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John Kerry calls on China to step up on emissions cuts

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John Kerry gives a speech at the Royal Botanic Gardens, Kew, London on July 20, 2021.

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The United States’ climate envoy John Kerry issued a stark warning on Tuesday, claiming that the suffering brought about by the Covid-19 pandemic would be “magnified many times over in a world that does not grapple with, and ultimately halt, the climate crisis.” 

In a speech delivered in London, Kerry — who on Thursday is due to attend a G20 ministerial meeting in Italy focused on the environment, climate and energy — sought to emphasize the magnitude of the challenge facing the planet.

“The climate crisis, my friends, is the test of our times,” he said. “And while some may still believe it is unfolding in slow motion, no, this test is now as acute and as existential as any previous one.”

Former Secretary of State Kerry also stressed the need for geopolitical cooperation, acknowledging that “no country and no continent alone can solve the climate crisis.”

Turning to China, Kerry noted that “a foundational building block” of its growth had stemmed from “a staggering amount of fossil fuel use” and called on it to step up when it came to cutting emissions.

In a remotely delivered address to the United Nations General Assembly last September, Chinese President Xi Jinping said his country was targeting peak carbon dioxide emissions by 2030 and carbon neutrality by the year 2060. For his part, Kerry claimed China needed to do more.

“As a large country, an economic leader and now the largest driver of climate change, China absolutely can help lead the world to success by peaking and starting to reduce emissions early during this critical decade of 2020 to 2030,” he went on to add.  

“The truth is there’s no alternative, because without sufficient reduction by China, together with the rest of us, the goal of 1.5 degrees is essentially impossible.”

Read more about clean energy from CNBC Pro

The goal referenced by Kerry refers to 2015’s Paris Agreement, which aims to “limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.”

Later this year, world leaders are set to gather for the COP26 climate change summit in Glasgow, Scotland. It’s seen as a crucial event, with many hoping it will act as a catalyst for governments to step up their climate ambitions in order to meet the targets set out in the Paris accord.

“Glasgow is the place, 2021 is the time and we can, in a little more than 100 days, save the next 100 years,” Kerry said.

While there is an undoubted sense of urgency about COP26, the reality on the ground shows just how big a challenge achieving climate-related goals will be in the years ahead.

On the same day that Kerry made his speech, the International Energy Agency said only a small chunk of governments’ recovery spending in response to the Covid-19 pandemic had been allocated to clean energy measures.

The IEA’s analysis notes that, as of the second quarter of this year, the world’s governments had set aside roughly $380 billion for “energy-related sustainable recovery measures.” This represents approximately 2% of recovery spending, it said.

In a statement issued alongside its analysis, the IEA explained just how much work needed to be done in order for climate related targets to be met.

“The sums of money, both public and private, being mobilised worldwide by recovery plans fall well short of what is needed to reach international climate goals,” it said.

Indeed, the Paris-based organization is forecasting that carbon dioxide emissions will hit record levels in 2023, with “no clear peak in sight.”

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China, Hong Kong bitcoin holders scramble to protect their crypto assets

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A Bitcoin ATM in Hong Kong.

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Some crypto holders in China and Hong Kong are scrambling to find a way to safeguard their bitcoin and other tokens after China’s central bank published a new document Friday spelling out tougher measures in its wider crypto crackdown, including souped-up systems to monitor crypto-related transactions.

Bitcoin was down as much as 6% and ether sunk as much as 10%, amid a wider sell-off early Friday, as investors digested the news.

“Since the announcement less than two hours ago, I have already received over a dozen messages – email, phone and encrypted app – from Chinese crypto holders looking for solutions on how to access and protect their crypto holdings in foreign exchanges and cold wallets,” David Lesperance, a Toronto-based attorney who specializes in relocating wealthy crypto holders to other countries to save on taxes, told CNBC early Friday.

Lesperance said the move is an attempt to freeze crypto assets so that holders can’t legally do anything with them. “Along with not being able to do anything with an extremely volatile asset, my suspicion is that like with Roosevelt and gold, the Chinese government will ‘offer’ them in the future to convert it to e-yuan at a fixed market price,” he said of President Franklin Roosevelt’s policy around the private ownership of gold, which was later repealed.

“I have been predicting this for a while as part of the Chinese government’s moves to close out all potential competition to the incoming digital yuan,” said Lesperance.

The People’s Bank of China said on its website Friday that all cryptocurrency-related transactions in China are illegal, including services provided by offshore exchanges. Services offering trades, order matching, token issuance and derivatives for virtual currencies are all strictly prohibited, according to the PBOC.

The directive will take aim at over-the-counter platforms like OKEx, which allows users in China to exchange fiat currencies for crypto tokens. An OKEx spokesperson told CNBC the company is looking into the news and will let CNBC know once it has decided on the next steps.

Lesperance claims some of his clients are also worried about their safety.

“They are concerned about themselves personally, as they suspect that the Chinese government is well aware of their prior crypto activities, and they do not want to become the next Jack Ma, like ‘common prosperity’ target,” said Lesperance, who has helped clients to expatriate in order to avoid taxes, amid a rising crypto crackdown in the U.S.

That said, it’s common for the authoritarian state to lash out against digital currencies.

In 2013, the country ordered third-party payment providers to stop using bitcoin. Chinese authorities put a stop to token sales in 2017 and pledged to continue to target crypto exchanges in 2019. And earlier this year, China’s takedown of its crypto mining industry led to half the global bitcoin network going dark for a few months.

“Today’s notice isn’t exactly new, and it isn’t a change in policy,” said Boaz Sobrado, a London-based fintech data analyst.

But this time, the crypto announcement involves 10 agencies, including key departments such as the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security, in a show of greater unity among the country’s top brass. The State Administration of Foreign Exchange also participated, which could be a sign that enforcement in this space might increase.

Signs of coordination

There are other signs of early government coordination in China. The PBOC document was first announced Sept. 15, and a document banning all crypto mining by China’s National Development and Reform Commission was released Sept. 3. Both were published on official government platforms on Friday, suggesting a collaboration between all participating agencies.

And unlike past government statements that refer to cryptos under the same umbrella language, this document specifically calls out bitcoin, ethereum and tether, as stablecoins begin to enter the lexicon of regulators in China.

Bespoke Growth Partners CEO Mark Peikin thinks that this is the start of widespread, near-term pressure on the price of bitcoin and other cryptocurrencies and that “the risks facing Chinese investors will have a significant spillover effect, leading to an immediate risk-off trade in the U.S. crypto market.”

“Chinese investors, many of whom continued to turn a cold shoulder to the Chinese government’s latest and largest crackdown on cryptocurrency trading the last several months, may no longer remain bellicose,” Peikin told CNBC.

“Chinese investors thus far largely skirted the ban by decoupling transactions – using domestic OTC platforms or increasingly of late, offshore outlets, to reach agreement on trade price, and then using banks or fintech platforms to transfer yuan in settlement,” Peikin said.

But given the PBOC has improved its capabilities to monitor crypto transactions – and the recent order that fintech companies, including the Ant Group, not provide crypto-related services – Peikin said this workaround used by Chinese investors will become a progressively narrow tunnel.

Friday’s statement from the PBOC adds to other news out of China this week, which has roiled crypto markets. A liquidity crisis at property developer Evergrande raised concerns over a growing property bubble in China. That fear rippled across the global economy, sending the price of many cryptocurrencies into the red.

However, not all are convinced this downward pressure on the crypto market will last.

Sobrado thinks the market is overreacting to Friday’s announcement from the PBOC, given that a lot of the exchange volume in China is decentralized and conducted peer-to-peer – increasingly the most telling metric of crypto adoption. While exchanging tokens P2P doesn’t evade regulatory scrutiny, Sobrado said those crypto exchanges are harder to track down.

Lesperance also points out that Friday’s news might actually strengthen the business case for cryptos as an asset class, given they are a hedge against sovereign risk.

Ultimately, the biggest question is whether this latest directive from Beijing has teeth. “The running joke in crypto is that China has banned crypto hundreds of times,” Sobrado said. “I’d be willing to wager people will be trading bitcoin in China a year from now.”

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Nike can turn its snarled supply chain to its advantage

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A pedestrian walks past American multinational sport clothing brand, Nike store and its logo seen in Hong Kong.

Budrul Chukrut | SOPA Images | LightRocket | Getty Images

A lower sales forecast, slowing growth in China and a bottlenecked supply channel — the news coming out of Nike’s fiscal first-quarter earnings report wasn’t good.

Shares were down more than 6% on Friday afternoon following the report. Ahead of the results, shares had already tumbled roughly 9% from an all-time high of $174.38, which it hit in August.

Amid the sell-off some analysts see an opportunity for Nike to position its business — and its stock — for greater growth. Nike’s supply chain struggles are providing it with cover to accelerate its direct-to-consumer strategy, which has been a key driver of profitability in recent quarters.

It now takes Nike roughly 80 days to get goods from Asia to North America, which is double pre-pandemic transit times. Manufacturing facilities across Vietnam are beginning to reopen, but Nike has lost about 10 weeks of production due to pandemic shutdowns. About 43% of its total footwear and apparel units are made in the country.

For the next few quarters, Nike predicts consumer demand will outweigh supply. This means Nike will need to be much more strategic about where it’s stocking running shoes and workout tops. It will likely opt for its own stores, over wholesale partners.

“As long as inventory is constrained, it’s fair to assume the pivot to direct will be accelerated,” BMO Capital Markets analyst Simeon Siegel said. “They’re prioritizing their own channels with product first.”

Before the Covid pandemic struck, Nike was on a path to grow its direct-to-consumer business. It has been cutting partnerships with some wholesale retailers, while building its online business and opening Nike stores around the world. Over the past three years, Nike has pulled out of about 50% of its wholesale accounts.

Nike calls the transition a “consumer direct offense,” a play on sports terminology. In fiscal 2021, Nike’s direct revenue represented roughly 39% of sales for the Nike brand, up from 35% in the prior year. Selling more goods at full price has also been aiding profits. Nike’s gross margins for fiscal 2021 grew to 44.8%, from 43.4% in 2020.

Industrywide supply-chain havoc could accelerate Nike’s DTC push at an even faster clip and in turn drive profitability higher.

Nike ‘still has the demand’

“This means Nike now gets a free excuse to accelerate its DTC transition and say, ‘We don’t have the supplies to get to our wholesalers,'” said Stacey Widlitz, president of SW Retail Advisors, in an interview. “This is a major opportunity, because you’re seeing all of these other brands cut wholesale, but they don’t have the top line like Nike. Nike still has the demand.”

And even if Nike’s shelves are a bit bare in the coming months compared with normal times, Widlitz said, she doesn’t think it will permanently drive shoppers away to other retailers.

“People are always going to be drawn back to the big brands,” she said. “It’s the greatest pent-up demand, because they are basically telling the consumer, ‘You can’t have it right now.’ You’re creating FOMO [fear of missing out] by not having supply. It’s a no-brainer to take advantage of that.”

On Thursday’s earnings call, Nike’s management team said it is prioritizing its direct channels.

Nike’s top partners include Foot Locker, Dick’s Sporting Goods and Nordstrom, and investors in these stocks are concerned about what Nike’s troubles will mean for their businesses. On Friday, Foot Locker shares were down more than 6%, while Dick’s shares shed nearly 2%. Nordstrom’s stock was about flat.

Chief Financial Officer Matt Friend said temporary supply chain disruptions will “likely trigger an even greater acceleration in the transformation of the marketplace — toward Nike and our most important wholesale partners.”

“We’re going to have lean inventory,” he said. But he added, “Strong brands get stronger in this environment.”

And according to Citi analyst Paul Lejuez, a temporary supply chain problem is a much better issue to have than a demand problem. He doesn’t see Nike as having a demand problem.

“We view these supply chain disruptions as transitory … and [the delays] are impacting the athletic footwear space broadly,” Lejuez said in a research note. “The most significant impacts from Vietnam factory closures should happen post-holiday.”

Another way to shore up growth

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What executives said internally during GameStop short squeeze

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Vlad Tenev, CEO and Co-Founder of Robinhood, in his office on July 15, 2021 in Menlo Park, California.

Kimberly White | Getty Images Entertainment | Getty Images

Robinhood executives had a lot to talk about the week Reddit users were driving a historic short squeeze in GameStop.

New documents in a lawsuit allegedly show internal conversations between executives panicking over how to meet financial requirements, debating the severity of a Reddit-driven short squeeze and contradicting the CEO’s public statements.

Plaintiffs in the claim, which was filed in the U.S. District Court in the Southern District of Florida, allege they suffered damages when Robinhood enacted trading restrictions on Jan. 28 amid volatile activity in GameStop and other meme stocks. They are suing for damages, interest and attorneys’ fees. Plaintiffs are also seeking class action status.

“As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits,” the brokerage said in a Jan. 28 blog post addressing the trading restrictions. “Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment.”

According to the suit, in one instance, Robinhood Chief Operating Officer Gretchen Howard messaged internally that the start-up was facing a “major liquidity crisis.” Publicly, the company’s chief executive said the opposite.

“There was no liquidity problem,” CEO Vlad Tenev told CNBC’s Andrew Ross Sorkin a day later, on Jan. 29.

A Robinhood spokesperson said the start-up met its liquidity obligations on January 28, and “fully satisfied its clearinghouse deposit requirement before the market opened.”

Sharp rise in trading volume

Robinhood and other brokerage firms saw unprecedented trading volume in January around heavily shorted stocks, including GameStop and AMC. The brokerage start-up, which has to deposit money to a clearinghouse based on the volume of trades, said it restricted buying of certain securities because the firm was unable to meet deposit requirements. These requirements increase when volatility goes up in case of large losses by options trades.

“This clearing thing seems pretty scary to me — I would say this is our biggest fire right now,” Robinhood’s director of engineering allegedly said in a Slack message, adding that the company could see a margin call of hundreds of millions of dollars. “In the worst case scenario we max out our credit lines and they liquidate our positions.”

According to the suit, David Dusseault, chief operating officer of subsidiary Robinhood Financial, said the company was “to [sic] big for them to actually shut us down,” referring to the National Securities Clearing Corp., a provider of centralized clearing services. In the same conversation, another executive, whose name is redacted, said “we’re going to get crucified” for stopping trades, according to the complaint.

‘A tidal wave of volume and volatility’

The chats were part of the discovery process in a lawsuit against Robinhood. An attorney for the plaintiffs argued that Robinhood knew the Reddit-driven chaos was coming and didn’t do enough.

“Robinhood and its higher-ups were well aware of this tidal wave of volume and volatility that was heading in their direction,” Maurice Pessah, founder of Pessah Law Group, told CNBC. “In our opinion and as we allege in the lawsuit, they didn’t do their jobs and what they are required to do in terms of analyzing risks and managing risks as a broker.”

In response, Robinhood said it disputes the plaintiff allegations and stands by public statements regarding Jan. 28. A company spokesperson also said “the communications are consistent with Robinhood’s focus to take appropriate, incremental measures to mitigate risk.”

In another excerpt, data scientists and Tenev debated how intense the Reddit frenzy could get, according to the suit.

“Maybe I am being alarmist but I think we should consider all-hands on deck kind of situation and shuffle some priorities to deal with increasing volumes,” Robinhood’s director of engineering allegedly wrote. The company’s head of data science responded “you may not be being an alarmist” after seeing a chart showing the spike in volume, plaintiffs alleged.

“Today was a huge day. There are internal things that are starting to buckle under pressure,” another software engineer said, according to the suit.

Tenev allegedly responded that “only the paranoid survive.” His response to a comment that “one who panics first panics best” was “joy.”

In another message, the company acknowledged “blowback from this is going to be exponentially worse as time goes on” and they “were worried about the long term affects [sic] of this,” according to the suit.

In the months that followed these conversations, Robinhood’s CEO as well as the CEOs of Citadel and Melville Capital testified in front of Congress. Tenev told the representatives that the GameStop mania was a 1 in 3.5 million event, which he called “unmodelable” and that Robinhood’s risk management processes kicked in as they were meant to. In order to meet capital requirements and shore up its balance sheet, Robinhood raised more than $3.4 billion in a matter of days.

The company went on to a blockbuster public listing in August.

Securities and Exchange Commission Chair Gary Gensler is expected to publish a report on the GameStop saga in the coming weeks, as well as recommendations on what, if any, changes should be made to the U.S. trading system as a result.

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