China Pricing Power Grows

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China Pricing Power Grows

Morning Meeting

VBL

May 09, 2024

∙ Paid

Housekeeping: Good Morning.

Bretton Woods Three is a Process, Not an Event.

Today:

Premium: Rabobank on Global Monetary Reserves
Commentary: LBMA welcomes China even more

Markets Yesterday:

US equities were mixed on Wednesday amid a slew of corporate earnings reports.

Premium/Markets:

Fragmented Money

The currency composition of cross-border payments for US-leaning countries is unchanged, but for those China-leaning the CNY share has more than doubled, from around 4% to 8% - and this is not only Russia, but a broader upstream trade commodity finance shift I have flagged before. She notes:

China’s shift from SWIFT to its own CIPS;
Central banks’ increased gold purchases for FX reserves;

She also flags the potential risks of trade fragmentation like Brexit on steroids, financial fragmentation that will see capital flows shift, and even that “the global payment system could become fragmented along geopolitical lines with the emergence of new payment platforms with limited or no interoperability.” Which is what happened in the 1930s, as well as in the Cold War, and which I have flagged as a risk repeatedly for years – and I have stressed that the dollar still wins even in a fractured world order where we all lose.

China’s share of gold in total FX reserves has increased from less than 2 percent in 2015 to 4.3 percent in 2023. During the same period, the value of China’s holdings of U.S. Treasury and Agency bonds relative to FX reserves has declined from 44 percent to about 30 percent. This reflects both net purchases and valuation effects.

The share of gold in the FX reserves of the China bloc has been rising since 2015—a trend not exclusively driven by China and Russia. Importantly, during the same period, the share of gold in FX reserves of countries in the U.S. bloc has been broadly stable.

LBMA Notes

Since 2019 12 refiners added

9-10 china
1 Kazakh
1 Au.

News:

"Uber reported first-quarter results on Tuesday that beat expectations for revenue but fell short of estimates for gross bookings. The company’s revenue grew 15% year over year to $10.13 billion. Uber’s net loss widened to $654 million from $157 million in the same quarter last year." Source: CNBC

"Toyota has forecast a 20 per cent decline in annual profit as the world’s largest carmaker increases spending in electric vehicles and artificial intelligence in an attempt to create a “game changer” to compete against Chinese rivals Source: FT

"General Motors is saying goodbye to the Chevrolet Malibu. After selling more than 10 million Chevy Malibu cars worldwide over several decades, the automaker said Wednesday it would stop making the sedan in November. Source: WSJ

"The Biden administration is poised to open up a new front in its effort to safeguard U.S. AI from China with preliminary plans to place guardrails around the most advanced AI Models, Source: CNBC

Geopolitics:

US President Biden said if Israel goes into Rafah, he won't supply them with weapons and artillery shells, while he added that Israel will not get their support if they go into those population centres and that bombs the US had supplied to Israel and now paused have been used to kill civilians. Biden also commented that Israel has not gone over the red line yet
Israeli senior officials warned their US counterparts that the Biden administration's decision to pause a weapons shipment to Israel could jeopardise hostage negotiations, according to two sources briefed on the issue told Axios' Ravid.
Adviser to Iran's Supreme Leader said Tehran will have to change its nuclear doctrine if its existence is threatened and has the capability to build a nuclear weapon, according to SNN.
Ukraine drone attack sparked a fire and damaged oil tanks at a refinery in Russia's Krasnodar, according to regional officials.

Some headlines via NewSquawk or DataTrek