Guinness Nigeria was incorporated in 1983.  The company is a subsidiary of Diageo; a leading drinks manufacturer listed on the London Stock Exchange and New York Stock Exchange.  The company manufactures and sells drinks across all categories including alcoholic and non-alcoholic beverages, which include iconic local and international brands such as Guinness, Orijin and Johnnie Walker Whisky.  It is the world’s second-largest market for Guinness, strong and diversified portfolio of brands and Nigeria’s first and only Total Beverage Company. – Read more here https://optionxpress.wordpress.com/2021/11/08/guinness-nigeria-plc/

MARGIN LOAN/TRADING VS. STOCK LOAN|By Idika Aja, ACS

MARGIN LOAN/TRADING VS. STOCK LOAN|By Idika Aja, ACS

Eleven (11) years ago, Nigerian money deposit banks were heavily exposed to margin loans, leading to AMCON purchasing all the margin loans or facilities that the banks granted to stock broking firms to purchase shares in the capital market. These facilities included all the non-performing loans granted by all the five commercial banks taken over by CBN then, amounting to combined toxic assets in excess of N2.2 trillion. Prior to this period, for 10 years (1999 – 2008), the Nigerian stock market grew, soared and gained extreme strength.  The market experienced a period of record expansion and boom.  Investors, market operators, regulators and market analysts were all pleased with this development. Read more below

https://optionxpress.wordpress.com/2021/08/02/margin-loan-trading-vs-stock-loanby-idika-aja-acs/.

OKOMU OIL PALM PLC  –  “OUR STOCK OF THE WEEK –  SEPTEMBER 24, 2021”

OKOMU OIL PALM PLC – “OUR STOCK OF THE WEEK – SEPTEMBER 24, 2021”

Okomu Oil Palm PLC emerged the NSE30 stock of the week ended September 24, 2021.  Share price and market capitalization appreciated by 5.77% W-o-W; gaining N6.00b W-o-W; closing at a market capitalization of N104.93bn.  Okomu Oil is the 81st most traded stock on the NGX over the past 3 months (July 2 – September 30, 2021) trading a total volume of 9.87 million shares in 1,589 deals valued at N1.04b over the period. On net income, Okomu Oil placed a distant 20th with N7.387bn, while Dangote Cement topped the list with a net income (2020) of N275.08bn, followed by Zenith Bank (N230.37bn). Over the past three months, the share price moved +/- 2% a week.  Share price volatility is less than 75% of NG stock over the past three months. 

On the other hand, the NSE 30 appreciated by 0.08% w-o-w to close at a market capitalization of N16,695.67 Billion; a net gain of N14.44bn.

TABLE 1 – NSE30 COMPONENTS

S/N WEEK – 24/9/21WEEK – 17/9/21
  % +/(-)AMT IN BN% +/(-)AMT IN BN
1Okomu Oil5.77%6.00-5.45%-5.72
2Presco Plc-8.18%-6.500.00%0.00
3Guinness Nig Plc0.00%0.00-3.23%-2.19
4International Breweries0.00%0.000.00%0.00
5NB Plc0.00%0.000.21%0.80
6Dangote Sugar0.00%0.00-2.27%-4.86
7Flour Mills0.00%0.000.52%0.62
8NASCON Allied Ind.4.59%1.720.00%0.00
9Nestle Plc0.00%0.000.00%0.00
10Unilever Nig Plc-2.22%-1.720.00%0.00
11Transcorp Plc0.00%0.002.20%0.81
12Access Bank-0.56%-1.78-2.17%-7.11
13ETI4.95%6.181.00%1.24
14FBNH0.00%0.00-0.66%-1.79
15FCMB-0.34%-0.20-1.00%-0.59
16Fidelity Bank0.82%0.585.65%3.77
17GTB Plc-0.89%-7.363.51%27.97
18StanbicIBTC0.00%0.00-1.89%-9.72
19Sterling Bank-1.34%-0.58-0.67%-0.29
20UBA Plc-1.32%-3.420.00%0.00
21UBN2.06%2.91-3.00%-4.37
22Zenith Plc-1.26%-9.42-0.83%-6.28
23Custodian Investment0.00%0.000.00%0.00
24MTNN0.00%0.001,45%50.89
25BUA Cement0.00%0.000.00%0.00
26Dangote Cement Plc0.41%17.040.00%0.00
27Lafarge (WAPCO)4.19%14.50-4.02%-14.50
28Seplat Petroleum0.00%0.00-6.54%-29.25
29United Capital-3.37%-1.8011.25%5.40
30Total Plc-3.61%-2.440.00%0.00
 NSE-30 INDEX0.08%13.440.03%4.81

The Company operates through two segments: Palm oil products and Rubber products. The Company produces Banga cooking oil and natural rubber products. The Company’s plantation carries on the business of oil palm and rubber cultivation. The Company has ongoing plantation operations in Cote D’ivoire, Liberia, Guinea, Cameroon, Kenya and Indonesia.

From the 2019 audited account, when compared to year 2018, most of the profitability and efficiency metrics declined.  For instance, Total revenue declined by 11.31%; operating revenue (-6.86%); EBIT (-27.44%); EBT (-27.22%); profit after tax from continuing operation (-40.61%) and Comprehensive income after tax (-34.85%).

Equally in 2019, return on equity dropped to 18.40% from 28.90% in 2018, despite that financial leverage increased by 10.15%, which ordinarily should have boosted the ROE, but marred by 2019 drop in net profit margin and asset turnover compared to 2018.  In essence, the company could not make optimal use of the increased asset base to generate more revenue in 2019, maybe because the biological asset class, the major boost on the total asset in 2019 was yet to be fully put in use.

According to the Company Chairman’s report; the decline in 2019 was due to the immense surge in illegal imports of Olein into Nigeria that led to the effective log jamming of all sectors of the oil pipeline for nearly two quarters.  He also stated that the drop in the world market price for crude palm oil caused by US-China trade and increase in import duties by India, the world largest importer of palm oil, also caused the poor performance in 2019.

By the end of Q1 2020, things improved. Operating revenue in Q1 2020 grew by 65.5%; Total comprehensive income grew by 101.4%; Return on Equity by 88.41% and return on total assets by 118.42%.  The strong movement may not be unconnected to the favourable business environment as a result of government policies – the closure of all borders to CPO and other allied products led to the significant decline in illegal products in the marketplace from third quarters.  The increase in revenue of about 65.52% was attributable to increased domestic sales due to this border closure.  Apart from the closure, CBN intervention programs in support of domestic agriculture also helped coupled with good domestic pricing.

The initial shock of COVID-19 on commodity supply-demand chain disruptions, drop in global palm oil price to its lowest in May 2020 somehow affected the company’s performance in Q2 2020 side by side Q1 2020, though an increase compared to Q2 2019.  Operating revenue for Q2 2020 for instance grew by 57.9% compared to Q2 2019, but in Q1 2020, it was 65.52%, same with total comprehensive income that grew by 58.4% in Q2 2020 to Q2 2019.  Return on equity and return on total assets in Q2 2020 grew by 47.75% and 75.75% respectively to Q1

FY 2020 results of the company followed an earlier forecast based on global palm oil price recovery, increase in global consumption by 2% to 76.2 million tons and market characteristics and forces were expected to continue to reassert.  The company in 2020 recorded a combined revenue of N23.4 Billion; 24% higher than 2019 consolidated revenue in 2019.  Earnings before tax was 18% higher YoY and taxes were 57% lower YoY leading to a consolidated net profit of N7.38 Billion; being 34% higher than 2019, mainly because of higher product prices and lower tax commitments.

For the 2021 half year ended June 30, 2021, the company declared net income of N9.535bn; a growth of 138.14% compared to H1 2020 net income of N4.007bn.  This growth is not unconnected to the drop in finance cost. Finance cost dropped from N310.649 Million (H1 2020) to N80.802 Million (H1 2021), though turnover grew by 81.37% from N13.527bn (H1 2020) to N23.627bn (H1 2021).  Forecasted turnover and net income is to hit N39.680bn and N13.905bn respectively by the end of 2021. Going by the H1 2021 results, this projection is most likely to be achieved.

In terms of solvency, the company’s debt to equity ratio at 29.4% is satisfactory, since it is below 40%, coupled with the fact that the debt is well covered by the company’s operating cash flow put at 168.5% above the acceptable threshold of 20%. On profitability, the company returned N24.27 for every Naira of shareholder’s investment while Presco Plc (its peer) returned N15.16 for every Naira of shareholder’s investment.

From the foregoing analysis, forecast and utilizing a mixture of Dividend Discount Model (DDM) and earnings multiples valuations, we maintain a BUY recommendation.

All of the views expressed in this report are independent views/opinions, recommendations regarding the companies, securities, industries or markets discussed here and not influenced by any compensation or remuneration from referenced company(ies).

Idika Aja, ACS, writes from Lagos and can be reached on 08034003768

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CENTRAL BANK DIGITAL CURRENCY (E-NAIRA); WHAT YOU NEED TO KNOW

CENTRAL BANK DIGITAL CURRENCY (E-NAIRA); WHAT YOU NEED TO KNOW

Due to the increasing popularity of bitcoins, world’s apex banks have been working towards developing government-backed digital currencies.

From CBN’s February 5, 2021, instruction to banks and other financial institutions to refrain from dealing with crypto currency (a digital currency) and facilitating payment for crypto currency exchanges, the apex bank by October 1, 2021 will launch Nigeria’s Digital Currency dubbed “e-naira”.  CBN had on August 30, 2021 announced Bitt Inc as a technical partner in the digital currency scheme. Bitt Inc, is a financial technology business that uses block chain and distributed ledger technology to enable safe peer-to-peer transactions with seamless mobile money across Bitt’s software and mobile apps.  According to CBN, Bitt Inc. was key to the development and successful launch of the central bank digital currency (CBDC) pilot of the Eastern Caribbean Central Bank (ECCB).  So the selection of the company was hinged on the company’s technological competence, efficiency, platform security, interoperability, and implementation experience and tested and proven digital currency experience, which is already in circulation in several Eastern Caribbean Countries.

E-naira is an electronic form of legal tender; a platform believed to drive digital transactions, e-commerce, import and export, financial derivatives and other transactions. E-naira has some similarities with crypto currencies and as well as some differences.  It operates on a similar platform. In fact one physical Naira will be equal to one E-Naira. While CBDC is permitted, crypto currencies are not permitted. E-Naira will not grow in value like Bitcoin or other crypto currencies, but will function the same way like Bitcoin.

Prior to the launch date, guidelines, clarifications have been issued and made. CBN is not going to be in competition with the banks but is going to participate in the space with Banks, Fintechs, NIPS, Telecom, etc. for the first day, CBN is to deploy and later, the FIs are to be integrated at zero cost in the CBN APIs at different stages depending on the robustness of their respective IT systems. Banks already have an e-wallet platform, it is just to migrate and upload.  The existing interbank transfer system will still prevail.  E-wallet is to be initiated by customers, from banks to CBN.

The liability of the e-naira money is directly on CBN, the same way the liability of the cash we hold today rests with the apex bank. However every stakeholder takes responsibility and liability.  For instance, if lapse is from the customer; such as misplacement of PIN, of course the customer takes liability, but if the loss is systemic, then the FIs and/or CBN take responsibility. It will have the same value with the same physical naira but not backed with physical cash.  The same way physical cash is accepted as a legal tender, e-naira is to be accepted as a form of payment by all merchants and business outlets. The e-naira will be available for corporate accounts but not on day one.  As the system upgrades and integrates, it will come in.  The scheme is going to be started in pilot in some states; Lagos, Kano, Abuja and Port Harcourt.

Upon launching, CBN will provide an interim e-wallet (speed wallet) for customers until FIs develop and launch their individual wallets. There are going to be 4 types of wallet; Tier 1, 2, 3 and the merchant. 

TypeCumulative Balance LimitTransfer LimitKYC Requirement
Tier 1N300,000N50,000No existing bank account, phone validated by NIN
Tier 2N500,000N200,000Existing bank account and BVN
Tier 3N5,000,000N1,000,00Existing bank account and BVN
MerchantNo limitN1,000,00Full KYC Requirement and anti-money laundering and terrorism regulation of the CBN

Tie 1 e-wallet holders are unbanked and expected to use their phone numbers and other personal data to register. That means if your transaction value is less than N50,000 a day, you do not need a bank account to the e-naira; you can use a NIN verified phone number to buy e-naira

For the pilot scheme, the participants are CBN, FIs, e-Government, Merchants, and Retail Consumers. CBN will be handing the first product component that includes issue, distribute, redeem and destroy the currency. Store data on a cloud server, monitor and analyse currency transactions.

The licensed financial institution will be able to request currency or issue stable coins, manage digital currency across branches, KYC, identify and AML compliance capability, while the government will be able to efficiently process digital payments sent to and received from citizens and businesses.

Merchants will provide low-cost payment and business management software, POS, remote payment solutions, online capabilities, transaction analysis and reconciliation. The Retail Consumer Suite features user-centered designs for a great user experience. The architecture will be expandable to enable innovation; features advanced privacy and security.

The aim of the e-naira is to lower pressure in the use of cash, ensures that CBN is in control of the financial system, increase financial inclusion, and help the apex bank drive certain policy on tax allocation and management and cross border transactions.

It is also believed that the CBDC will help strengthen the banking system and make it easier to comply with existing laws such as anti-money laundering, customer protection against fraud and ensure the safety and stability of the payment system.  The e-naira offers all the benefits of cash but in digital form.

Another advantage is cost. The cost of printing physical cash is very high.  This high cost translates to higher cost of transaction and charges. But it virtually costs nothing to create digital currency, which consequently translates to lower fees users will pay.  Transaction invariably will come down and thus transcends even to the un-banked.

Another advantage is efficiency.  The technology is fast and efficient; about 99% efficient.  There will be nothing like partial execution of transactions; either it goes or it fails and with minimal intermediaries.

The e-naira has a non-interest bearing CBDC status and no charges on merchant services, user-to-merchant and peer-to-peer wallet transactions.  Also zero charges will apply when users send money from their wallet to bank accounts or make withdrawals at agent or merchant locations.

For you to receive and spend e-naira, you need to have an electronic wallet.  To have an e-wallet, you have to download the e-naira app from the Android Google Play Store and Apple iOS store and then follow the typical instructions in connecting your bank. The bank will do the KYC and create your e-naira wallet. Your e-wallet comes with strong encryption; that gives the user/owner full control of it. 

Once you have your e-naira, you can access it by logging in with your credentials to perform transactions electronically. For funding, you fund it just the way you fund your normal bank account or utilize the option of walking into a bank, hand over your cash and have it digitized, especially for those who already have bank accounts.

Idika Aja, ACS, writes from Lagos and can be reached via E-mail – idikaaja@yahoo.com or 08034003768. Article first published by National Business Extra Newspaper. Page 17 below:

INTERNATIONAL BREWERIES PLC  –  “OUR STOCK OF THE WEEK –  SEPTEMBER 10, 2021”

INTERNATIONAL BREWERIES PLC – “OUR STOCK OF THE WEEK – SEPTEMBER 10, 2021”

International Breweries PLC emerged the NSE30 stock of the week ended September 10, 2021.  Share price and market capitalization appreciated by 3.23%; gaining N4.03b W-o-W; closing at marketing capitalization of N128.94bn.

On the other hand, the NSE 30 dipped further by -0.31%; losing N54.68bn compared to previous week ended September 3, 2021.

On Thursday, September 16, 2021, the ASI YTD performance worsened to -3.38%, as the ASI declined 0.15% to settle at 38,911.31 points due to sell pressure in stocks like INTBREW, DANGSUGAR, WAPCO, GTCO, UBN and ETERNA.

S/N WEEK – 3/9/21WEEK – 27/8/21
  % +/(-)AMT IN BN% +/(-)AMT IN BN
1Okomu Oil0.00%0.000.00%0.00
2Presco Plc0.00%0.008.90%6.50
3Guinness Nig Plc0.00%0.000.00%0.00
4International Breweries3.23%4.03-1.06%-1.34
5NB Plc1.35%5.20-7.69%-31.99
6Dangote Sugar-0.85%-1.82-0.56%-1.21
7Flour Mills-3.50%-4.133.45%4.10
8NASCON Allied Ind.0.00%0.000.00%0.00
9Nestle Plc0.00%0.000.00%0.00
10Unilever Nig Plc0.00%0.000.00%0.00
11Transcorp Plc-3.19%-1.222.17%0.81
12Access Bank0.00%0.001.10%3.55
13ETI-9.09%-12.370.92%1.24
14FBNH0.67%1.790.00%0.00
15FCMB1.69%0.99-3.91%-2.38
16Fidelity Bank-2.13%-1.45-2.08%-1.45
17GTB Plc-2.87%-23.541.09%8.83
18StanbicIBTC-2.39%-12.31-3.05%-16.20
19Sterling Bank-0.66%-0.29-1.95%-0.86
20UBA Plc-1.94%-5.133.33%8.55
21UBN0.00%0.00-1.96%-2.91
22Zenith Plc-0.41%-3.14-1.23%-9.42
23Custodian Investment2.29%0.883.15%1.18
24MTNN0.00%0.000.00%0.00
25BUA Cement0.00%0.000.00%0.00
26Dangote Cement Plc0.00%0.00-1.84%-78.39
27Lafarge (WAPCO)0.00%0.001.82%6.44
28Seplat Petroleum0.00%0.000.00%0.00
2911 Mobil Plc0.00%0.000.00%0.00
30Total Plc0.00%0.000.00%0.00
 NSE-30 INDEX-0.31%-54.68-0.62%-104.94

International Breweries Plc was incorporated in December 1971 by its founder and first Chairman, Dr. Lawrence Omole under the name International Breweries Limited. The Company commenced production of its flagship product Trophy Lager in December 1978 with an installed capacity of 200,000 hectoliters per annum.  Other brands packaged and marketed by International Breweries Plc include Castle Milk Stout, Castle Lager, Redds, Hero, Grand Malt and Voltic Water.

Currently, INTERBREW is unprofitable and not forecasted to become profitable over the next three years.  For the years 2020, 2019 and 2018, the company declared loss after tax of (N12,365.08) Million, (N27,790.67) million and (N3,933.45) million respectively. The loss continued in 2021.  For the H1 2021 ended June 30, 2021, it declared a net loss of (N11,308.63) Million. The last time the company declared profit was in 2017; a profit of N1,395.23 Million.

In terms of return, it posted a good return, better than the NG Breweries and NG Market with relatively low volatility in share price movement.  Still on the positive side, the stock is considered undervalued; trading (N5.00) 75.5% below its estimated fair value of N20.39.  Picking undervalued stock is good especially with the anticipation of a sustained depressed sentiment as the market within the week ended September 17, 2021 witnessed bargain hunting for bellwether stocks.

However, because the company is unprofitable, its PE ratio could not be compared to the African Beverage Industry and the NG market.  Typically when you are buying stock in a company with a negative P/E, you should be aware that you are buying shares of an unprofitable company with associated risks.

Idika Aja, ACS, writes from Lagos and can be reached on 08034003768

Politics

Politics

Balance of Power from Bloomberg Politics

Three words uttered in a throwaway moment sent markets into a tailspin last night, showing just how fragile the global economy has become — and how fraught the political environment is.The sense of panic that: “It’s over. Yes” caused is a reminder that, with deep recessions caused by the Covid-19 pandemic, now is not the time to add another log to the economic bonfire.The comments from Donald Trump’s hawkish trade adviser Peter Navarro — in response to a long question by a reporter on whether parts of the China-U.S. trade deal were “over” — necessitated the intervention of the U.S. president to hose things down.“The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!” Trump said in a Twitter post. China said Navarro’s comments had no credibility.The whipsaw from the trade remarks points to a larger challenge. Big global economic downturns, and resultant political problems at home for leaders, can create the temptation to point fingers, to pick fights. To fall into protectionism, to shut the door on skilled immigrants, to lift coronavirus aid programs too quickly for fear of the debt burden accumulating.That’s particularly dangerous when it involves the two biggest powers. There could be political points for both Trump and President Xi Jinping in returning to a full-blown trade war, but economically everyone would stand to lose.Hair-trigger markets are just one pointer to that.– Rosalind MathiesonTell us how we’re doing or what we’re missing at balancepower@bloomberg.net.Cities are changing fast. Subscribe to the CityLab Daily newsletter for news and perspectives on communities and neighborhoods around the world.
Global Headlines
Immigration freeze | Trump signed an order temporarily halting access to several employment-based visas, affecting hundreds of thousands of people seeking to work in the U.S. The technology industry said the move would hurt the economy. The issuance of new green cards will also remain halted through the end of the year.Setting the stage | Trump has repeatedly said vote-by-mail could cost him re-election. Some Republican strategists think he’s right, but, as Ryan Teague Beckwith reports, that’s more because the president’s words risk scaring away his own voters than because of fraud. Trump argues, without citing evidence, that mail-in balloting is open to manipulation, vulnerable to foreign forgeries and beneficial to Democratic rival Joe Biden.Trump is looking to put the setback of his poorly attended Oklahoma rally behind him with a visit to Arizona today, where he’ll return to the familiar issue of border security.Contractors inspect a work site following detonations to clear space for a new border wall in Lukeville, Arizona, on Feb. 26.Photographer: Caitlin O’Hara/BloombergWaning confidence | Sweden’s decision to buck the trend with a much softer lockdown than its neighbors initially found widespread public support. No longer. Now home to one of the world’s highest Covid-19 death rates — and with some European nations leaving Sweden off travel lists — backing for Prime Minister Stefan Lofven has slumped 10% since April.Next step | U.K. Prime Minister Boris Johnson may announce he’s halving the minimum “social distance” between people to one meter amid pressure from his own party to speed up the relaxing of virus restrictions as the economy faces its worst recession in 300 years. Pubs and restaurants will be able to reopen as soon as July 4, but many have warned they won’t be viable if forced to keep customers two meters apart.Arms request | India is urging Russia to accelerate the delivery of a missile defense system following its worst military clash with China along their disputed border in four decades. The two sides have reportedly agreed to disengage in the area, while the Chinese and Indian foreign ministers are due to meet today amid rising nationalism as the countries jostle for regional influence.What to WatchSingapore will hold an election on July 10 as Prime Minister Lee Hsien Loong seeks a renewed mandate amid the pandemic that has pummeled the economy.The U.S. has circulated a draft resolution among United Nations Security Council members to extend an arms embargo on Iran indefinitely, with the ban on weapons deals due to expire in October under the terms of the 2015 nuclear deal.The coronavirus is creating another problem for the world: contaminated medical waste, including masks, gloves and test kits made up largely of plastic.And finally … While Portugal has contained the spread of Covid-19 better than some other European nations, notably neighboring Spain, new infections are springing up in shantytowns inhabited by families of mostly African descent on the outskirts of Lisbon. Henrique Almeida takes a closer look at the social disparities that have been thrust onto the political agenda in the era of coronavirus.
Five Things to Start Your Day 23/6/20 – Bloomberg

Five Things to Start Your Day 23/6/20 – Bloomberg

China-U.S. trade deal is “fully intact,” it’s PMI day, and the virus latest.

Bump in the night

U.S. equity futures and Treasury yields briefly plunged after White House adviser Peter Navarro seemed to suggest in an interview on Fox News that the U.S.-China trade deal was over. Markets quickly recovered after President Donald Trump tweeted that the agreement was “fully intact” and Navarro said his comments were taken “ wildly out of context.” Michael Every, global strategist at Rabobank, wrote in a note that the whipsawed markets were a taste of things to come as he sees no way that China can stick to the terms of the agreement

Slow recovery 

Purchasing Managers Indexes in Europe pointed to a long, slow recovery in economic activity in the wake of the pandemic shutdown. France produced a notable performance with composite PMI rising to 51.3, passing the 50 level than indicates an expansion from the previous month, well ahead of economist forecasts. A similar reading for Germany came in at 45.8 while in the U.K. it was at 47.6, led by a recovery in manufacturing. There was some hope in the latest World Trade Organization outlook which said that government responses mean their worst-case scenario will likely be avoided. PMIs for the U.S. economy are published at 9:45 a.m. Eastern Time. 

Sponsored by PIMCO

The Long Climb
While a near-term mechanical bounce in economic activity in response to the lifting or easing of lockdown measures looks likely, we expect the subsequent climb up to be long and arduous. Read more.

Pushing on a string

Speaking of government responses, companies in Europe have taken up less than 15% of the funds made available as loan guarantees by law makers, meaning  more than 2 trillion euros ($2.3 trillion) remains untouched as economies continue to reopen. The U.K. government is due to further ease restrictions with Prime Minister Boris Johnson to make an announcement of whether to reduce to guidelines on social distancing. In the U.S. new infections in Florida rose to another high and Texas Governor Greg Abbott said contagion was accelerating at “an unacceptable rate.”

Markets rise

After the earlier Navarro kerfuffle, global equity investors quickly got back to the job of buying stocks. Overnight, the MSCI Asia Pacific Index added 0.7% while Japan’s Topix index closed 0.5% higher. In Europe better than forecast PMI data helped push the Stoxx 600 Index to a 1.3% gain by 5:50 a.m. It’s a similar story with S&P 500 futures which were firmly in the green, the 10-year Treasury yield was at 0.718% and oil was over $41 a barrel

Coming up…

U.S. new home sales data for May and the June Richmond Fed Manufacturing Index are both at 10:00 a.m. The focus in Congress today is on coronavirus, with Anthony Fauci to testify in the House and the Senate to hold a hearing on China’s culpability for the pandemic. President Trump will be in Arizona, Joe Biden holds an event with former President Barack Obama, and John Bolton’s book is published. There are primaries in Kentucky, New York and North Carolina. The Bloomberg Invest Global summit continues with speakers including Treasury Secretary Steven Mnuchin. MSCI will announce the results of its 2020 Market Classification Review. 

What we’ve been reading

This is what’s caught our eye over the last 24 hours.

And finally, here’s what Joe’s interested in this morning

If you ever point out that inflation in the United States has been mild, someone is sure to respond with: “but have you been to the grocery store lately!?” I’ve been hearing people say this line for years in a variety of economic conditions, but lately it’s true that there was a rise in food prices. Since the start of the year, food prices are up about 5%.

Still, all you have to do is read this article, and you’ll understand that it’s got nothing to do with the Fed or any of the standard culprits, and everything to do with the fact that thanks to the virus, the food supply chain is messed up in numerous ways. For example, the shutting of ethanol plants led to a decline in carbon dioxide supplies, which hit food companies that depend on it for refrigeration, forcing them to source it from new suppliers, which raised their costs. Meanwhile, port disruptions in China forced companies like Kraft Heinz to source apple juice from Chile to make Capri Sun. The list of disruptions goes on and on and they all add up to higher prices. Another thing is that the surge in drinking at home (because bars are closed) led to demand strains for aluminum cans.

Anyway, with all that’s going on, it would be weird if prices didn’t go up, even in some fantasy hard-money scenario where we were paying in gold. Sourcing food got harder during the worst of the crisis. It’s the market at work.

Bloomberg Supply Lines

Bloomberg Supply Lines

Staring at its first recession in four decades, India faces a long hard slog to regain its former glory days of 8%-plus growth.

As it emerges from the world’s strictest stay-at-home rules, Asia’s third-largest economy finds local supply chains are broken, little demand for its goods in overseas markets and an escalation of a border dispute with its giant neighbor — China, which also happens to be the country’s second-largest trading partner.

All these bode ill for Prime Minister Narendra Modi’s vision to transform India into a $5 trillion economy over the next five years from $2.7 trillion currently and make it more attractive to foreign investors. Millions of Indians have lost their jobs since the lockdown was imposed in late March. Many migrants, who make up nearly a fifth of the workforce and are key to building its cities and running factories, fled to their villages.

They’re unlikely to return in a hurry, and that means output at India’s production lines won’t be restored before September. For a country whose financial year runs from April to March, that means half the year is written off. Bloomberg Economics sharply cut its growth forecasts recently and now expects gross domestic product to contract by 10.6% in the fiscal year, compared with a 4.5% drop forecast in April.

The slowdown will dim India’s allure at a time when its trying hard to win over U.S. businesses, including medical devices giant Abbott Laboratories, to relocate from China. Modi’s government has reached out more than 1,000 companies in the U.S. and through overseas missions with incentives for manufacturers, including medical equipment producers and food processors, along with apparel, leather and auto-part makers.

But the plans to brighten India’s investment allure have run into more headwinds, especially as a seven-week military standoff between the two nuclear-armed powers of China and India flared up and stoked geopolitical tensions.

While India said it remains committed to peace, an escalation risks even more bumps for firms from Alibaba and Xiaomi to Tata Motors and probably will spur companies to rewrite supply pacts. Swathes of Indian businesses also rely on raw materials from China and another bout of disruption can only prolong India’s recovery.

 Anirban Nag in Mumbai

Charted Territory

Early South Korea export figures show shipment declines easing in June amid resilient semiconductor demand and more purchases from China that raise some hope the global trade slump may be bottoming. Average daily shipments fell 16% in the first 20 days of the month compared with the prior year, improving from a decline that exceeded 20% in May. Total semiconductor shipments, the country’s biggest source of trade income, rose 2.6%, while those of ships increased 36%. 

Today’s Must Reads

  • Clipped wings | China suspended poultry imports from a Tyson Foods plant where hundreds of employees caught Covid-19, stoking concerns over U.S. and global meat exports.
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  • Super-charged | Singapore is positioning itself for a post-Covid world with massive investment in innovation, on top of the immediate support it’s giving to help the economy rebound from possibly its worst downturn on record.
  • Still the king | The U.K. remains the most attractive place for foreign investment in financial services in Europe, despite the ongoing pressures of Brexit and the economic fallout from the coronavirus pandemic.
  • Signs of the times | “Novel farming,” which turns out lucrative lettuces and herbs in indoor farms, is seeing a massive jump in demand. In these days of lockdowns and food insecurity, canned meat is also enjoying a moment.

On the Bloomberg Terminal

  • Brexit effect | The U.K. construction sector’s supply patterns could be at least partially readjusted away from the EU in favor of China and other non-EU countries after Jan. 1, Bloomberg Intelligence says.
  • Choppy waters | Bonds in Maersk, the No. 1 container-shipping player with a market share of about 17%, may not fully reflect the risks ahead, according to Bloomberg Intelligence.
  • Use the AHOY function to track global commodities trade flows.
  • Click HERE for automated stories about supply chains.
  • See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.