June 23, 2017

Perspective

WSJ – Wal-Mart to Vendors: Get Off Amazon’s Cloud – Jay Greene and Laura Stevens 6/21

  • “To do business with Wal-Mart, the retailer requires some tech providers to build the services on AWS cloud rivals.”

WSJ – Daily Shot: Brookings – Midlife mortality from “deaths of despair” 6/22

Worthy Insights / Opinion Pieces / Advice

FT – Inevitable Chinese slowdown ‘a myth’ – Steve Johnson 6/21

  • Essentially, there is precedence when looking at China’s Asian neighbors that would provide examples why the country has room to run. However, the credit boom of late is still a major concern.

FT – China has no choice but to walk financial tightrope – Diana Choyleva 6/21

  • “The warning signs of significant financial distress have grown in tandem with a surge in interbank borrowing and lending over the past couple of years. The strains have intensified since Beijing’s leaders made it clear in late 2016 that they were determined to rein in runaway debt and started nudging up money market rates as well as cracking down on nefarious shadow banking activities.”
  • “The risk of contagion is a key reason why China’s regulators are striving to rein in Wealth Management Products (WMPs), which totaled Rmb30tn at the end of April. The complex structure of WMPs typically yokes together any number of banks and NBFIs, which are now the largest borrowers on the interbank market.”
  • “Beijing is especially wary of banks allocating cash raised through WMPs to external asset managers. City commercial banks, which depend heavily on WMPs for funding, are particular enthusiasts of these ‘entrusted investments’, which totaled more than Rmb5tn at the end of 2016.”
  • “Regulators have taken aim at entrusted investments because they hide further layers of leverage and obscure the ultimate borrower. In recent weeks, the China Banking Regulatory Commission, under new chairman Guo Shuqing, has issued a flurry of directives to haul banks back into line. Banks have responded by pulling back their cash from the capital markets, increasing the very strains that the regulators want to avert.”
  • “A looming shake-out in the young, burgeoning interbank market for negotiable certificates of deposit (NCDs) could intensify a cash crunch. Regulators recently required banks to count NCDs as part of their lending and borrowing totals, dimming their attraction. More than 60% of outstanding NCDs will mature over the next four months, a big headache for those banks that rely on this source of funding.”
  • “Banks are not the only weak link. Insurance companies are net interbank lenders, but the breakneck expansion of some insurers is fanning concerns. China’s insurance regulator, worried about the risk of mismatched maturities, has clamped down on so-called universal life insurance policies, which are thinly disguised WMPs.”

Energy

WSJ – Daily Shot: BMI Research – U.S. Shale Output 6/22

WSJ – Daily Shot: GasBuddy – U.S. Average Retail Gas Price Chart 6/22

  • “It’s worth noting that despite these sharp declines in crude futures, US gasoline prices at the pump have barely budged.”

Environment / Science

NYT – 95-Degree Days: How Extreme Heat Could Spread Across the World – Brad Plumer and Nadja Popovich 6/22

China

FT – Alibaba taps user data to drive growth spurt – Louise Lucas 6/21

  • Data, data, data. The more I know about your customers, the more you’re willing to pay me to broker transactions. And the more I know about you (consumer), the better able I am to match you (sell you) with products you’d want.

FT – Big China companies targeted over ‘systemic risk’ – Lucy Hornby, Yuan Yang, Gabriel Wildau 6/22

  • “This is a game changer for Chinese M&A and could pretty much stop all outbound deal making in its tracks.” – Keith Pogson, EY’s senior partner for financial services in Asia.

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