With new developments arising over the respective regions, here are our market highlights for last week.
China
China take actions against US diplomats reciprocating US measures against Chinese diplomats
This week, Beijing announced that it will take retaliatory measures against U.S. diplomats in China, including those located in Hong Kong, following earlier moves by the Trump administration to limit the ways Chinese diplomats can operate on U.S. soil. While Zhao Lijian, the Chinese Foreign Ministry spokesman, has mentioned that China has notified the US of its specific “reciprocal” measures, no details of the measures are known to the public. The new measures are brought to light after US Secretary of State Michael Pompeo released new rules that are designed to match those already imposed on American diplomats in China on Chinese diplomats earlier this month.
“The U.S. practice has severely violated international law and basic norms governing international relations and disrupted China-U.S. relations and normal exchanges between the two sides,” Zhao claimed.
Meanwhile, the US State Department officials commented that most of the restrictions on Chinese diplomats are not new, and most U.S. diplomats in China have long worked under severe limitations when doing routine diplomatic work. The officials also claimed that China has actively “discouraged” Chinese officials and citizens to meet with American diplomats.
Furthermore, the US officials said China’s new rules include new restrictions on organizing meetings and visits as American diplomats now have to seek approval from the foreign ministry before meeting with students and local officials or visiting educational institutions, research labs and local government facilities. Larger scale events are also more heavily regulated as the hosting of cultural events with more than 50 people outside the embassy compound must now be notified to the ministry beforehand.
Hong Kong
U.S. Sells Hong Kong Consultant Compound, Further Escalating US – China Tension
U.S. further escalates tensions between China by selling its consultant compound for HK2.57 billion (or $332 million) to Hang Lung Properties Ltd. The staff compound is located in Shouson Hill, one of the most exclusive neighborhoods on the southern side of Hong Kong Island.
On Wednesday, a U.S. government representative came forth to shed light on the decision to sell the consultant staff compound. The representative stated that it was part of its global reinvestment program to sell the compound and that some of portion of the proceeds of $332 million will be reinvested into other properties that the U.S. owns in Hong Kong.
However, the sale occurred at a rather sensitive time with many U.S. companies already considering moving operations out of Hong Kong due to the political conflicts and disputes happening in the city. According to a survey conducted by the American Chamber of Commerce in Hong Kong, 40% of its 154 members were thinking about moving out of Hong Kong.
EU
The much anticipated ECB meeting – policies unchanged
After seeing the euro appreciate to a record level and deflation in the Eurozone economy, markets were eager to know ECB’s response and some investors were hoping for additional stimulus into the economy to bring the euro down. Concurrently, some market experts did not expect any policy changes by ECB as there was not much room to lower interest rates and they also cited that euro appreciation stemmed from weakening of the USD.
So what exactly went down during the ECB meeting on Thursday? There was extensive discussion by the central bank and they have concluded that interest rates were to be left unchanged and will carefully monitor the exchange rate. Christine Lagarde added though that the exchange rate was “not a policy target” and even announced that the ECB had raised its forecast for 2021 inflation and economic growth. This hawkish stance from the ECB, coupled with their seemingly dismissive stance towards inflation, took the markets by surprise and even caused the euro to increase towards $1.20 again. As the euro appreciates against the dollar, it will continue to weigh on the already negative inflation.
Moving forward, if the euro continues to appreciate and weigh on the already negative inflation rates, and the ECB continues its current stance, things will not look good for the Eurozone economy.
UK
Virus resurgences and Brexit negotiations off to a wonky start
The selloff of the Pound this week has been largely reflective of the market’s uneasiness of the increasing prospect of a no-deal Brexit. Aside from the usual sticking points, the latest issue is the UK’s Internal Market bill which seeks to ensure the continuation of frictionless trade between all four nations of the UK by overriding certain aspects of the Withdrawal Agreement- provision on state aid and Northern Ireland Protocol. The UK government has even admittedly agreed that the bill would be disregarding the international law. In response, the European Commission has cited this as “damaging the trust between the UK and the EU” and gave the UK an ultimatum to drop the bill or trade negotiations would be called off. This comes after Thursday’s talks which saw no developments as expected. Hence, most analysts see this as a negotiating tactic to put some pressure on the talks in order to speed things up by trying to evoke some movement from the EU. Moreover, given the contentious nature of the bill, there is a likelihood that the bill might not even be passed at all. Despite this, a deal of some sorts is still expected to be struck as it is to the benefit of both parties to have one in place.
Meanwhile, Covid cases have surged once more as the UK recorded its highest daily cases since May for 2 consecutive days this week (3000 new cases, up from 1400-1700 cases in the previous week). The R figure has now gone above 1 which signifies that the transmission rate has gone up, meaning that we can expect to see high numbers in the following weeks. Group restrictions are now imposed in Birmingham and other cities might follow suit to contain the spread early on.
United States
Tik Tok acquisition progression
There is potential for a deal in the coming weeks as Trump’s administration threatened ByteDance to be acquired by a United States company by November 12th. According to the Wall Street Journal, ByteDance is currently negotiating the terms of the deal with Trump’s administration in avoidance of full sale Tik Tok operations in the States, remembering how big the United States market role is in Tik Tok revenue. Several frontliners like Microsoft, Oracle, Walmart and Softbank have shared their interest in dealing with ByteDance.
Last month, there was a rumor that Microsoft was considering purchasing Tik Tok’s global operations. However, this week, it has been confirmed that Microsoft’s bid was rejected by ByteDance, Tik Tok’s owner. Hence, after several rounds of talks together with the public and Trump administration’s intervention, Microsoft ultimately failed in its attempts to acquire TikTok.
Microsoft’s failed bid has opened the door for another potential buyer, Oracle. According to Yahoo Finance, the deal between Tik Tok and Oracle has been confirmed to be a restructuring instead of a full sale. Although the restructuring details are being disclosed by ByteDance, it can be confirmed that Oracle is going to be in charge of Tik Tok’s United States user data. However, this deal requires both governments approval in order to move to the next stage.
Although Oracle may look like the most likely candidate, everything seems to be very complicated with this ongoing TikTok saga, so it is reasonable to expect some more twists and turns in the coming days and weeks.
The M Word 