Singapore plans to loosen strict Covid rules. China allows families to have three children in a bid to boost the slowing birthrate. Beijing makes moves to rein in the surging yuan. Here's what you need to know to start your day.
Singapore pledged it would not be left behind as developed economies reopen, marking an intention to shift away from the strict containment approach that’s helped some Asian places eliminate the virus, but which leaves them increasingly isolated. Tourists will be welcomed, people can go for sports events, and mask-wearing rules will be loosened, Prime Minister Lee Hsien Loong said. School kids would be inoculated next month, and every adult who wants a shot would have one by early August. Elsewhere Vietnam is asking Samsung and other foreign companies to find Covid-19 vaccines for their workers, Malaysia imposed a two-week nationwide lockdown and Sinovac was effective in controlling Covid-19 in a mass-inoculation study in a small Brazilian town after 75% of adults were covered with a second shot, preliminary numbers show.
Asian stocks are set to open lower after U.S. futures slipped with traders awaiting key American jobs data later this week to gauge the outlook for inflation. The dollar declined. Futures were down in Japan, Australia and Hong Kong. Contracts on the S&P 500 and Nasdaq declined earlier, with trading limited due to the Memorial Day holiday in the U.S. Oil climbed and gold headed for the biggest monthly advance since July.
China will allow all couples to have a third child, a surprise move aimed at slowing the nation’s declining birthrate as risks to the economy’s long-term prospects mount because of a rapidly aging population. In a meeting presided over by President Xi Jinping, the Communist Party’s Politburo decided to ease the current two-child restriction. China has been gradually reforming its stringent birth policy that for decades limited most families to only having a single child, with a second child allowed since 2016.
China forced banks to hold more foreign currencies in reserve for the first time in more than a decade, its most substantial move yet to rein the surging yuan. The nation’s financial institutions will need to hold 7% of their foreign exchange in reserve from June 15, according to a central bank statement. The move, which the People’s Bank of China said will help liquidity management, effectively reduces the supply of dollars and other currencies onshore, putting pressure on the yuan to weaken. The Chinese currency fell. The PBOC has signaled it’s unhappy about the yuan’s surge to a three-year high against the greenback.
Investors are cutting their bullish bets on everything from crops to copper to natural gas. Hedge-fund holdings this week in 20 of the 23 commodities tracked in the Bloomberg Commodity Index fell by the most since November. Milder weather is raising the prospect of bigger harvests across the U.S., while also reducing demand for natural gas. Oil markets are bracing for bigger supplies. And China, the world’s biggest commodities buyer, is moving to contain high raw material prices. In sum, the seemingly relentless price rallies that some have described as a commodity supercycle are in doubt with bearish factors emerging amid inflation fears and demand concerns.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours:
And finally, here's what Tracy's interested in today
The new episode of the Odd Lots podcast is out and it's all about last month's big rout in crypto with Roshun Patel, the VP of lending at the crypto prime brokerage Genesis, giving his perspective on what exactly went down. As my co-host Joe Weisenthal points out during the discussion, talking about prime brokerage in the crypto space is like cuddling up under a nice warm blanket. It's familiar and comforting. Anyone who's been in finance for a while will recognize talk of leverage and liquidation and the role they're said to have played in last month's crypto crash.
It's also amazingly indicative of how far the space has come. Cryptocurrencies now have a whole ecosystem attached to them, which includes all the traditional hallmarks of traditional finance — big exchanges, futures contracts and even financial services providers doing stuff like prime brokerage. That's one reason why I asked Ro whether the crypto market could outgrow Bitcoin. After all, the latter is basically designed to only ever have a certain amount of coin in existence, while the former seems to be growing exponentially. Here's his response:
"Bitcoin does have a finality to it where effectively the subsidy that's issued per, you know, the blocks, have two sorts of ways of paying miners for securing the network. One is the block subsidy and the other is transaction fees. So the block subsidy is the one that's declining in half, every four years. And eventually is going to approach zero, where it's basically nothing. And Bitcoin is proof of work where miners have to spend energy and real power to secure the network where they're going to have to be compensated in some way. And at that point, the way that that the compensation occurs is through the transaction fee ... the people that are trading or the people that have transactions in that block are effectively paying the miners a certain amount.
So what needs to develop in the long-term for Bitcoin is a robust market for block space, so that the miners are compensated to pay for it. What's happened now, empirically in the past two years is, you know, there's a robust market for blocks based on Ethereum and people are paying to be included in transactions quite a bit there. On Bitcoin, less so. Part of that is because, you know, it is sort of a store of value narrative now, less so than a medium of exchange. It doesn't really have robust, decentralized finance protocols in it yet.
So what I think would have to change there in order for that market to develop appropriately is like this type of stuff you see on Ethereum where you can like borrow, lend, even trade, like Uniswap deck style. Bitcoin needs to figure out in many ways to incorporate that. At the end of the day, you're going to need like applications built on Bitcoin, where people are paying to use them so that the miners can be compensated when there's no block reward."
The whole episode is worth a listen but one thing that jumps out from it, is the potential mismatch between all the interesting transaction stuff currently being done on Ethereum and the rather limited (and boring) role being played by Bitcoin in the same ecosystem.
You can follow Tracy Alloway on Twitter at @tracyalloway.
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June 01, 2021 at 06:30AM
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Five Things You Need to Know to Start Your Day - Bloomberg
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