Readings & Viewings: June 8, 2018

Welcome to this week's Readings & Viewings, a collection of news, analysis and other interesting snippets we've spotted from around the world during the latest week for your reading pleasure.

Coming into the half-way point of 2018, winter is well and truly here, and it's certainly getting frosty for some Australian banks and fintechs. This week investment bank Morgan Stanley released data that zeroed in on the regulatory scrutiny the banks are increasingly facing. Intelligent Investor analyst Rakesh Tummalla has also sounded the bank alarm this week, in Twilight of a banking era.

Morgan Stanley has similar reservations about our 'Big Four' and retains a negative stance, due to operating headwinds including higher regulatory and compliance costs, coupled with the effects of tighter lending standards on housing loan growth. Overall, it sees housing loan growth as flatlining, for all the majors, the non-majors, and the non-banks. 

How much does a pullback from Chinese investors have to do with this? Depending who you ask, a little, to quite a lot. 

Analysts at another investment bank, Macquarie, singled out China in the grand scheme of things this week. They think China is "emerging markets' best bet" and "slotted somewhere above Malaysia". However, when you look at the bigger picture, Macquarie says China "is still nowhere near as critical" as the US, Eurozone, or even Japan:

"This is where China has a long way to go, as neither its complexity ratios nor its patents or royalties are indicative of anything more than mostly derivative and applied products. This explains how Japan's earthquake could shut down the global automotive industry or how the US is able to shut down ZTE; but there are few areas where China is truly unique."

The kind of commentary that could stir up quite the debate. 

Let's take stock of what they've got, and asset check what was once the world's largest bank. Thanks to the last financial crisis, the Royal Bank of Scotland is now nowhere close to the biggest bank in the UK, let alone the world. So it comes as no surprise the UK Treasury this week announced its plans to sell 7.7 per cent of its stake in the company.

Elsewhere in the UK, the services industry has been described as ‘losing its lifeblood' with Brexit being blamed. The Office for National Statistics has estimated the sector grew by 0.3 per cent in the first quarter of 2018, slightly down from the 0.4 per cent in the prior corresponding period. Overall, the economy slowed to just 0.1 per cent – the weakest expansion in more than five years.

But pay rises are on the cards for UK workers, at least those in one very specific industry. Law firm Milbank Tweed Hadley & McCloy has pulled the trigger on a city-wide pay war in London. This week the firm introduced a new pay scale for junior lawyers, with first-year lawyers set to earn an annual salary of $US190,000. Milbank believes the money will now go up in London, "without question".

And, UK contractors are actually reporting skills shortages. Apprenticeships and training numbers are falling sharply, which is being exacerbated by the drop in number of EU workers coming to the UK since the Brexit vote.

Considering the price of robotics hardware and software has decreased around 40 per cent over the last decade, alongside cost of systems engineering, perhaps they should consider outsourcing to artificial intelligence and robotics for contract work.

Quarter-on-quarter economic data out of South Africa also has the country on the backfoot. Data from Bloomberg suggests that Africa's most-industrialised economy shrank in the three months to March compared with the strong expansion in the previous period. Some have noted the appropriateness for this slide to mark the end of Jacob Zuma's presidency, others, like Business Insider are giving GDP the benefit of the doubt. 

Zipping up to the US, and if you didn't already hear it from Trump, the US job market is thriving. The unemployment rate dropped to an 18-year low of 3.8 per cent. For the first time on record, the number of job openings in the US exceeds the number of unemployed. People are hoping that will bring a little more padding to their pockets.

But they're also banking on Social Security for their retirement, and the prospects aren't looking great. The US Social Security system has cracked open its emergency piggy bank for the first time since 1982. The Government did not expect the money to be depleted this fast. It's going to have a very real impact on the population from 1934.

We don't think these kids will be worrying about that though. Their parents are paying for a new private jet service, complete with a personal admissions officer, that charters them to colleges around the US.  

This is what quantitative easing can do. The Danes are richer than ever before, but they're also spending less than ever, according to central bank data.

This Chinese stock's decade-long run has turned cleaners into millionaires. 

Take it to Israel. The Chinese are backing Israeli startups. More than 100 Israeli startup founders wined and dined with hundreds of investors for the GoForIsrael Conference. Chinese investment in Israeli tech has been given the green light by the Chinese Government, which last year cracked down on acquisitions of real estate and sports teams.

In commodities, the price of nickel has again topped $15,000/t, taking the podium for ‘best performing base metal' of the month of May. We've had our finger on the pulse of nickel for a while, with Tim Treadgold drawing a strong link with electric cars.

In other news, Forbes released its 'World's Highest-Paid Athletes' list this week, with zero female athletes making the cut. Boxer Floyd Mayweather took the top spot, taking home a pay cheque of $US285 million.

He's flying solo on this one. Moments after becoming the chairman of the International Air Transport Association's board of governors, Akbar Al Baker hit turbulence. Baker announced that his position could only be led by a man due to the challenging nature of it.

Very inappropriate. Uber employees have been encouraged by CEO Dara Khosrowshahi to say they ‘Have the D' to establish authority. Khosrowshahi was reportedly unaware of any innuendos associated with the phrase.

And elsewhere on the roads, recent data suggests that while 23 per cent of sales for the Model 3 have been refunded, demand for the product still remains high. That won't cut it for some Tesla shareholders though. Tesla boss Elon Musk avoided a head-on collision with his shareholders this week as the majority voted to retain him as company chairman, despite attempts to have him ousted. An emotional Musk told shareholders that Telsa had experienced “the most excruciating hellish several months that we've ever had". Shareholders also voted to keep on the board Musk's brother Kimbal and James Murdoch. 

That's not to say the Murdoch family isn't moving and shaking. This week UK regulators cleared the way for the Murdoch empire's 21^st Century Fox to bid for Sky. But it also opened the door for rival bidder Comcast, which has placed $US29 billion on the Sky takeover table.

Twitter scored a big new follower this week. Trading dirty apples for oranges, the social network slid into the S&P 500 index at the expense of chemical giant Monsanto. However, that's only because Monsanto was purchased by Germany's Bayer. Considering it's now on the must-buy list of many US fund managers, Twitter's shares spiked sharply during the week. 

Upstream in tech, the Microsoft acquisition of GitHub, for a hefty $US7.5 billion price tag, has made web developers very happy. The acquisition comes in at nearly 4x the price of Github's recent private valuations. Github joins Microsoft's latest string of purchases, including Skype, Linkedin and Nokia. What's next?

Apple co-founder Steve Wozniak is keen for bitcoin to emerge as the global currency of the internet, provided it's 'clean'. Intel and the pharmaceutical industry are planning to use digital currency to better trace drugs and reduce the opioid epidemic. The irony is that digital currencies have long been damned for making it easier to buy and sell drugs anonymously.

Also potentially adding fuel to an already bright flame, an economist at Columbia University has written a scathing think-piece on US President Trump and his on-again, off-again trade war, referring to the President as a scary new star of a classic children's fairytale, 'The Emporer's New Clothes'.

Maybe former Starbucks CEO Howard Schultz would make a better President of the United States?

He once said he'd consider running for POTUS, and now, after siding with Trump and ranting about slavery being a choice, rapper Kanye West is starting a pre-fabricated low-income housing project. 

We've heard it all. Have a great weekend.