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China abandons its GDP growth target in favor of COVID controls



China abandons its GDP growth target in favor of COVID controls

Ever since China’s economy ground to a halt during Shanghai’s two-month lockdown, economists have argued that Beijing faces a choice: either relax the country’s COVID-zero policy to promote economic growth or risk a protracted slowdown by keeping the strict COVID controls in place.

Now, Beijing appears to have made its choice: COVID zero is the priority. 

Members of the Politburo, the top decision-making body for the Chinese Communist Party (CCP), met Thursday to discuss the country’s economy and set the rest of the year’s agenda. In a statement released after the meeting, the Politburo said that “strict control and prevention measures must be applied whenever there is an [COVID] outbreak,” such as the snap lockdowns, business closures, and mass testing campaigns that officials impose on population centers after they detect just a handful of cases.

Missing from the statement was any mention of China’s 5.5% economic growth target, which the Politburo cited in its last meeting in April. Now, Beijing says it just wants the economy to achieve “the best outcome,” without expanding on what that means specifically. 

Economists say that China’s 5.5% growth target for the year was already unattainable, especially after Shanghai’s two-month lockdown froze manufacturing, fueled supply chain chaos, and led to just 0.4% year-on-year growth for the country’s economy in the second quarter of 2022.

The downplaying of economic growth upends a tacit agreement Beijing has with the country’s population: that China’s authoritarian system of government must be preserved so Beijing can best deliver high economic returns and social mobility.

On Tuesday, the International Monetary Fund predicted that China’s economy would grow by 3.3% in 2022, lowering its April forecast by 1.1 percentage points. The IMF also revised global growth downward by 0.4 percentage points, forecasting 3.2% global growth, in part due to a “worse-than-anticipated” slowdown in China.

China’s decision to stick with COVID zero means the country’s economy will remain sluggish for a while. “Policymakers are unlikely to make any major policy change ahead of the 20th Party Congress,” in October or November, writes Larry Hu, chief China economist at Macquarie, in a Thursday note, citing the CPP conference this autumn at which Chinese President Xi Jinping is expected to win an unprecedented third term. China will “stick to zero-COVID at least by the year-end,” Hu writes, even if tweaks are made to the country’s COVID restrictions.

In the past, Xi has hinted that he views COVID measures as more important than the economy, saying on June 28 that he “would rather temporarily affect a little economic development, than to risk harming people’s life safety and physical health, especially the elderly and children.” 

On Thursday, local officials in Wuhan ordered businesses to close and suspended public transport in a district of over 1 million people after discovering four asymptomatic cases. 

As China preserves its COVID-zero stance, the government is still taking some steps to support flagging sectors of the economy.

On Thursday, the Politburo said that it would “stabilize the property market.” China’s biggest property developers are strapped for cash after Beijing imposed rules to curb excessive borrowing, leading to unpaid vendors and uncompleted projects. In recent weeks, customers frustrated with the slow pace of construction have refused to pay their mortgages in a nationwide protest. Beijing is planning a $44 billion fund to help rescue indebted developers, according to Reuters.

The Politburo also said that it would “green light” a number of technology investment deals, though it did not say which ones were awaiting its approval. Chinese officials have signaled that the year-long tech crackdown, which erased billions of dollars in value from China’s tech giants, may be winding down. 

Yet the Politburo statement does not include any references to measures to directly support consumer spending. While other governments, like those in the U.S., Europe, and even the semi-autonomous Chinese city of Hong Kong, have turned to direct cash transfers to support incomes, China is instead relying on infrastructure investment and business aid to revive the economy. Chinese officials are concerned that direct cash transfers might spur inflation. 

On Thursday, the U.S. reported a 0.9% economic contraction at an annualized rate for the second quarter of 2022, following a revised contraction of 1.6% in the first quarter. (Two consecutive quarters of economic contractions is a common definition for a recession). Economists surveyed by Bloomberg now predict the U.S. GDP will increase 1.5% this year, compared to 3.6% for China. Despite the White House’s bullish predictions to the contrary, the U.S. won’t outgrow China this year.

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Coinbase’s near-term outlook is ‘still grim’, JPMorgan says, while BofA is more positive about firm’s ability to face crypto winter



Coinbase's near-term outlook is 'still grim', JPMorgan says, while BofA is more positive about firm's ability to face crypto winter

Coinbase is well positioned to successfully navigate this crypto winter and take market share, Bank of America said in a research report Tuesday. It maintained its buy recommendation following the exchange’s second-quarter results.

The results warrant “a muted stock reaction,” the report said. Net revenue of $803 million was below the bank’s and consensus estimates, while its adjusted $151 million loss before interest, tax, depreciation and amortization was better than the street expected. Importantly, the company remains “cautiously optimistic” it can reach its goal of no more than $500 million of adjusted EBITDA loss for the full year, the report added.

Coinbase shares fell almost 8% in premarket trading to $80.74.

Bank of America notes that Coinbase had no counterparty exposure to the crypto insolvencies witnessed in the second quarter. The company also has a “history of no credit losses from financing activities, holds customer assets 1:1, and any lending activity of customer crypto is at the discretion of the customer, with 100%+ collateral required.” These rigorous risk-management practices will be a “positive long-term differentiator” for the stock, the bank said.

JPMorgan said Coinbase had endured another challenging quarter, while noting some positives.

Trading volume and revenue were down materially. Subscription revenue was also lower, but would have been much worse were it not for higher interest rates, it said in a research report Wednesday.

The company is taking steps on expense management, and in addition to the June headcount reductions, is scaling back marketing and pausing some product investments, the note said.

The bank says the company’s near-term outlook is “still grim,” noting that the exchange expects a continued decline in 3Q 2022 monthly transacting users (MTUs) and trading volumes, but says Coinbase could take more “cost actions” if crypto prices fall further.

JPMorgan is less optimistic than Bank of America about the company in the near term, saying pressure on revenue from falling crypto markets will have a negative impact on the stock price. Still, it sees positives including higher interest rates, from which the firm will generate revenue. It also sees opportunities for the exchange to grow its user base, leveraging almost $6 billion of cash. The surge in crypto prices in July, and the forthcoming Ethereum Merge are also seen as positive catalysts, it added.

The bank maintained its neutral rating on the stock and raised its price target to $64 from $61.

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Elon Musk sold $6.9B in Tesla stock in case he’s forced to buy Twitter



Elon Musk sold $6.9B in Tesla stock in case he's forced to buy Twitter

Elon Musk sold $6.9 billion of his shares in Tesla Inc., the billionaire’s biggest sale on record, saying he needed cash in case he is forced to go ahead with his aborted deal to buy Twitter Inc.

“In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock,” Musk tweeted late Tuesday after the sales were disclosed in a series of regulatory filings. 

Asked by followers if he was done selling and would buy Tesla stock again if the $44 billion deal doesn’t close, Musk responded: “Yes.”

Tesla’s chief executive officer offloaded about 7.92 million shares on Aug. 5, according to the new filings. The sale comes just four months after the world’s richest person said he had no further plans to sell Tesla shares after disposing of $8.5 billion of stock in the wake of his initial offer to buy Twitter.  

Musk last month said he was terminating the agreement to buy the social network where he has more than 102 million followers and take it private, claiming the company has made “misleading representations” over the number of spam bots on the service. Twitter has since sued to force Musk to consummate the deal, and a trial in the Delaware Chancery Court has been set for October. 

In May, Musk dropped plans to partially fund the purchase with a margin loan tied to his Tesla stake and increased the size of the equity component of the deal to $33.5 billion. He had previously announced that he secured $7.1 billion of equity commitments from investors including billionaire Larry Ellison, Sequoia Capital, and Binance. 

“I’ll put the odds at 75% that he’s buying Twitter. I’m shocked,” said Gene Munster, a former technology analyst who’s now a managing partner at venture-capital firm Loup Ventures. “This is going to be a headwind for Tesla in the near term. In the long term, all that matters is deliveries and gross margin.”

At the weekend, Musk tweeted that if Twitter provided its method of sampling accounts to determine the number of bots and how they are confirmed to be real, “the deal should proceed on original terms.” 

Musk, 51, has now sold around $32 billion worth of stock in Tesla over the past 10 months. The disposals started in November after Musk, a prolific Twitter user, polled users of the platform on whether he should trim his stake. The purpose of the latest sales wasn’t immediately clear.  

Tesla shares have risen about 35% from recent lows reached in May, though are still down about 20% this year. 

With a $250.2 billion fortune, Musk is the world’s richest person, according to the Bloomberg Billionaires Index, but his wealth has fallen around $20 billion this year as Tesla shares declined.    

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The rent is too d*mn high for Gen Z: Younger generations are ‘squeezed the most’ by higher rents, BofA says



The rent is too d*mn high for Gen Z: Younger generations are 'squeezed the most' by higher rents, BofA says

Most of Gen Z is too young to remember the 2010 New York gubernatorial candidate Jimmy McMillan.

But over a decade later, they would probably agree with his signature issue (and catchphrase): the rent is too damn high.

This July, median rent payments were 7.4% higher than during the same period last year, according to a Bank of America report released Tuesday. 

The national median price for a one-bedroom apartment has been hitting new highs nearly every month this summer. It was $1,450 for July, according to rental platform Zumper. In the country’s largest city, New York, average rent exceeded a shocking $5,000 a month for the first time ever in June. 

But inflation in the rental market hasn’t hit each generation equally, and no one is getting squeezed harder by the higher monthly payments as Gen Z. Those born after 1996 have seen their median rent payment go up 16% since last July, compared to just a 3% increase for Baby Boomers, BofA internal data shows. 
“Younger consumers are getting squeezed the most by higher rent inflation,” BofA wrote.

The great rent comeback

Early in the pandemic, landlords slashed rents and gave significant COVID discounts to entice tenants to stay instead of leaving urban areas. Once those deals started expiring in 2021, many landlords suddenly raised payments once again, sometimes asking for over double their pandemic value. 

Young people across the board have been hit hard, and rent burdens compared to age can be seen even within a single generation. Younger millennials had their median rent payment grow 11% from last year, while the median payment for older millennials rose 7%. Gen X experienced a 5% median rent increase, according to BofA. 

It’s not a surprise, then, that Gen Z feels so strapped for cash. The majority of young people, 61%, said they want to receive their wages daily instead of twice a week, a practice typically reserved for workers living paycheck to paycheck, according to a report from the Center for Generational Kinetics, which specializes in research across the generations. Rising rent inflation has even priced nearly a third of Gen Zers out of the apartment search altogether. Around 29% of them have resorted to living at home as a “long-term housing solution,” according to a June survey from personal finance company Credit Karma.

It’s no wonder—the rent really is too high.

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