Retail Sector To Consolidate Growth

Economic

Summary:

"The times of double-digit growth of consumption are over. I think China has been transitioning into a period of more moderate growth,"

China's consumer market is poised to gain recovery momentum this year, and the country's rising middle-income group is playing a vital role in driving consumption growth and unleashing immense retail sales potential, said Daniel Zipser, senior partner of global consultancy McKinsey & Co.

Zipser, who is also the leader of McKinsey's consumer and retail practice in Asia, said in an exclusive interview with China Daily that the country's consumption market has seen a moderate recovery so far and he anticipates this trend to continue. "The times of double-digit growth of consumption are over. I think China has been transitioning into a period of more moderate growth," Zipser said.

He added that although China's consumption sector is in a "mid-single-digit growth" phase, the rate is still "remarkable" compared with other markets around the world. Meanwhile, the recovery in the consumer services sector — including domestic and international tourism, food services, dining out and entertainment — is robust.

Zipser remains confident about the long-term prospects of China's consumer market, saying the country's growth over the past two decades derived largely from the rise of the middle-income group, and "there is still substantial potential ...for more urbanization, more income increases". The rise of the middle-income group will continue to drive consumption, he added.

He noted that Chinese consumers have become prudent and are very cautious about potential purchases, and when they spend, they try to get the best deal. Although some major e-commerce platforms in China have adopted a low-price strategy to attract price-sensitive consumers, Chinese shoppers, however, still want to buy premium brands when they can, he said.

Zipser said there is a clear shift from product consumption to service consumption. "We have seen a very strong and healthy recovery of tourism after the pandemic crisis," and that increase in tourism happens both within China and overseas.

China's consumer market has witnessed a sustained recovery. Retail sales, a significant indicator of consumption strength, grew 4.1 percent year-on-year in the first five months, said the National Bureau of Statistics.

Online retail sales jumped 12.4 percent year-on-year during the January-May period. In May, retail sales rose 3.7 percent year-on-year versus 2.3 percent in April, said the NBS.

The country has rolled out a raft of measures to spur the consumption of products and services such as automobiles, electronics, housing and home decor amid its broader push to boost momentum and stabilize the economy.

Zipser said innovative digital technologies such as artificial intelligence and big data play a crucial part in bolstering the recovery and growth of consumption, and livestreaming e-commerce is an innovation from China over the past couple of years.

In addition, the rise of Generation Z consumers — those born between the mid-1990s and the early 2010s — brings opportunities to both local and foreign brands alike, Zipser said.

"I think they're looking for the best products. And if basically local brands can answer your questions and are actually able to provide the highest quality of products, they will be eventually the brand of choice for young Chinese consumers," he said, adding that what the consumers care most about is actually product quality and the value-for-money they are getting from the product.

"People are not just looking for the cheapest product. They're looking for the lowest price for the brands they want," Zipser said. "If you come up with a new, innovative product, if you come up with a differentiated product, you will be able to actually ask for a higher price for that."

Pan Helin, a member of the Ministry of Industry and Information Technology's Expert Committee for Information and Communication Economy, said more efforts should be made to stabilize and expand employment, improve household incomes, and boost people's ability and willingness to spend so as to further spur consumption.

Pan said enterprises should be encouraged to use new-generation information technologies such as big data, AI and cloud computing to create new types of green and intelligent consumer goods.

Source:China Daily

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Cohen

Central Bank

Economic

A senior European Central Bank official has said the “remarkable” growth of private funds and other sources of finance outside the regulated banks is the biggest threat to the stability of the Eurozone’s financial system.

“There are certainly caution lights in front of us,” Elizabeth McCaul, an ECB supervisory board member, told the Financial Times.

“The most prevalent one is the area into which we likely have the least visibility and where things can move faster than . . . the normal credit dynamics — that is the non-bank financial intermediaries market.”

Non-bank financial intermediaries, often dubbed “shadow banks”, in the EU held assets worth €42.9tn in the third quarter of last year, against €38tn held by traditional lenders, according to the European Commission.

The sector’s growth since the global financial crisis had been “remarkable” and “something that always worries us”, McCaul said.

“It is outside of the banking supervisory and regulatory perimeter,” she added, stressing that opaque links between the sector and banks via repurchase agreements, lines of credit or derivatives raise concerns about what this “translates into for systemic risks”.

Top ECB official Sounds Alarm On Rising Risks From Shadow Banking_1

McCaul said there had been warning signs of how these risks could materialise suddenly, including the collapse of family office Archegos Capital Management three years ago, which resulted in $10bn of losses for investment banks including Credit Suisse and Nomura.

“We’ve had blips. Maybe even more than blips,” she said, adding that the sell-off in UK debt markets two years ago driven by losses from complex derivative-linked strategies in pension funds was “another warning light”.

McCaul is the only US citizen to sit on the ECB’s supervisory board since its creation a decade ago to oversee the biggest Eurozone banks.

She said Europe’s banking sector had “proven quite resilient in the face of some very significant challenges in the last few years,” after capital levels rose almost a quarter and non-performing loans shrank by two-thirds in the past decade.

But the rise of shadow lenders reminded her of the collapse of US hedge fund Long-Term Capital Management in 1998 when she was superintendent of banks in New York.

“You learn your lessons on the job,” she said. “I suspect correlation risk is occurring again.”

Top ECB official Sounds Alarm On Rising Risks From Shadow Banking_2

“Some of these funds, especially certain hedge funds, are becoming so big that they can partially move the market by themselves and are not likely to act as shock absorbers in the same way banks have sometimes,” she said.

US-based hedge funds Citadel and Millennium both manage over $60bn of assets apiece.

The ECB was “placing particular focus on the private equity and private credit markets,” she said, warning their exposures could be closely correlated with those of banks.

McCaul dismissed the assertion by some private equity executives that they are reducing risks by shifting activities off the balance sheets of banks and diversifying them among investors.

McCaul said their arguments had echoes of the claims made by those packaging up and selling subprime mortgage loans as collateralised debt obligations before that market imploded and caused the 2008 financial crash. “I’m reminded of the subprime crisis,” she said.

The world’s top financial watchdogs are working on ways to bring more transparency and reduce risks in lightly regulated areas outside the traditional banking sector. But they have so far been hesitant to bring non-banks under their direct supervision.

McCaul, who will leave the ECB in November, said it was checking if the 113 Eurozone banks it oversees have a full view of their exposure to non-banks.

“If an institution has lending arrangements, trading arrangements or hedging strategies connected to the NBFI market, we are asking what line of sight and due diligence they are conducting,” she said.

Source：Financial Times

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Warren Takunda

Cryptocurrency

Bitcoin closed in on $60,000 on July 10 as bulls fought for key trendline support. Bitcoin Sellers Are Trying to Keep Btc Price Below $60k_1

BTC/USD 1-day chart. Source: TradingView

BTC price RSI delivers classic reboun

Data from Cointelegraph Markets Pro and TradingView confirmed BTC price highs of $59,459 on Bitstamp on the day.

Swift gains into the Asia trading session left BTC/USD up 1.5% at the time of writing, with the pair bouncing from classic “oversold” conditions.

These had been widely discussed by market participants, in particular the relative strength index (RSI), which circled its lowest levels in ten months. Bitcoin Sellers Are Trying to Keep Btc Price Below $60k_2

Bitcoin Sellers Are Trying to Keep Btc Price Below $60k_2

Source: Kevin Svenson

“Bullish divergences on the daily confirmed,” popular trader Daan Crypto Trades wrote in part of a post on X (formerly Twitter) on July 9.

“Be on the look out for an overall high timeframe break out on the daily RSI at some point in the future.” Bitcoin Sellers Are Trying to Keep Btc Price Below $60k_3

Bitcoin Sellers Are Trying to Keep Btc Price Below $60k_3

BTC/USD chart. Source: Daan Crypto Trades/X

Popular trader and analyst Rekt Capital subsequently said that the RSI divergence was “playing out.”

Daan Crypto Trades flagged $59,000 as the “main price level” to reclaim, while others leaned toward $58,400 in the race to tackle resistance in the $60,000 vicinity.

“If $BTC can reclaim $58,400, a $60,000-$60,700 retest is likely,” trader Justin Bennett predicted.

“What happens between $60k and $58,400 will determine whether Bitcoin sees $67k or $48k next.”

BTC/USDT perp chart. Source: Justin Bennett/X

Bennett stressed that upcoming United States macroeconomic data prints in the form of the Consumer Price Index (CPI) and Producer Price Index (PPI) would be crunch events for Bitcoin market performance.

Bitcoin bears line up resistance of last resort

The latest data from monitoring resource CoinGlass meanwhile showed liquidity at that key level thin but building at the time of writing, with the majority cleared during the day’s push higher. Bitcoin Sellers Are Trying to Keep Btc Price Below $60k_5

Bitcoin Sellers Are Trying to Keep Btc Price Below $60k_5

BTC liquidation heatmap (screenshot). Source: CoinGlass

“Bitcoin is now challenging the 1.5-month Downtrend for a breakout attempt,” Rekt Capital continued. Bitcoin Sellers Are Trying to Keep Btc Price Below $60k_6

Bitcoin Sellers Are Trying to Keep Btc Price Below $60k_6

BTC/USD chart. Source: Rekt Capital/X

Current BTC price activity includes a battle for both the 99-day and 200-day moving averages (MAs), with BTC/USD now sandwiched between them. Bitcoin Sellers Are Trying to Keep Btc Price Below $60k_7

Bitcoin Sellers Are Trying to Keep Btc Price Below $60k_7

BTC/USD 1-hour chart with 99, 200-day MA. Source: TradingView

Source: Cointelegraph

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Samantha Luan

Economic

Cryptocurrency

Northwest Capital Management Inc., an investment advisory firm managing over $5 billion in assets, has recently revealed its foray into crypto through BlackRock’s iShares Bitcoin Trust (IBIT). The institutional adoption of BTC ETFs have soared lately with Grayscale’s GBTC also attracting significant investments. Furthermore, the growing institutional buying of Spot Bitcoin ETFs contrasts with the German government’s BTC Selloff.

BlackRock Bitcoin ETF Gets Another Institutional Investment

According to a Securities and Exchange Commission (SEC) 13F filing on July 9, Northwest Capital Management invested $1,775 in the second quarter of fiscal year 2024 to acquire 52 units of the BlackRock Bitcoin ETF. Moreover, this move signifies a notable shift for Northwest Capital Management toward digital assets investments.

Though the influx is not substantial, the investment sets a precedent for future endeavors of the firm. Similarly, City State Bank, an Iowa-based institution offering investment management services, disclosed its latest investments in BTC ETFs in its 13F filing dated July 8, 2024.

The filing revealed that the bank purchased 33 units of BlackRock’s iShares Bitcoin Trust during the second quarter. Additionally, City State Bank has retained its holdings in the Grayscale Bitcoin Trust (GBTC), having acquired 50 units in the first quarter of 2024. This continued investment signals a strong belief in Bitcoin’s long-term potential.

Amid the flurry of institutional investments, the BlackRock Bitcoin ETF has showcased impeccable performance with significant inflows lately. On Tuesday, July 9, BlackRock’s IBIT ETF scooped up a whopping 2134 BTC as ETF inflows continued. In addition, the Bitcoin (BTC) price is now nearing $59,000 owing to the positive market sentiment.

Moreover, the trend extends beyond City State Bank. The Bank of New Hampshire (BNH) recently revealed its BTC ETF investments in an SEC filing dated July 1, 2024. The bank invested $9,389 in BlackRock’s IBIT ETF, acquiring 275 units.

Furthermore, this marked BNH’s initial steps into the crypto market, suggesting a gradual embrace of digital assets. It’s worth noting that BNH is a subsidiary of Toronto Dominion (TD). Toronto Dominion is a Canadian banking giant that reported Bitcoin ETF exposure in its first-quarter filings. This connection spotlights a strategic maneuver within the TD group toward exploring the benefits of cryptocurrencies.

The recent disclosures indicate the beginning of the second round of 13F filings for Spot Bitcoin ETFs, hinting at the possibility of further institutional adoption of these ETFs in the coming days. The increasing interest from established financial institutions highlights a growing acceptance of digital assets as a viable investment option.

Earlier in the first quarter, 13F disclosures indicated a substantial increase in corporate investments in U.S. Spot Bitcoin ETFs. The data suggested that 937 institutional investors were considering investments in these ETF products, collectively contributing over $10 billion in assets under management (AUM). Moreover, the latest filings suggest that this trend could continue for the second quarter as well.

Meanwhile, the German government has expedited its Bitcoin liquidation with over 26,000 BTC dumped to exchanges and other addresses. These selloffs catalyzed the recent downward pressure on the BTC price, which extended below $54,000 due to growing FUD around German dump and Mt. Gox repayments. However, the institutional investments into Spot BTC ETFs suggests Fear of Missing Out (FOMO) for investment advisors and other institutions.

Source:Coingape

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ING

Economic

Commodity

Energy – US oil output forecasts revised higher

Oil prices sold off yesterday with ICE Brent settling 1.27% lower on the day, which took the market back below $85/bbl. Brent also fell below the 100-day moving average during the trading session, although prices should find some support along the 50-day and 200-day moving averages. Limited disruptions to energy infrastructure in the US Gulf Coast following Hurricane Beryl have eased some supply concerns. Fed Chair Powell’s testimony to the US Senate shouldn’t have had much of an impact on markets. Powell signalled a willingness to cut rates but also stated that more progress is required in bringing inflation down. Risks related to reducing policy restraint too soon or too much, as well as too late or too little were highlighted. Expectations for a September rate cut have changed little following the testimony.

The EIA’s latest Short-Term Energy Outlook saw small revisions higher in US crude oil production forecasts. The agency expects US crude oil production to grow 320k b/d year-on-year to 13.25m b/d in 2024. This is slightly stronger than the 310k b/d growth forecast last month. For 2025, output is expected to grow 520k b/d YoY, compared to a previous forecast of 470k b/d. These revisions come despite the US oil rig count drifting lower over the last month. For US natural gas output, the EIA forecast last month that dry gas production would fall 1.7bcf/d in 2024, however, the agency now expects output to fall by just 0.3bcf/d this year. Growth for 2025 has been trimmed from 2.3bcf/d last month to 1.7bcf/d currently.

OPEC will release its latest monthly oil market report today. We will keep an eye on the group's demand growth forecasts for this year and next. OPEC has been consistently more aggressive than the IEA with its demand numbers in recent months. Last month OPEC forecast oil demand to grow by 2.25m b/d and 1.85m b/d in 2024 and 2025 respectively, well above IEA demand growth forecasts of 960k b/d for 2024 and 1m b/d for 2025.

European natural gas prices continued to come under pressure yesterday. TTF settled 2.95% lower on the day, which saw the market settle at its lowest since mid-May. LNG supply concerns related to Hurricane Beryl have eased, while there are some suggestions that the strong Asian demand seen for much of this year could also slow. We continue to hold a bearish view on TTF and see prices moving towards EUR25/MWh. There is plenty of speculative money in TTF which will likely exit as fundamentals turn increasingly bearish. European storage now stands at 80% full vs a 5-year average of 70%.

Metals – China copper output rises

China’s refined copper production rose 9.5% year-on-year to 1.005mt in June (up from a previous estimate of 985kt), according to the latest survey from Shanghai Metals Market (SMM). However, it fell marginally by 0.4% from production levels in May. The group believes that production could rise by 1.8% to 1.11mt in July as smelters return from maintenance. In other metals, Chinese refined zinc output rose 1.8% month-on-month to 545.8kt in June, while it is expected to fall to 507kt in July due to maintenance amid concentrate shortages and regular repairs.

The latest COTR report released yesterday showed that investors boosted net bullish positions for copper by 9,156 lots for a second consecutive week to 85,601 lots for the week ending 5 July, the highest net long since 31 May 2024. For zinc, the net long rose by a marginal 173 lots to 31,154 lots, after reporting declines for five consecutive weeks. Finally, money managers trimmed their net long in aluminium by 364 lots to 125,762 lots.

Agriculture – Vietnam coffee exports under pressure

Robusta coffee futures edged higher yesterday supported by falling export estimates from the top producer, Vietnam. The latest estimate from the General Department of Vietnam Customs shows that coffee exports are expected to fall by 50.4% year-on-year (-11.5% MoM) to 70.2kt in June. This would be the lowest monthly export volume since 2010-2011. Poor weather conditions are largely behind these lower volumes. Tightness in Robusta has seen the spread between higher-quality Arabica and Robusta tighten.

The latest data from France’s Agriculture Ministry shows that soft-wheat production could drop by 15.4% to 29.7mt (the lowest in four years) in 2024. The decrease in production estimates is largely driven by lower area with planting falling 10.8% YoY to 4.2m hectares due to heavy rains.

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Warren Takunda

Economic

Today, the Bank of England's chief economist, Huw Pill, will offer clearer guidance on whether interest rates will be lowered at the August 01 Bank of England interest rate decision.

Pill will be the first permanent member of the Bank's Monetary Policy Committee to speak since the pre-election blackout period imposed on public servants, which means his words could move the market.

We know Pill and the MPC's 'core' members are leaning towards the need to cut interest rates, and the rule of thumb is that if expectations for an August cut build, the Pound can retreat. This would be in line with the median forecasts from over 30 investment banks, which shows GBP might already be too richly valued.

But any caution over a move in just three weeks, owing to high inflation and improving economic data, could bolster the Pound.

Pill's guidance follows political change in the UK and Eurozone, with France's recent legislative upheaval offering the Pound to Euro exchange rate a leg-up to highs near 1.19.

The UK's election had a limited impact, but some analysts say expectations for improved relations with the EU under the new government are constructive for the Pound's outlook.

However, what the majority of analysts can agree on is that interest rate policy will take control of near-term FX direction again.

"The modestly positive sterling reaction to election week played out in line with our expectations. Now that the election outcome is fully priced in, the market’s attention turns to the upcoming UK inflation release and the likelihood of an August rate cut. The BoE’s election-induced communications 'blackout' has ended, providing a clearer path for an imminent rate cut," says Joe Tuckey, Head of FX Analysis at Argentex.

"Sterling may struggle to make further near-term gains after this solid run," he adds.

Analysts at Capital Economics say Pound-Euro could now be set for a protracted spell of depreciation.

"We think yield differentials will shift in favour of the euro in the coming months. That’s because our forecast for where the ECB’s deposit rate will settle is not far below the rate implied by market pricing whereas we think the Bank of England will cut Bank Rate faster and further than investors seem to expect," says Diana Iovanel, Senior Markets Economist at Capital Economics.

Is that it? Pound Sterling's Rally Against the Euro Cools Ahead of a Big Test_1

Above: Markets see fewer rate cuts, and at a slower pace, than was the case in January. This shift has supported Pound Sterling this year.

According to market pricing, the likelihood of an August interest rate cut is above 60%, so it would not be a significant surprise, and we imagine GBP weakness is limited.

This is because markets still see a slow pace of easing in the coming months as the Bank remains cautious about the prospect of inflation proving stubborn.

The Bank's central expectation is that inflation will nudge higher above the 2.0% target into year-end, necessitating caution.

But Capital Economics thinks UK CPI inflation will fall to around 1.5% by the end of this year and stay below the Bank’s target for some time.

This can give the Bank cover to cut interest rates by a greater degree than markets currently expect, materialising a decline in the Pound.

Capital Economics forecasts the EUR/GBP exchange rate to strengthen by about 5% by the end of 2025, from recent lows at 0.84 to 0.88. This would correspond to a GBP/EUR move to 1.1363.

Source: Poundsterlinglive

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Cohen

Economic

China Vanke Co. warned of hefty losses in the first half, as the country’s property downturn took a toll on the closely watched developer that’s trying to secure cash to pay off debts.

State-backed Vanke expects to post a first-half loss of 7 billion yuan to 9 billion yuan ($962 million to $1.2 billion), it said in a filing late Tuesday. The projected loss signals a sharp downturn from the first quarter, when it lost 362 million yuan.

The homebuilder resorted to price discounts to reduce inventory and boost cash flow, squeezing profit margins. Investment in some projects has been “over-optimistic” and resulted in high land acquisition costs, it said.

At the same time, Vanke said it has made “repayment arrangements” on onshore bonds due in the second half of this year, and has no offshore notes maturing in the period.

Vanke’s update is the latest sign that China’s years-long property crisis continues unabated, as the government’s supportive policies have yet to materially reinvigorate homebuyer demand. The company, once considered one of the more sound players in the industry, has been raising funds and looking to sell assets to calm investor concern over liquidity stress.

The developer hasn’t reported a first-half loss since at least 2003, according to data compiled by Bloomberg. In the first half of 2023, it had a profit of 9.87 billion yuan.

“The company deeply apologizes for the performance loss,” it said.

Vanke’s Hong Kong-listed shares fell 1.8% on Wednesday, bringing this year’s decline to 39%. Its dollar bond due 2027 slid 0.9 cent to 61.9 cents, and its note due 2029 dropped 0.6 cent to 54.7 cents.

The earnings warning was significantly worse than expected, Jefferies Hong Kong Ltd. analysts led by Calvin Leung wrote in a note. “We believe the cash flow mismatch could widen, in turn lifting reliance on asset disposal and new financing.”

Vanke said many of its projects were developed on land acquired before 2022 that had relatively high purchase costs. Because they were sold during the subsequent market downturn, sales and gross profit margins were lower than expectations, shrinking profits.

Other developers that bought land before the property slump intensified — such as Longfor Group Holdings Ltd. and Greentown China Holdings Ltd. — may also issue profit warnings, according to Bloomberg Intelligence analysts Andrew Chan and Daniel Fan. “Major Chinese developers could write down their inventory as falling new-home prices are unlikely to turn around in the near term,” they wrote in a note.

Vanke said a package of plans was formed during the first half of this year for business reformation and risk mitigation. It also sought to slim down and achieved “positive progress.” Also, 74,000 homes were delivered and Vanke “ensured repayment of open market debts on schedule.”

On the bright side, executives told some analysts Tuesday that Vanke has reduced some of its short-term debt, according to minutes of the meeting published online by the builder. Debt refinancing and new financing has totaled 60 billion yuan this year as over 50 billion yuan of debt has been paid.

In a separate statement on Tuesday, Vanke said it has a combined 4.3 billion yuan of onshore bonds due in the second half of this year and has made “repayment arrangements.” It added 10.5 billion yuan of offshore bonds were repaid in the first half and that no such notes are due the rest of this year.

Vanke, whose major shareholder is a state-owned firm in Shenzhen, is one of the few distressed Chinese developers that have yet to default. Others such as Country Garden Holdings Co. and Shimao Group Holdings Ltd. face winding-up hearings in Hong Kong courts, while former giant China Evergrande Group has been ordered to liquidate.

Vanke continues to face headwinds as its home sales growth stalled in June. Its month-on-month contracted sales rose 7.9%, much slower than the average 36% increase at the 100 biggest real estate companies in China.

Vanke Warns of $1.2 Billion Loss on China’s Housing Slump_1

The builder’s June sales reached a breakeven level of 25 billion yuan, Jefferies estimated, but part of it was driven by front-loaded purchases following the easing of home-buying rules in May. With diminishing room for cities to further relax property measures, analysts including Leung remain skeptical on the sustainability of sales into the second half.

The preliminary interim loss is likely to extend into a full-year one, according to JPMorgan Chase & Co. property analyst Karl Chan.

“As Vanke’s priority is to prevent a bond default, we think the margin squeeze will continue as Vanke would likely have to prioritize cash flows over profitability,” Chan said.