China – A Paper Tiger?

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It is, of course, a trite observation to say that we live "in a period of transition." Many people have said this at many times. Adam may well have made the remark to Eve on leaving the Garden of Eden.

Harold MacMillan

In the stock casinos and bond and commodity markets today and this week, it’s all about China’s reaction or not, to US House Speaker Pelosi’s domestic politics visit to Taiwan.

A Democrat, like President Biden who wanted Pelosi to call off the visit, the visit underscores just how weak President Biden actually is, but I doubt China’s communist leadership will see it that way.

Due to leave Taiwan later today, I suspect China’s real response will come after she has left for safer territory.

I suspect China will now try to hit Taiwan and the USA financially. With Taiwan that’s relatively easy, with the USA that’s a longer term, subtler play.

But with the global economy on the cusp of the next recession, with rising interest rates virtually everywhere, this could backfire dramatically and for what, a Democrat photo op in Taiwan for the upcoming November mid-term elections.  Canada’s Trudeau would be proud.

 

European markets head for lower open as negative sentiment persists

PUBLISHED WED, AUG 3 2022 12:25 AM EDT

LONDON — European stocks are expected to open lower Wednesday, continuing the regional trend downward this week.

The U.K.’s FTSE index is seen 26 points lower at 7,394, Germany’s DAX down 34 points at 13,421, France’s CAC 40 down 29 points at 6,385 and Italy’s FTSE MIB 44 points lower at 22,290, according to data from IG.

The lower open for European stocks comes after markets pulled back slightly on Tuesday, tracking risk-off sentiment globally as investors assess whether last month’s rally has further to run.

In the United States, the three major averages fell for a second consecutive day yesterday, although Dow Jones Industrial Average futures were higher last night.

In regular hours trading, House Speaker Nancy Pelosi’s controversial visit to Taiwan weighed on investors, who worried it would further strain already tense U.S.-China relations. China had spent weeks warning her not to make the trip.

Markets fell further after three Federal Reserve presidents hinted that further rate hikes would be necessary to combat high inflation.

Overnight, shares in the Asia-Pacific were mostly higher Wednesday, with mainland China markets leading gains despite Pelosi’s trip to Taiwan, which is being closely watched by Beijing.

China’s Foreign Ministry spokesperson Hua Chunying tweeted that Pelosi’s visit was a “major political provocation,” while a spokesperson for the People’s Liberation Army’s Eastern Theatre Command said it would conduct “a series of joint military operations around the Taiwan Island from the evening of August 2.” Those operations include long-range combat fire live shooting in the Taiwan Strait and conventional missile firepower test launching, the statement said.

It’s a busy day for earnings in Europe, with Commerzbank, SocGen, BMW, Banco BPM, Siemens Healthineers and Veolia and Wolters Kluwer among those companies reporting. On the data front, euro zone producer prices and retail sales data for June are set to be released.

European markets open to close, earnings, data (cnbc.com)

So far, China’s main reaction to US House Speaker Pelosi’s trip to Taiwan has been mostly hot air. Huffing and puffing up a great storm of rhetoric but no real reaction.  But, is China really just a paper tiger or a tiger planning a longer term actual response? 

Time will tell, but I suspect we are just in phase one of Communist China’s response to Speaker Pelosi’s domestic US domestic political posturing.

China Plans Four Days of Military Drills in Areas Encircling Taiwan

Sarah Zhen August 2, 2022

(Bloomberg) -- China will conduct large-scale military drills and missile tests around Taiwan in a defiant show of force after House speaker Nancy Pelosi became the highest-ranking US politician to land on the island in a quarter century.

Beijing announced six exclusion zones encircling Taiwan to facilitate live-fire military drills from Thursday to Sunday, with some of the areas crossing into the island’s territorial waters. The size and scope of the areas could set the stage for the Chinese military’s most provocative actions near Taiwan in decades.

Separately, the People’s Liberation Army said exercises could start as soon as Tuesday, leaving open the possibility of military activities around Taiwan while Pelosi was visiting. The operations include “long-range live firing in the Taiwan Strait” and “regular-guided fire testing in the eastern waters” off Taiwan from Tuesday evening, the PLA said. 

“This action is targeted at the US’s shocking recent major escalation on the Taiwan issue, and serves as a serious warning to Taiwanese independence forces or those seeking independence,” Shi Yi, a spokesperson for the Eastern Theater Command, said in a statement.

During the military drills, “relevant ships and aircraft should not enter the above sea areas and airspaces during this period,” the official Xinhua News Agency said in a report late Tuesday, which gave coordinates for the exercises. 

The exercises highlight the risk that Taiwan tensions could exacerbate existing supply chain woes. The Taiwan Strait is the primary route for ships passing from China, Japan, South Korea and Taiwan to points west. Almost half of the global container fleet and 88% of the world’s largest ships by tonnage passed through the waterway this year, according to data compiled by Bloomberg.

Taiwan’s defense ministry said 21 Chinese military aircraft entered its air-defense identification zone Tuesday, compared to four the day before. The PLA has stepped up its flights near Taiwan in recent months, and ramps ups the show of force around key events, including visits by US poltiicians.

Pelosi became the first US House speaker to visit the island in 25 years when her military aircraft arrived at Songshan Airport shortly before 11 p.m. local time. China considers Taiwan part of its territory and protests diplomatic visits to the democratic island.

The planned drills would be the most serious show of force by China around Taiwan since at least 1995, when Beijing test-fired missiles into the sea near the island. That move was part of China’s protests against President Bill Clinton’s decision to let Taiwan’s first democratically elected president, Lee Teng-hui, visit the US. 

Back then, China also declared exclusion zones around target areas during the tests, disrupting shipping and air traffic. 

Pelosi plans to hold a joint press briefing with President Tsai Ing-wen at about 10:50 a.m. Wednesday, the Taiwan leader’s office said in a statement. She is expected to depart the island later that day to continue her Asia tour visiting US allies South Korea and Japan. 

Taiwan’s ruling Democratic Progressive Party called on China to exercise restraint and stop acts of military and political intimidation. China should “demonstrate the demeanor of a responsible power,” DPP spokeswoman Hsieh Pei-fen said in a statement late Tuesday.  

“No threatening remarks or provocative actions can reduce even slightly the determination of Taiwan and its international friends to defend democracy and freedom,” she added

China Plans Four Days of Military Drills in Areas Encircling Taiwan (msn.com)

In other China news, has the China housing bubble just blown up? If it has, what comes next? A diversionary invasion of Taiwan? Seizing Quemoy and Matsu? The Pescadores Islands?

 

China’s economy could be dragged down by loss of confidence in property sector

PUBLISHED MON, AUG 1 202210:38 PM EDT

The loss of confidence in China’s property sector could feed into a contagion that would further drag down the Chinese economy, analysts warned.

The comments come after beleaguered developer China Evergrande Group failed to deliver a promised $300 billion restructuring plan over the weekend.

In filings with the Hong Kong stock exchange, Evergrande instead said it had “preliminary principles″ in place for the restructuring of its offshore debts. It also said one of its subsidiaries, Evergrande Group (Nanchang), had been ordered to pay an unnamed guarantor 7.3 billion yuan ($1.08 billion) for failing to honor its debt obligations.

“For the government, the priority is to break the negative feedback loop that features the high leverage ratio and the liquidity crunch on the part of the developers,” Shuang Ding, Standard Chartered chief economist for Greater China and North Asia, told CNBC’s “Street Signs Asia.”

“That leads to a mortgage boycott and very low appetite on the part of the homebuyer, and that goes back to the developer because low sales affect its liquidity.”

China is facing a mortgage repayment revolt, with homeowners across 22 cities refusing to pay their loans on unfinished housing projects.

“So if this problem is not handled properly, it will have a profound impact on the economy, including the government balance sheet, the banks’ balance sheet as well, and households,” Ding said.

Ding said the problems in China’s property sector threaten a crucial foundation of a sturdy economy: market confidence.

Land sales, which make up a dominant portion of provincial government revenue, have fallen 30% in the past year.

More

China's economy could be dragged down by loss of confidence in property sector (cnbc.com)

Finally, in other news, as goes Germany so goes the EUSSR, although Italy might lead Germany this time round. Who needs insane Russian sanctions to bring down continental Europe when you have insane Italy at hand.

In cryptoland, another hack and more missing Unicorns via a bridge to nowhere.

 

Draghi’s political downfall: How power imploded in Italy and what happens next

PUBLISHED TUE, AUG 2 20221:55 AM EDT

Mario Draghi is best known for saving the euro. But a coveted rescue of the Italian economy ended prematurely when internal politics came to the fore last month, making it harder and harder for him to govern.

In the space of about a week, Italy went from having a stable government to preparing for snap elections in September — which could see the far-right in charge of the next coalition in Rome. This prospect has investors questioning Italy’s economic future and its broader role within European politics.

Draghi “was certainly a little bit tired of the politics within the government,” an official working for the Italian government, who preferred to remain anonymous due to the political instability in the country and the sensitive nature of the comments, told CNBC.

Once a managing director at Goldman Sachs International, Draghi became Italian prime minister in February 2021 to lead a technocratic government, backed by four main parties across the political spectrum. His arrival in Rome was welcomed by investors and European officials, who were desperate to see a safe pair of hands leading the euro zone’s third-largest economy.

The former European Central Bank chief delivered on several fronts, including putting together a reform plan to get more than 190 billion euros ($194.52 billion) from the EU. The disbursements are, however, linked to the completion of these reforms, so investors fear the next coalition might not follow through with Draghi’s plans, and hence may not receive all of the cash from Brussels.

The prime minister also revived Covid-19 vaccination efforts and contributed to an economic rebound. But throughout his mandate, Draghi had to struggle with a slew of political sensitivities.

More

How Italy's Draghi government collapsed (cnbc.com)

German retail sales fall by largest rate on record

Decline highlights scale of challenge facing eurozone’s largest economy

Mon Aug 1 2022 - 15:14

German retail sales fell at the largest annual rate since records began in 1994, highlighting the scale of the economic challenges facing the eurozone’s largest economy.

Retail sales volumes dropped 8.8 per cent in June compared with the same month last year, data from Destatis, the German office for national statistics, showed on Monday.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the figures were “miserable” and mainly due to the impact of soaring prices on consumer spending. Inflation in Germany is at a multi-decade high of 8.5 per cent.

The plunge in retail sales follows news on Friday that German economic growth stagnated between the first and second quarters, and figures showing that business and consumer confidence is now at its lowest level since the early months of the pandemic.

While the eurozone economy as a whole grew 0.7 per cent between the first and second quarters, analysts increasingly expect the region to enter a downturn in the coming months as the impact of Russia’s full-scale invasion of Ukraine on energy markets and confidence bites.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said manufacturing activity in Germany and elsewhere was “sinking into an increasingly steep downturn, adding to the region’s recession risks”.

The closely watched purchasing managers’ indices for eurozone manufacturing, also out on Monday, showed factory activity was now slipping across the eurozone.

The S&P Global PMI for German manufacturing dropped below the crucial 50 level, which separates an expansion in activity from a contraction, for the first time in two years.

Across the region, new orders fell — a sign that conditions are likely to remain tough in the coming months. The biggest risk facing the region is that tensions with Moscow worsen, triggering Russia to reduce — or halt — gas flows to the EU. Economists believe this would trigger a major recession across the bloc.

More

German retail sales fall by largest rate on record – The Irish Times

Hackers drain nearly $200 million from crypto startup in ‘free-for-all’ attack

PUBLISHED TUE, AUG 2 2022 7:46 AM EDT

Hackers drained almost $200 million in cryptocurrency from Nomad, a tool that lets users swap tokens from one blockchain to another, in yet another attack highlighting weaknesses in the decentralized finance space.

Nomad acknowledged the exploit in a tweet late Monday.

“We are aware of the incident involving the Nomad token bridge,” the startup said. “We are currently investigating and will provide updates when we have them.”

It’s not entirely clear how the attack was orchestrated, or if Nomad plans to reimburse users who lost tokens in the attack. The company, which markets itself as a “secure cross-chain messaging” service, wasn’t immediately available for comment when contacted by CNBC.

Blockchain security experts described the exploit as a “free-for-all.” Anyone with knowledge of the exploit and how it worked could seize on the flaw and withdraw an amount of tokens from Nomad — sort of like a cash machine spewing out money at the tap of a button.

It started with an upgrade to Nomad’s code. One part of the code was marked as valid whenever users decided to initiate a transfer, which allowed thieves to withdraw more assets than were deposited into the platform. Once other attackers cottoned on to what was going on, they deployed armies of bots to carry out copycat attacks.

----Instances of vulnerabilities and poor design have made bridges a prime target for hackers seeking to swindle investors out of millions. More than $1 billion in crypto assets has been stolen through bridge exploits so far in 2022, according to a report from crypto compliance firm Elliptic.

In April, a blockchain bridge called Ronin was exploited in a $600 million crypto heist, which U.S. officials have since attributed to the North Korean state. Some months later, Harmony, another bridge, was drained of $100 million in a similar attack.

Like Ronin and Harmony, Nomad was targeted through a flaw in its code — but there were a few differences. With those attacks, hackers were able to retrieve the private keys needed to gain control over the network and start moving out tokens. In Nomad’s case, it was much simpler than that. A routine update to the bridge enabled users to forge transactions and make off with millions’ worth of crypto.

Hackers drain nearly $200 million from crypto startup Nomad (cnbc.com)

 

Global Inflation/Stagflation/Recession Watch.  

Given our Magic Money Tree central banksters and our spendthrift politicians,  inflation now needs an entire section of its own.

House prices climb 11% despite cost of living squeeze

By Simon Read  Business reporter, BBC News 2 August, 2022

House prices are continuing to rise despite the growing cost of living crisis.

The Nationwide said prices climbed 11% in the last 12 months, although the rise over the last month was just 0.1%.

"The housing market has retained a surprising degree of momentum," said Robert Gardner, Nationwide's chief economist.

But he said that there were "tentative signs of a slowdown in activity".

The July figure was slightly ahead of June's annual rise of 10.7% and left the average house at £271,209.

"Demand continues to be supported by strong labour market conditions, where the unemployment rate remains near 50-year lows and with the number of job vacancies close to record highs," said Mr Gardner.

"At the same time, the limited stock of homes on the market has helped keep upward pressure on house prices."

The Bank of England is expected to increase interest rates by as much as 0.5% on Thursday when and that could "exert a cooling impact on the market" he said.

"We continue to expect the market to slow as pressure on household budgets intensifies in the coming quarters, with inflation set to reach double digits towards the end of the year."

First-timer buyer mortgage completions remain around 5% above pre-pandemic levels, according to the Nationwide, despite the rising affordability pressures caused by the cost of living squeeze.

"First-time buyer numbers remain strong but that is likely to reflect significant financial input from the Bank of Mum and Dad, as deposit levels rise along with house prices and interest rates," said Mark Harris, chief executive of mortgage broker SPF Private Clients.

More

House prices climb 11% despite cost of living squeeze - BBC News

UK small businesses scrap hiring plans in face of mounting economic uncertainty

TUESDAY 02 AUGUST 2022 12:01 AM

The proportion of UK small businesses seeking to expand their headcounts has plummeted over the previous quarter, according to new figures from the Association of Chartered Certified Accountants (ACCA).

Just 12 per cent of UK small and medium enterprises (SME’s) are currently looking recruit new staff, compared to 37 per cent in March, figures from ACCA’s monthly SME tracker survey show.

The drop come as just three quarters (75 per cent) of UK SMEs are currently seeking to grow their businesses, compared to 94 per cent in April, in the face of mounting concerns about the state of the UK economy.

The figures come as a fifth (20 per cent) of those surveyed said their growth had slowed over the past two months.

Meanwhile, seven per cent of UK SMEs predict they will run out of cash completely over the next 12 months, ACCA’s figures show.

Glenn Collins, Head of ACCA said: “The decline in SME optimism has clearly had an impact on business investment.”

“The stark recruitment figures demonstrate the stalling of investment in other lines of business and this is also filtering down to its people in terms of recruitment and development programmes.”

“Businesses are having to deal with soaring costs as well as supply chain bottlenecks which are having a huge impact on how they conduct business in a timely manner – as well as their ability to make capital investments. Our businesses need some certainty in these uncertain times.”

UK small businesses scrap hiring plans in face of mounting economic uncertainty (cityam.com)

Tesco joins petrol pump war with 6.5p cut to unleaded after Asda’s 9p drop

TUESDAY 02 AUGUST 2022 7:26 AM

Tesco has slashed its prices for petrol to help customers manage with the cost of living crisis.

The supermarket giant said the price of unleaded is set to fall by 6.5p and diesel by 4.5p, as many consumers and businesses continue to struggle with rising energy costs.

“We know how tough rising fuel bills have been for households across the UK, and so we hope that these price cuts will go some way to help – particularly as more families head out on their summer holidays this week”, said Tesco Chief Product Officer Ashwin Prasad.

 Tesco also encouraged shoppers to use their club card vouchers to get more cash off, as it allowed shoppers to earn points at the pump. 

This comes after Asda kicked off the pump wars, announcing it had cut 5ppl off unleaded and 3ppl for diesel last week. It was the second cut in prices in a week, taking the total to 9p off a litre of unleaded.

Forecourt prices for fuel have been criticised for not reacting quickly enough to the 5p cut in fuel duty, with the price of petrol soaring in recent months, before cooling a little in the last few weeks. 

Last week, AA fuel price spokesman Luke Bosdet commented on the drop, saying: “Asda’s price move is impressive, in effect cutting 10p a litre off the UK average price of petrol. That’s potentially a fiver off a tank for those filling up this weekend, compared to the artificially-high prices on too many major retailer forecourts and in too many towns.

“First, it was a few dozen small independent forecourts showing up the big boys. Now, Asda has called them out with on average a fiver off the cost of a tank of petrol. Latest UK pump price averages have petrol at 184.50p a litre (27 July).”

Tesco joins petrol pump war with 6.5p cut to unleaded after Asda's 9p drop (cityam.com)

Below, why a “green energy” economy may not be possible, and if it is, it won’t be quick and it will be very inflationary, setting off a new long-term commodity Supercycle. Probably the largest seen so far.

The “New Energy Economy”: An Exercise in Magical Thinking

https://media4.manhattan-institute.org/sites/default/files/R-0319-MM.pdf

Mines, Minerals, and "Green" Energy: A Reality Check

https://www.manhattan-institute.org/mines-minerals-and-green-energy-reality-check

"An Environmental Disaster": An EV Battery Metals Crunch Is On The Horizon As The Industry Races To Recycle

by Tyler Durden Monday, Aug 02, 2021 - 08:40 PM

https://www.zerohedge.com/markets/environmental-disaster-ev-battery-metals-crunch-horizon-industry-races-recycle

Covid-19 Corner

This section will continue until it becomes unneeded.

With Covid-19 starting to become only endemic, this section is close to coming to its end.

Number of Covid-19 hospital patients in England down a quarter since latest peak

Ian Jones – 01 August, 2022 16:59

The number of hospital patients in England testing positive for Covid-19 has fallen by more than a quarter in just two weeks, in the latest sign the current wave of infections is receding.

A total of 10,417 people with coronavirus were in hospital as of 8am on August 1, according to NHS England.

This is down 26% from a peak of 14,044 on July 18.

Patient numbers had risen steadily during much of June and the first half of July, driven by the spread of the BA.4 and BA.5 Omicron subvariants.

But levels are now on a downward trend, suggesting the virus is becoming less prevalent across the country.

The fall could help ease pressure on hospital staff, who are already attempting to clear a record backlog of treatment.

Most patients who test positive for Covid-19 are not being treated primarily for the virus, but still need to be kept isolated from others to minimise the spread of infections.

Figures published last week by the Office for National Statistics showed an estimated 2.6 million people in England were likely to have had Covid-19 in the week to July 20, down from 3.1 million in the previous week.

This was the first week-on-week fall in infections since late May.

More

Number of Covid-19 hospital patients in England down a quarter since latest peak (msn.com)

Next, some vaccine links kindly sent along from a LIR reader in Canada.

NY Times Coronavirus Vaccine Tracker. https://www.nytimes.com/interactive/2020/science/coronavirus-vaccine-tracker.html

Regulatory Focus COVID-19 vaccine tracker. https://www.raps.org/news-and-articles/news-articles/2020/3/covid-19-vaccine-tracker

Some other useful Covid links.

Johns Hopkins Coronavirus resource centre

https://coronavirus.jhu.edu/map.html

Centers for Disease Control Coronavirus

https://www.cdc.gov/coronavirus/2019-ncov/index.html

The Spectator Covid-19 data tracker (UK)

https://data.spectator.co.uk/city/national

Technology Update.

With events happening fast in the development of solar power and graphene, among other things, I’ve added this section. Updates as they get reported.

New hardware offers faster computation for artificial intelligence, with much less energy

Engineers working on 'analog deep learning' have found a way to propel protons through solids at unprecedented speeds

Date:  July 28, 2022

Source:  Massachusetts Institute of Technology

Summary:  Researchers have created protonic programmable resistors -- the building blocks of analog deep learning systems -- that can process data 1 million times faster than the synapses in the human brain. These ultrafast, low-energy resistors could enable analog deep learning systems that can train new and more powerful neural networks rapidly, which could then be used for novel applications in areas like self-driving cars, fraud detection, and health care.

As scientists push the boundaries of machine learning, the amount of time, energy, and money required to train increasingly complex neural network models is skyrocketing. A new area of artificial intelligence called analog deep learning promises faster computation with a fraction of the energy usage.

Programmable resistors are the key building blocks in analog deep learning, just like transistors are the core elements for digital processors. By repeating arrays of programmable resistors in complex layers, researchers can create a network of analog artificial "neurons" and "synapses" that execute computations just like a digital neural network. This network can then be trained to achieve complex AI tasks like image recognition and natural language processing.

A multidisciplinary team of MIT researchers set out to push the speed limits of a type of human-made analog synapse that they had previously developed. They utilized a practical inorganic material in the fabrication process that enables their devices to run 1 million times faster than previous versions, which is also about 1 million times faster than the synapses in the human brain.

Moreover, this inorganic material also makes the resistor extremely energy-efficient. Unlike materials used in the earlier version of their device, the new material is compatible with silicon fabrication techniques. This change has enabled fabricating devices at the nanometer scale and could pave the way for integration into commercial computing hardware for deep-learning applications.

"With that key insight, and the very powerful nanofabrication techniques we have at MIT.nano, we have been able to put these pieces together and demonstrate that these devices are intrinsically very fast and operate with reasonable voltages," says senior author Jesús A. del Alamo, the Donner Professor in MIT's Department of Electrical Engineering and Computer Science (EECS). "This work has really put these devices at a point where they now look really promising for future applications."

More

New hardware offers faster computation for artificial intelligence, with much less energy: Engineers working on 'analog deep learning' have found a way to propel protons through solids at unprecedented speeds -- ScienceDaily

There are three bodies no sensible man directly challenges: the Roman Catholic Church, the Brigade of Guards and the National Union of Mineworkers.

Harold MacMillan.