Author: Consultant

U.S. State Department orders all non-emergency government staff in Shanghai to leave as Covid surges

The U.S. State Department has ordered all non-emergency government staff and their family members in Shanghai to leave as Covid surges and told U.S. citizens to reconsider travel to China, according to an announcement dated April 11.

“Reconsider travel to the People’s Republic of China (PRC) due to arbitrary enforcement of local laws and COVID-19-related restrictions,” the State Department said.

“Do not travel to the PRC’s Hong Kong Special Administrative Region (SAR), Jilin province, and Shanghai municipality due to COVID-19-related restrictions, including the risk of parents and children being separated,” the statement said. “Reconsider travel to the PRC’s Hong Kong SAR due to arbitrary enforcement of local laws.”

The State Department announcement followed one over the weekend by the U.S. Mission China in Beijing that said non-emergency U.S. government employees and family members of emergency and non-emergency U.S. government employees could leave Shanghai voluntarily.

The U.S. had issued a travel advisory on April 8 with the same language on warnings about “arbitrary enforcement of local laws” and Covid-19 restrictions.

China is “strongly dissatisfied” with and “firmly opposes” the United States’ “groundless accusation” of China’s Covid policy, Foreign Ministry spokesperson Zhao Lijian said Saturday, according to a CNBC translation of the Chinese statement.

Supply chains are facing a ‘perfect storm’: International Chamber of Shipping

He said the announcement for voluntary evacuation was the U.S.’s own decision, and that the Chinese side has assisted foreign diplomats and consular staff on Covid-related issues as much as policy allowed.

In the last several weeks, mainland China has faced its worst Covid outbreak since the initial phase of the pandemic in early 2020.

While cases have been reported across the country, the northern province of Jilin and the southeastern city of Shanghai are among the hardest hit, with local authorities imposing stringent stay-home measures and travel restrictions in an attempt to control the outbreaks.

Last week, Shanghai authorities eased quarantine measures that had separated parents from their children. This week, the city announced a phased process for easing lockdowns.

The city had attempted one of the most targeted Covid control policies to control a spike in cases since late February, but eventually locked down the city in two stages beginning in late March — in the name of conducting mass testing.

Shanghai is a hub for many foreign businesses in China, while Jilin is home to many auto factories.

“The employees and family members will depart on commercial flights,” U.S. Mission China said Tuesday in a separate statement. “The Department ordered the departure due to the ongoing COVID-19 outbreak.”

Teck Resources says first-quarter steelmaking coal sales fell slightly below guidance

Teck Resources Ltd. TECK-B-T -2.93%decrease says its steelmaking coal sales in the first quarter came in slightly below its guidance as a result of a labour dispute at Canadian Pacific Railway Ltd. CP-T +0.21%increase that resulted in a temporary work stoppage at the railway.

The mining company says its first-quarter steelmaking coal sales totalled 6.0 million tonnes.

Teck had provided guidance for between 6.1 million and 6.5 million tonnes.

However, Teck says record prices for steelmaking coal resulted in an increase in its average realized price in the first quarter to US$357 per tonne. Realized steelmaking coal prices in the fourth quarter averaged US$351 per tonne.

The rise from the fourth quarter further resulted in positive pricing adjustments of approximately C$88-million.

Teck says it expects to release its full first-quarter results on April 27

Metro

Workers at a Metro distribution centre in Ontario have voted in favour of a new deal while workers at a Sobeys warehouse in Quebec have rejected the grocer’s latest offer.

More than 900 workers at Metro Inc.’s MRU-T +0.70%increase Toronto-area distribution centre ratified a new four-and-a-half-year collective agreement Friday, ending a one-week strike.

Unifor said Metro warehouse workers in Etobicoke will receive an average wage increase of 15.8 per cent over the lifetime of the new 4.5-year deal.

The union said the new collective agreement also includes higher shift premiums for freezer work, a shortened wage progression to reach the top rate, improvements to pensions and benefits and no concessions.

“This collective agreement achieves the best maximum pay rate and fastest progression in the industry,” Unifor Ontario regional director Naureen Rizvi said in a statement.

“There is no doubt that it will raise the bar for warehouse workers across Ontario.”

Carmen Fortino, executive vice-president and division head for Metro in Ontario, said in a statement the company and the union reached a “fair and reasonable” deal that maintains competitive working conditions for employees.

Meanwhile, 190 workers at a Sobeys Inc. distribution centre in Terrebonne, Que., remain on strike after turning down the grocer’s latest offer.

Kim Bergeron, a lawyer representing UFCW Canada’s Local 501, said workers rejected a tentative agreement Friday with 69 per cent voting against a proposed new deal.

Pay and benefits remain the key sticking point, she said.

Insurer Intact Financial estimates first-quarter catastrophe losses at $183-million

Intact Financial Corp. IFC-T -1.44%decrease estimates its catastrophe losses for the first quarter totalled about $183-million on a pre-tax basis, due in large part to three windstorms in February that affected its business in the United Kingdom and Ireland.

The property and casualty insurer says the loss amounted to 81 cents per share after tax.

Intact says about 60 per cent of the catastrophe losses were in its United Kingdom and Ireland segment.

The remaining losses were in its Canadian business, approximately three quarters of which were attributable to personal property.

The company says nearly 80 per cent of the catastrophe losses were weather related.

Intact is expected to hold a conference call with financial analysts to discuss its first-quarter results on May 11.

Shopify proposes changes to governance structure, announces 10-for-one share split

Shopify Inc. SHOP-T +2.91%increase is proposing changes to its governance structure to preserve founder and CEO Tobi Lutke’s voting power, while also proposing a 10-for-one split of its class A and class B shares.

Under the new plan announced Monday, the Ottawa-based e-commerce company will issue Lutke a non-transferable founder share that will have a variable number of votes that, when combined with his other holdings, will represent 40 per cent of the total voting power attached to all of the company’s outstanding shares.

However, the founder share will sunset if Lutke no longer serves as an executive officer, board member or consultant whose primary job is with the company or if Lutke, his immediate family and his affiliates no longer hold a number of class A and class B shares equal to at least 30 per cent of the class B shares they currently hold.

In the event of a sunset of the founder share, Lutke will also convert his remaining class B shares into class A shares.

The shakeup comes as Shopify’s stock has experienced a significant slump in recent months, after surging following the onset of the COVID-19 pandemic.

Yet Lutke, who started Shopify with an investment from father-in-law Bruce McKean in 2004, when he was unable to find e-commerce software for a snowboard business he was building, remains at the helm.

If Monday’s “unprecedented” proposal is approved, more control over the company could eventually be wrested away from Lutke and handed to common shareholders, said Richard Leblanc, a professor of governance, law and ethics at York University.

Shopify estimates that if the conversion were completed Monday the total voting power held by class A shareholders would increase to roughly 59 per cent from about 49 per cent.

“This is so unique … because most of the time the founder thinks they’re going to live forever and they don’t want to relinquish control,” Leblanc said.

“There’s many companies in Canada that end up in the hands of children and other family members and there are studies that suggest that … the more you bequeath to a family member, the less effective that family member becomes because they don’t have the same experience and drive that the founder had.”

The arrangement would also prevent a power struggle from unfolding within the founder’s family like telecommunications giant Rogers Communications Inc. saw last year, Leblanc said.

Edward Rogers, the son of founder Ted Rogers, was able to replace five board members over objections from other directors, including his mother and sisters, in October because he controlled 97.5 per cent of the firm’s class A shares.

Leblanc believes more companies will follow Shopify’s lead, especially after the public Rogers battle, because “there’s an increasing intolerance by investors for absolute control by family members.”

Shopify’s proposal is the result of a board process it said was conducted under the supervision of a special committee of independent directors.

It framed the move as a way to “modernize” Shopify’s governance structure, align it more closely with long-term market opportunities and follow the company vision Lutke outlined in a 2015 public letter, where he prioritized long-term value over short-term revenue opportunities.

That ethos has extended to the stock price. Lutke is known for requiring anyone at the office caught checking the company’s stock price during the day to purchase Timbits for their team.

Those that took a peek likely noticed Shopify’s stock has been more than halved over the last year. It sat at $776.72 early Monday afternoon, down from a high of $1,941.03 in November.

The share split requires approval by a two-thirds majority of shareholders and at least a majority of the votes cast by shareholders excluding Lutke and his associates and affiliates. The matter will face a vote on June 7.

If approved, Shopify director John Phillips will convert all class B shares held by Klister Credit Corp., a company the early investor owns with psychologist-wife Catherine Phillips into class A shares.

Another Chinese city has overtaken New York for number of billionaires

Three years ago, American entrepreneur Raj Oswal traveled to the Chinese city of Shenzhen on behalf of a client. He was so impressed that he stayed and started his own tech company.

“You can’t find too many other cities in China or around Asia that really embrace innovation as Shenzhen does,” Oswal said, comparing his move there from California to his father’s decision in the 1970s to leave India so he could pursue his studies and a career in the United States. 

Oswal described Shenzhen, a city of 17.5 million on China’s southern border with Hong Kong, as a place filled with “youthful optimism.”

Increasingly, it’s also filled with money. The former fishing village, now a tech hub known as China’s Silicon Valley, has joined Beijing and Shanghai as the world’s top three cities for billionaires, edging out New York for the first time this year. 

According to the Hurun Global Rich List, an annual ranking compiled by a private Shanghai-based company, Beijing is home to the world’s greatest number of billionaires at 144, followed by Shanghai with 121. There are 113 billionaires in Shenzhen, compared with 110 in New York, while London came in fifth with 101.

The growing concentration of wealth isn’t news to people in Shenzhen, which added eight billionaires since last year.

“It’s almost more of a wake-up call for the rest of the world,” said Rupert Hoogewerf, chairman and chief researcher of Hurun Report, the company behind the list.

While rankings can fluctuate, he said the rising number of billionaires in Shenzhen reflected a “megatrend” that will draw more young entrepreneurs to the city in coming years. 

“It is a significant indicator of where Shenzhen has come from and where it is going,” he said.

Shenzhen’s rise began in 1980, when it was named China’s first special economic zone as part of the country’s “reform and opening up” under then-leader Deng Xiaoping. That allowed the city to experiment with market capitalism in an effort to attract foreign investment. From 1979 to 2021, Shenzhen’s gross domestic product grew from less than $28 million to almost $475 billion.

Today, the city is home to some of China’s biggest tech companies, including telecom giant Huawei and the internet conglomerate Tencent, inspiring others to follow. Last year, 2,500 new state-recognized high-tech companies were set up in Shenzhen, bringing the total number to 17,000, according to the local government. 

It is also part of what China calls the Greater Bay Area, an integrated economic and business hub that aims to link Shenzhen with eight other cities in Guangdong province along with the Chinese territories of Hong Kong and Macau.

The opportunities were apparent to Oswal even as he taxied from the Shenzhen airport after he first arrived in 2019.

“All the stereotypes that I had on Chinese cities were broken down one by one with the changing modern and green urban landscape along the road,” he said.

Heng Chen, an associate professor of economics at the University of Hong Kong, said Shenzhen’s momentum was aided by its welcoming environment for entrepreneurs. 

“The structure of the population is still very young compared to other super cities or first-tier cities in China, so that’s one of the reasons why it’s a very attractive place,” he said.

In addition, government officials in Shenzhen “commit a lot of resources, financial resources to attract top talents from the rest of the world.”

But the city has also faced steep challenges during the coronavirus pandemic, especially in recent weeks as China battles its worst outbreak in two years. The government’s zero-tolerance strategy relies on border closures, mass testing and strict lockdowns, and the restrictions have caused delays at Shenzhen’s factories as well as its port, one of the largest in the world.

S&P 500 drops more than 1% to start the week as higher rates send tech shares lower

Stocks fell on Monday as investors grew increasingly concerned a three-year high in the benchmark U.S. interest rate would start to slow the economy.

The 10-year Treasury yield jumped above 2.78% on Monday, levels not seen since January 2019, as the Federal Reserve braces investors for tighter monetary policy ahead.

The tech-heavy Nasdaq Composite dropped 1.7% on the session as investors see growth stocks taking the biggest hit from higher rates. The S&P 500 slipped 1.3% following a losing week last week. The Dow Jones Industrial Average lost 246 points, or 0.7%.

“If we were to stack up what’s moving the markets today, I think we’re just mirroring what we’re seeing in the Treasury yield environment,” said Art Hogan, chief market strategist at National Securities. “And it’s hard to know what’s going to break that cycle except for a couple of days/weeks where rates either stabilize or are starting to pull back a bit.”

10-year yield hits highest level since 2019

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Concerns over higher interest rates have spurred investors to drop more risky assets, such as tech stocks that led losses on Monday. Microsoft declined 3.8%. Semiconductor stocks such as Nvidia and Advanced Micro Devices fell 5.3% and 4.3%, respectively.

Oil prices dropped on Monday amid fears that Covid lockdowns in China would depress global demand. International benchmark Brent crude declined 3.2% to trade at $99.45 per barrel. Meanwhile, West Texas Intermediate crude futures dropped 3%, to trade at $95.33 per barrel.

Energy stocks declined as a group. Occidental Petroleum is down 4.7%, Diamondback Energy is down 4.3% and Conocophillips fell 4%.

To be sure, airline stocks bucked the broader market’s negative trend, as Delta Air Lines spiked 4%. Alaska Air Group was up 2.7%, American Airlines Group jumped 2.8%, Southwest Airlines ticked upward 2.6% and United Airlines Holdings jumped 2.6%.

Meanwhile, AT&T popped 5.7% after spinning off its old WarnerMedia to merge with Discovery. JPMorgan analysts liked the decision, giving AT&T an overweight rating and saying the stock is now trading at a discount.

Twitter’s stock was on the move after CEO Parag Agrawal revealed that Elon Musk abandoned his plan to join the company’s board. Shares for the social media company dropped more than 8% in the premarket, but had recovered to gain 1.5% after markets opened.

Rates could get a boost again on Tuesday as an economic report is set to show inflation at the highest in decades. March’s consumer price index will show a 8.4% annual increase in prices, according to the consensus estimate of economists polled by Dow Jones.

Cleveland Fed President Loretta Mester told CBS’ “Face the Nation” on Sunday that she still believes the Fed can get inflation under control without causing major damage to the economy.

“If you look at the risks, given what’s happening in the world and in the economy, there is an increased risk [of recession],” she said. “But I remain optimistic, and certainly my modal forecast on what is going to happen this year is that the expansion will continue.”

Mester added that the Covid lockdowns in China will “exacerbate” the supply chain issues that are contributing to inflation in the U.S.

Later this week, the first-quarter earnings season will hit its stride with some major banks and airlines reporting earnings. On Wednesday, JPMorgan and Delta Air Lines will report their earnings before the bell. On Thursday, Citigroup, Goldman Sachs, Morgan Stanley and Wells Fargo are expected to report before markets open.

Sony and the Lego family bet big on the ‘metaverse’ with $2 billion investment in Epic Games

Fortnite creator Epic Games has raised $2 billion in funding from Sony and the Lego family, in a massive deal highlighting the excitement from big businesses about the so-called metaverse.

Sony will inject $1 billion in the company, Epic announced Monday, while Kirkbi, the family owned investment company behind Lego, will invest an equal amount. The deal, which is subject to customary closing conditions, would value Epic at $31.5 billion.

The news arrives hot on the heels of a partnership announced by Epic and Lego last week, aimed at co-developing a “family-friendly” metaverse for kids. Lego already has a successful line of video games based on lucrative franchises, including Disney’s Star Wars and Warner Bros.′ Batman.

“A proportion of our investments is focused on trends we believe will impact the future world that we and our children will live in,” Soren Thorup Sorensen, CEO of Kirkbi, said in a statement Monday.

“This investment will accelerate our engagement in the world of digital play, and we are pleased to be investing in Epic Games to support their continued growth journey, with a long-term focus toward the future metaverse.”

Hype around the metaverse, a proposed network of vast virtual worlds, has taken the corporate world by storm lately. Facebook kicked off the trend by renaming itself Meta, and several big brands including JPMorgan, Samsung and Nike have begun experimenting with the technology.

However, companies like Epic and Roblox have long been talking about building a metaverse.

Epic’s battle royale game Fortnite lets up to 100 players fight it out to be the last one standing. But it’s been branching out into other forms of entertainment, hosting music concerts from artists like Travis Scott and Marshmello, for example.

Roblox, meanwhile, wants to build a metaverse where millions of people can gather to play games or even work in a virtual economy fueled by Robux, its own in-app currency.

Epic Games CEO Tim Sweeney said the fresh funds would help the company “accelerate our work to build the metaverse.”

“As we reimagine the future of entertainment and play we need partners who share our vision. We have found this in our partnership with Sony and KIRKBI,” Sweeney said in a statement.

While it’s best known as the company behind Fortnite, Epic Games is a video game powerhouse. The company developed Unreal Engine, one of the biggest platforms used to create games, and operates its own online games store which competes with Microsoft and Valve.

The company has been at the center of a heated dispute between app developers and Apple over the latter’s App Store fees. Last year, a judge ruled that Apple can no longer prevent developers from directing users away from Apple’s own payment system. The tech giant typically takes a 15% to 30% cut from all in-app purchases.

Gold prices higher in early Asian trading Monday

Gold futures for June delivery rose 0.4% to close at $1,945.60 an ounce on Comex, leaving it up 1.1% for the week.

“Gold is trading around the same level it was yesterday, the day before that, the day before that and so on. Despite the spike in volatility seen elsewhere this week as a result of the hawkish Fed shift, gold has been unmoved,” said Craig Erlam, senior market analyst at Oanda.

Analysts said gold’s role as an inflation hedge appears to be buoying the metal, with an important cost of living due Tuesday with release of the March consumer price index.

“The CPI report will be the economic event of the week,” David Donabedian, chief investment officer of CIBC Private Wealth US. “We expect inflation to surge above 8%. We know the commodity component will spike and will be paying particular attention to the core inflation rate, particularly services and shelter.”