JAPANESE PM STEPS DOWN AS CHINA STEPS UP THE PRESSURE ON TECHNOLOGY COMPANIES

JAPANESE PM STEPS DOWN AS CHINA STEPS UP THE PRESSURE ON TECHNOLOGY COMPANIES

This week an old man grumbled that kids these days have it too easy and are going soft. Unfortunately for China it was president Xi Jinping, who restricted the hours kids can play computer games, banned boy bands and celebrity fan clubs and imposed measures designed to sweep away some of the western decadence that he obviously sees as threatening China’s rise to global hegemony. This crackdown on consumer and culture businesses may not turn out to be successful but has certainly reminded us of the significant political risk that comes with investing in China.

Elsewhere in Japan we’ve something of a novelty, prime minister Suga has decided to resign following his poor handling of the coronavirus outbreak. There is an election coming in Japan and it increasingly looks like he jumped before being pushed, as his polling has sunk considerably. The country is struggling with a large surge in infections and the decision to press ahead with the delayed Tokyo Olympics was incredibly unpopular locally. Markets have been buoyed on the idea that a new PM might spend a bit more, but that seems highly speculative.

EU: RISE IN INFLATION FUELS AN INCREASE IN BOND YIELDS

Inflation in the eurozone was estimated at 3 per cent this week, increasing the pressure on the European Central Bank to pullback its bond purchases. The figures were up from 2.2 per cent in July and has risen at the fastest pace seen since November 2011. The biggest contributions to growth came from energy prices, which rose to 15.4 per cent. Nevertheless, last year’s delayed start to summer clothing sales in France and Italy which were on time this year, are also reflected in the figures this time around.

Despite underlying pressures remaining muted, the recent jump has increased investor sentiment that central bankers will begin to slowdown support. Germany’s 10-year bond yield, the benchmark for debt across the euro area, rose to minus 0.37 per cent, reaching its highest level in more than a month. The rise reflects a drop in prices which can be an indicator that investors are positioning for any potential tapering of government stimulus.

OIL: PRICES RISE AHEAD OF OPEC+ DECISION

This week Opec and its allies confirmed they will continue their plans set out in July, where oil production will be supplied at 400,000 barrels a day every month until late 2022. Demand for oil has continued to rise following the decision as economies recover from the pandemic and has resulted in a tighter oil market, causing oil prices to remain slightly above pre-pandemic levels at $70 a barrel. Despite calls from the US for faster production, the group decided that restoring supply at a faster pace would be risky given the continued uncertainties created by the fast-spreading Delta variant of coronavirus.

Ahead of the news, the international oil benchmark Brent Crude rose more than 2.5 per cent to $73.5 a barrel for the first time since July, as investors remained positive that demand will continue to rise despite the risks posed by the Delta variant. The sentiment was supported by data released by the US Energy Information Administration, which showed that crude inventories dropped by 7.2 million barrels last week as demand continued to increase.

EQUITIES:CHINA PLAYING GOOD COP BAD COP WITH ITS TECH STOCKS

The downward plummet of Chinese technology stocks was reversed slightly this week on news that Beijing would increase stimulus support for its struggling economy. This change in policy aims to combat rising commodity prices and the coronavirus which is still spreading in the region. It is estimated that $45bn will be pumped into the economy by the People’s Bank of China.

Some of the largest Chinese technology stocks have had billions of dollars shaved off their value as a direct consequence of the government’s actions. The latest sector to be stifled by the increase in regulation is gaming, a $40bn industry in China. The two thirds of Chinese teenagers that play video games regularly will find themselves restricted to just one hour per night Friday to Sunday, with an extra hour on national holidays. Only time will tell if the next move from the Chinese government is to help or hinder its local corporations.