain unchanged  while the Manufacturing production is forecasted at 1.0% June from -0.1% in May.
• Producer Price Index (USD, GMT 12:30) – The PPI for July should see a 0.3% gains for the headline and core, following gains of 1.0% for both in June. As expected readings would result in a dip for the y/y headline PPI metric to 6.9% from 7.3% in June, though we expect a dip in the y/y core measure to 5.4% from 5.6% in June. The y/y headline PPI gain of 7.3% in June, as well as the core y/y gain of 5.6%, likely represented the peak for this metric. The massive PPI climb since the start of 2021 has exceeded the uptrend in headline and core CPI data, and both sets of gains are chasing outsized increases in the trade price measures, alongside ongoing supply constraints that have provided a powerful lift for the inflation indexes.

Friday – 13 August 2021

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• Michigan Index (USD, GMT 14:00) – We expect the August prelim. Michigan sentiment report  expected to improve to a 85.0  from 81.2 in the final July print.

Click here to access our Economic Calendar

Andria Pichidi 

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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BOE Outlines Path For "Modest Tightening"

BOE Unchanged in AugustThe British Pound has been trading higher over the last 24 hours following the August Bank of England meeting held yesterday. While no change in monetary policy was expected, traders’ expectations were geared to the hawkish side in light of the ongoing economic momentum, reflected in stronger data recently, and the continuing vaccination success. With this in mind, there was a great deal of focus placed on the bank’s forward guidance, as well as its latest set of economic forecasts.Guidance On TaperingThe BOE held its monetary policy on hold, as expected, and notably there was no fresh dissent among policymakers who voted 7-1 in favour of keeping rates and asset purchases at current levels. However, the details of the statement noted a clear hawkish shift. Policymakers agreed that should the economic recovery continue at current trajectory, then: “some modest tightening of monetary policy over the forecast period is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term”. Adding further detail, the bank noted that it will begin scaling down QE when policy rate shit 0.5%, from the current 0.1% level. Most market players judge this level will likely be hit mid-2023.Inflation To Move Higher – Still TransitoryWith regard to inflation, the bank maintained a broadly unchanged message from last time around with the statement noting that “The committee’s central expectation is that current elevated global and domestic cost pressures will prove transitory.” However, within the guidance on inflation there were hawkish signals too with the BOE noting that “the economy is projected to experience a more pronounced period of above-target inflation in the near term than expected in the May Report. And, alongside temporary constraints on supply, the rapid recovery in demand has eroded spare capacity such that the economy is projected to have a margin of excess demand for a period.”Inflation Forecasts Lifted, Growth Forecasts CutConcerning the updated economic forecasts, the BOE revised its inflation forecast higher, accordingly, to above 4% by year end and above 3% by end of 2022. However, the UK growth forecast was revised lower to 7.7% by year end, down from 8% prior.Technical ViewsGBPJPYFor now, GBPJPY remains capped by the bearish trend line from YTD highs and the 153.39 level. With MACD and RSI bullish, there is still room for a move higher here with a breakout above the 153.39 level turning focus to the 156.66 level next. To the downside, a break below the 151.36 level will put the focus on deeper support at the 149.39 level.

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Inflation is here to stay: it’s time to protect your portfolio

Last April, when coronavirus was tearing around the globe and most Western economies were tightly shut down, we argued in MoneyWeek that central-bank and government policies designed to tackle the crisis were likely to result in inflation. What with rampant unemployment, a huge (if short) recession, and oil prices turning negative, you could have been forgiven for being sceptical. 

Yet here we are, a year and a bit later, and prices everywhere are indeed picking up. Notably, inflation in the US is at multi-decade highs regardless of the precise inflation index you use to measure it (in June, consumer prices were up by 5.4% year-on-year), while oil – which you literally couldn’t give away in April last year – is back around the $70-a-barrel mark. 

Yet no one seems too concerned by this turn of events. The world’s central banks keep telling investors that price rises are just “transitory” and that they will pass once the initial supply shocks are over. Investors appear to believe them. “Reflation” trades (such as buying “value” stocks and commodities) did well for much of 2020 and early 2021, but in recent months they’ve given way to the same old growth plays that dominated prior to Covid-19, while bond markets have rallied since late March. So are we wrong to expect inflation to be more persistent, or is there something else going on here?   

The bond market isn’t psychic

In financial markets, bond investors are often viewed as “the smartest guys in the room”, particularly relative to flighty equity investors. Bonds mostly pay out a fixed income, which loses its value in real (after-inflation) terms as prices (and interest rates) rise. So they should be particularly sensitive to where inflation might go from here – and they certainly don’t seem to be worried. Current yields on US Treasuries (and global government bonds generally) imply that investors think that central banks are right, and that inflation will indeed be “transitory”. 

Yet even the smartest people in the room aren’t psychic. For a recent analysis, Joseph Gagnon and Madi Sarsenbayev of the Peterson Institute for International Economics looked back at around 70 years of data for the US, the UK, Japan and France, and found that in each case ten-year bond yields didn’t in fact predict the likely path of inflation over the decade ahead, but instead reflected the average inflation rate over the prior ten years. Given human beings’ tendency to extrapolate, this shouldn’t come as a surprise, but it does mean that those assuming that the lack of alarm in the bond market is a reassuring sign may be in for a nasty shock.

Mohamed El-Erian, formerly of giant bond specialist Pimco, now chief economic adviser at Allianz, thinks the market definitely has the wrong end of the stick on this occasion. “Inflation is not going to be transitory. I’ve been pretty certain in my mind about three prior calls. This is the fourth one,” he tells Bloomberg. 

For the curious, El-Erian’s other three big calls were: Argentina would default (it did); Brazil would not (it did not); and a “new normal” of slower economic growth would follow the 2008 crisis (it did). So why does the bond market have it so wrong now? El-Erian says there is a very simple explanation: the US Federal Reserve keeps buying bonds.  

This time it’s different

But why might the bond market have got this wrong? Why isn’t inflation transitory? The last crisis we faced before the Covid-19 shutdown was the 2008 financial crisis. Quantitative easing (QE), or money printing, didn’t turn out to be inflationary back then, so why should it now? The reason is that this is an entirely different type of crisis. Indeed, it’s almost the exact opposite of 2008. It should already be obvious that this is the case. 

You need only look at how rapidly the economy has rebounded. Analysis by Deutsche Bank notes that the post-Covid-19 rebound in US GDP has been the fastest seen since World War II. By contrast, the recovery that followed 2008 was one of the slowest. Meanwhile, economic forecasters are rapidly revising down the levels of lasting damage (“scarring”) that they expect to see as a result of this recession. 

Yet not only have central banks been more aggressive with their money-printing than in 2008, but this time governments have also joined in. As Charles Goodhart of the London School of Economics tells The Wall Street Journal: “The generals are always fighting the last war. Governments didn’t do enough before, so they’re going to overdo it this time”. 

Looked at in more detail, it becomes even clearer just how drastically different things are today. In the wake of 2008, both banks and households were over-indebted and desperately trying to avoid bankruptcy. The slashing of interest rates and printing of money kept many households afloat and bought time for banks gradually to write off their bad debts without admitting to being bust. But even with copious QE, that process took time, which accounts for the slowness of the recovery. 

Now, by contrast, both banks and consumers have plenty of money. James Ferguson of MacroStrategy notes that, according to Refinitiv Datastream data, since 1962, US households’ bank deposits have averaged 52% of GDP, and have generally not gone below 47% or above 57%. Today US bank deposits are equivalent to 66% of GDP. Even if we accept the (highly contentious) argument that consumers will permanently maintain a higher level of precautionary savings owing to the shock of the pandemic, it’s hard to imagine that they’ll remain this elevated. 

Even at the top of that historic range, we’re looking at 11% of US GDP either being spent (consumed) or invested in the near future. Note that on the latter point, as Eric Platt in the Financial Times reported last month, global equity funds are already on track to “take in more money in 2021 than in the previous 20 years combined”.

Meanwhile, notes Ferguson, “today the banks’ capital-to-asset ratios are about double what they were before the [2008 financial crisis] while, due to generous fiscal support mechanisms”, there are no bad debts looming on the horizon. As a result, banks have plenty of money sitting in “safe” assets earning low returns and are now eager to start lending that out in order to boost their margins. Demand for loans is picking up too as companies ramp up investment in the wake of the Covid-19 shutdowns. 

Put simply, after 2008 the collective private-sector balance sheet was like an empty, leaky bucket – the QE hose eventually managed to fill it up, but it took a long time. Today is entirely different. We went into this crisis with the bucket in pretty good shape and now we’re coming out of it, it’s already brimming over. 

As Ferguson puts it: “if the problem was that households and businesses were overleveraged going into the financial crisis, both sectors will be coming out of this recession over-liquid”. Even if you’re an inflation-sceptic, you have to acknowledge that it’s very hard to make the case that the post-Covid-19 environment is anything like the post-2008 one. 

Don’t expect central banks to wade in 

We’re already seeing the effects of all this. Despite high unemployment levels, companies across the world are struggling to fill positions, while those who are already in employment are happily quitting to get better-paid jobs elsewhere, often in different sectors (hence the exodus from the hospitality industry). 

Labour isn’t the only cost that’s rising. Raw materials – everything from tin to oil to copper – have surged in the past year too, as have transport costs. Some of these supply issues will be temporary. But many companies are already passing these cost increases on rather than absorbing them. There is a confidence that the market will bear higher prices (which in turn is at least partly down to the amount of money in circulation) and so far that confidence is being borne out. 

Won’t central banks respond to this? Another reasons why markets are buying into the “transitory” argument is the belief that if inflation does turn out to be more enduring, then central banks have the tools to deal with it. This belief persists despite the fact that central banks keep signalling that they have more on their minds than just price rises. 

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Australia faces recession

Millions of Australians are locked down. The stockmarket has reacted by hitting a record high. Australia has largely kept Covid-19 at bay thanks to tough border policies, but the virus is now gaining a foothold. At the end of June Sydney was placed under its strictest lockdown so far. The army was deployed this week to enforce the rules. 

A lockdown in Brisbane has also been extended. Officials are concerned about expanding clusters of the Delta variant. While cases are still low, Australia is vulnerable if things get out of control: a slow rollout means that just 15% of the population has been fully vaccinated. 

Stocks and property soar 

Asset prices tell a different story. The Reserve Bank of Australia, the central bank, slashed interest rates to just 0.1% last year, say Shane Wright and Jennifer Duke in The Sydney Morning Herald. That has helped drive “record high house values in almost every corner of the country”. 

Prices have risen by 16% over the past year, “the fastest increase in more than 25 years”. The renewed lockdowns mean even more stimulus is probably on the way. Stocks are also buoyant. The benchmark S&P/ASX 200 index hit a record high on Monday, boosted by Square’s $39bn bid for local star Afterpay (see page 11). The index has gained 12% so far this year, close to the global average gain. It is up by 55% since the nadir of March 2020. 

The Australian equity market is heavily weighted towards the financial and commodity sectors. Bank shares plunged in 2020 on fears that there would be “a sharp increase in customers defaulting on loans”, says Stuart Condie in The Wall Street Journal. The worries proved overdone. The banks set aside more cash than they needed to cover losses and their shares have soared. Commodities producers such as Rio Tinto have also been lifted by strong iron-ore prices.  

A commodities boom has saved Australia before. Exports to China helped the country dodge the worst of the global financial crisis. True to its “lucky country” moniker, it had enjoyed nearly 30 years without a recession. That record came to an end in the first half of 2020, but GDP then bounced back swiftly thanks to an apparently successful containment of the virus.  

Now there could be a double-dip recession, says Ben Butler in The Guardian. The strict lockdowns mean that the current quarter is already a write-off, while the economy may also shrink in the final three months of the year (a recession is defined as two consecutive quarters of falling GDP). Gareth Aird of Commonwealth Bank says he think “significant restrictions” will have to stay in place until 80% of the population is vaccinated. That could be “late October at the earliest”. Yet markets, high on easy money, seem barely to have noticed.

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Government launches final Covid support scheme for the self-employed

There is good news for self-employed workers still struggling with the financial impact of Covid-19. The government has now opened applications for the fifth – and final – round of the self-employment income support scheme (SEISS). You could be entitled to a grant of up to £7,500.

The eligibility criteria for the SEISS are broadly unchanged, and HM Revenue & Customs will look at your previous tax returns to check you meet the basic requirements. These are that you traded in both the 2019/2020 tax year – and submitted your self-assessment tax return for that period on or before 2 March 2021 – and the 2020/2021 tax year. 

Further key conditions are that at least 50% of your total income must come from self-employment and your average trading profit should be no more than £50,000.

In addition, you need to be able to show that you reasonably believe your trading profits during the period from 1 May to 30 September 2021 will be lower because of Covid-19. You could be asked to supply evidence. It may be that you have been unable to trade because of lockdown restrictions during that period; or you may be suffering reduced demand or capacity.

Turnover tiers

What you’ll get from the SEISS depends on how badly you have been affected. This is a departure from previous rounds of the scheme, which paid flat rates of support. This time, if your turnover fell by 30% or more in 2020/2021 compared with 2019/2020 or 2018/2019, you will be able to claim 80% of your average three-month trading profit, capped at a maximum of £7,500. If your turnover declined by less than 30%, you can only claim 30% of your average three-month profit, up to a maximum of £2,850. In theory, HMRC is supposed to contact everyone it thinks may be eligible for the fifth round of the SEISS in order to invite them to apply. It began sending out those invitations in the second half of July – by text message, email and letter – but is staggering the process so that the system isn’t overwhelmed. 

If you haven’t heard from HMRC by the middle of August and believe you may have been missed out, it is worth contacting the tax authority directly.

Applications for the scheme have to be made online by 30 September through HMRC’s SEISS portal pages. You will need a variety of data to complete the application, including turnover figures for the relevant tax years, your national insurance number, your self-assessment unique taxpayer reference (UTR) number, and your bank account details. HMRC will check your details and is committed to paying you within six working days of receiving your claim. 

Importantly, awards from the SEISS are grants, not loans, and do not have to be repaid. If you’re entitled to the money, you should definitely make a claim.

Nonetheless, self-employed workers are entitled to feel aggrieved about some aspects of the scheme. One issue is that while this round covers a five-month period, it only pays out on the basis of three months’ profit. More broadly, the SEISS is far less generous than the furloughing scheme that helps employed people whose employers are struggling with the pandemic. Bear in mind too that hundreds of thousands of self-employed workers continue to miss out on any help at all – including those who have paid themselves through dividends from their companies. If you’re not eligible for help, you may be able to claim universal credit, but this won’t come close to matching the value of the SEISS.

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Wine of the week: one of the most exciting Aussie pinots of the year

2019 Dalrymple, pinot noir, Pipers River, Tasmania, Australia

£172.20 for six bottles (£28.70 each), vinvm.co.uk; £32.99, flagshipwines.co.uk; £29.95, fieldandfawcett.co.uk; £31.95, nywines.co.uk

As every year passes Dalrymple makes finer and finer wines. The 2011 vintage of this very wine made my 100 Best Australian Wines Report, back in 2013, and beautiful wines from this estate have popped up four times since. Every time they gather more intensity, flair and accuracy. Tassie’s climate is perfect for both elite pinot noir and chardonnay and over the last decade or so the wines have graduated from being diverting and enjoyable to seriously collectable and globally relevant. 

Winemaker Peter Caldwell is a brilliant chap, humble, great fun, honest, and aware of just how bright the future is for his winery. As he says, “What I’ve learned is patience. Knowing that a vineyard is an evolving organism buffeted by climate and wind and rain and sun. There are no repeat years. No textbooks. The vineyard and I work together, each within our own limitations”. As you can see, Pete is intricately involved in his wines and so it is desperately exciting for me to introduce you to this scintillating 2019 vintage. 

A genuine tour de force, this is one of the most exciting Aussie pinots of the year and the value for money is tremendous. With a heavenly black-cherry perfume, stunning depth of fruit on the palate and a liberal dusting of spice, coming from 24% new oak for 11 months, this is a must-buy for pinot freaks everywhere!

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AstraZeneca’s Covid troubles could see it pull out of making vaccines

AstraZeneca is “reviewing the future of the Covid-19 vaccines business”, says Farah Ghouri in City AM – and could decide to exit vaccines altogether. Its jab helped boost overall sales by almost a quarter to $15.5bn in the first half of 2021. But AstraZeneca has suffered a “series of setbacks”, including “being sued” by the European Union over jab deliveries. 

It’s not surprising that AstraZeneca “is now weighing up whether it wants a future in vaccines at all”, says Hannah Boland in The Daily Telegraph. After all, the vaccine, which was developed in conjunction with Oxford University, has been the victim of European “envy” of “British scientific expertise” and “animosity over Brexit”. For example, in February French president Emmanuel Macron falsely claimed that it was “quasi-ineffective” in older people. At the same time, fears of blood clots meant that it was withdrawn in many countries, even though later evidence suggests that “AstraZeneca-jabbed patients develop blood clots at a similar rate to those who received the Pfizer vaccine”.

Self-inflicted wounds

However, AstraZeneca is also “partly responsible” for its own problems, says Bryan Appleyard in The Times. When it came to delivering vaccines it made promises to the EU that it could not fulfil. What’s more, it “altruistically” decided to set the price of its vaccine at the cost of production. So whatever happened, it was guaranteed to lose money, which is why it is indicating that it may have to start charging a “realistic price”. 

No wonder AstraZeneca is discreetly backing away from the “not-for-profit route”, says Julia Kollewe in The Guardian. After all, rivals Moderna and Pfizer, which charge more than double AstraZeneca’s price for their vaccines, have enjoyed great “commercial success”. A few months ago Moderna, which received substantial funding from the US government, forecast that it would make $19.2bn in sales from its vaccine in 2021 alone. It also turned its first profit in the first three months of the year. Pfizer has done even better, raising its forecast for sales this year to $33.5bn.

While AstraZeneca continues to deal with ongoing lawsuits, Pfizer and Moderna are set to continue making “tens of billions of dollars in revenue” for years to come, says the Financial Times. This is because the emergence of the “highly infectious” Delta variant has made countries anxious to secure supplies for “potential booster shots”. With Europe already reserving the right to an additional 1.8 billion doses of Pfizer’s vaccine, some experts predict that by the end of next year, sales of Pfizer’s treatment “will hit $56bn, with Moderna’s reaching $30bn”. AstraZeneca’s trouble with its cost-price treatment means that the dream of “low-priced vaccines for the world lies” now lies in “ruins”, says Appleyard – bad news in Africa, where vaccination rates remain “catastrophically low”. 

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HSBC’s profits surge – but will the share price?

Last year HSBC took “billions of dollars” in loan losses, say Stephen Morris and Tabby Kinder in the Financial Times. Now it has announced an “almost fivefold rise in second-quarter earnings as the global economic outlook brightened”. Pre-tax profits “surged” from $1.1bn last year to $5.1bn in 2021, while the group “cancelled a further $300m of credit provisions”. 

HSBC’s decision to reinstate its dividend is “another good sign” for shareholders, says Jennifer Hughes on Breakingviews. However, the fact that it is handing back “a mere seven cents a share for now”, suggests that HSBC’s management think that things are “only slowly moving in the right direction”. The payout, worth far less than half the group’s earnings, is pretty “meh” when set against UK rivals Barclays and NatWest. And while HSBC is saying that it will now “consider” buybacks, shareholders “shouldn’t hold their breath”. Don’t expect any major share-price rises either, says Emma Powell in The Times. Part of the problemis HSBC’s focus on Asia. In theory, it implies “arguably the greatest growth potential of any of the big five banks listed on the LSE”, since the region benefits from “an ascendant middle class and rising demand for wealth-management services”. 

But the share price remains depressed by “geopolitical concerns”, especially the “fragile relations” between the West and China and Hong Kong, which account for half of its profits. HSBC is still feeling “intense heat” over its support of the national-security law that China imposed on Hong Kong.

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Inflation threatens the US earnings boom

A 6.5% rate of GDP growth would usually merit “celebrations in the streets”, says Neil Irwin in The New York Times. Yet America’s second-quarter 6.5% annualised growth disappointed: it was lower than predicted and showed that the recovery is running into “obstacles”. 

Shortages of building materials meant that the housing sector “actually contracted” slightly despite huge demand. Getting back to normal is proving a “grind”; consumption of services is still 7.4% below where you would have predicted it to be pre-pandemic, while “spending on durable goods”, which boomed during lockdowns, is 34% higher. Rising cases of the Delta variant in America could also sap the recovery. Investors are recalibrating. 

As Nicholas Colas of DataTrek Research tells CNBC, all the “Big Tech companies” have reported unexpectedly good second-quarter earnings. Yet traders reacted by selling off most of them. Investors are worried that its pandemic sales boom will run out of steam. The concern is that we have reached peak earnings growth. “We’ve seen so much demand for tech... over the last year. Can it keep going?”. Corporate margins will be key, says Gina Martin Adams on Bloomberg. “Defined as earnings before interest and taxes divided by sales,” US operating margins are set to rise to a very healthy 16.7% over the next year. Yet spikes in inflation mean some are nervous. 

Analysts have “cut their margin estimates for a quarter of S&P 500 members in the last three months”. Margin trends have historically been a “strong leading indicator of stock-price direction”. For now the margin pressure is concentrated in a few sectors, such as “healthcare, utilities and consumer staples”. If it spreads that could presage a stockmarket rout.

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Chinese regulators' latest clampdown rattles investors

Are Chinese stocks “uninvestable”? asks Farah Elbahrawy on Bloomberg. Goldman Sachs says its clients are wondering whether they should pull their money out after Beijing broadened a clampdown on businesses it blames “for increasing inequality and financial risk”. The resulting market volatility has pushed “key stock indexes to the brink of a bear market”. 

Investors wake up 

Investment trusts focused on China have suffered “average losses of a third” since a recent peak in February, notes David Brenchley in The Times. The benchmark CSI 300 index is down by more than 6% in 2021. “Chinese regulatory interference… is turning out to be one of the big stories of 2021,” says Russ Mould of AJ Bell. What’s next? Keep an eye on “highly indebted” property developer China Evergrande. The shares have tumbled by 63% so far this year as regulators address property speculation. 

Investors in China have endured “an excruciating week”, says Seeking Alpha. The “deluge of news” and “speculation” about which stocks would be next in the cross hairs has created a “potent mix of anxiety, fear, anger and regret”. The government’s desire to tackle “social ills and deepening inequality… has parallels”, not least in Washington. 

But what has unnerved investors is the speed at which China is announcing new measures. When an authoritarian state makes a decision, things can change very quickly. Beijing has been cracking down on big internet firms for some time, says Thomas Gatley in Gavekal Research. Shares in the likes of Alibaba and Tencent were already having a bad year. What’s changed is that investors have “flipped from thinking” that only a few firms were in trouble to “fretting that no sector is safe”. They may have overreacted. Chinese policymakers were not too worried when the biggest losers were foreign investors (Alibaba’s primary listing is in New York). Yet the latest sell-off has hit domestic investors too, so officials are likely to start treading more carefully. Chinese regulators “hate domestic market volatility”.

Buy the dip? 

Some spy a buying opportunity. “We’ve been through these regulatory tightening periods before and generally” they have “been a pretty good time to buy,” Dale Nicholls of Fidelity International tells CityWire. A significant “valuation gap” has appeared between Chinese businesses and global peers. “Chinese tech stocks [listed in the US] have suffered their worst month since the financial crisis of 2008,” says Katie Martin in the Financial Times. For some investors the temptation to “buy the dip” is almost a “reflex”. China bulls say you just need to steer clear of sectors such as education, property and tech. 

Most analysts think that the current turmoil will pass. Yet it is still unclear whether the sell-off is over; no fund manager “wants to be the person hauled up in front of the boss at the end of the quarter to explain why they took on more risk just as a well-known bad situation turned worse”. As Morgan Stanley has warned clients: “no bottom-fishing yet”. 

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Soaring food prices fuel unrest

“Big agriculture is having a field day,” says The Economist. Food prices are soaring amid “transport logjams and paltry harvests”. The UN’s Food and Agriculture Organisation’s price index hit its highest level since 2011 in May. Soybean prices have risen by 56% in 12 months; corn is up by 68%. 

When lockdowns were first imposed there was concern that global supply chains would buckle and prices would spiral, says Florian Zandt on weforum.org. In the event, prices slumped. Lower oil prices reduced demand for biodiesel, an alternative use for some crops. Yet prices began to rally last summer and have since soared to multi-year highs. Despite a pullback in June, average global food prices are “still 25% more expensive than the 2014-2016 average”. 

Reopening restaurants have shifted demand back towards “meat, fish and dairy”, says The Economist. As Alain Goubau, an Ontario farmer, puts it: “A year ago we were trying to get rid of milk… Now we are adding as many cows as we can.” That in turn drives up crop prices because livestock need to eat: it takes more grain to produce an animal calorie than to produce a calorie of bread. 

Soaring food prices are bad news for the world’s poor. Covid-19 has “dramatically increased the number of people affected by chronic hunger”, writes Elise Labott in Foreign Policy. That is fuelling protests from Haiti to South Africa. The post-pandemic world will be a “tinderbox”.

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