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Trade war fears, tariffs, stocks and currencies in focus

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U.S. stocks reversed early losses overnight, which had come after China unveiled plans for additional tariffs on 106 U.S. products on Wednesday, as overtures were made regarding potential negotiation between the two countries.

“No date has been set for the proposed tariffs put forward by China or the U.S., meaning we could see uncertainty continue for the next couple of months. This also means negotiation is still firmly on the table,” ANZ analysts said in a morning note.

The juxtaposition between the ongoing U.S.-China tit-for-tat and hopes for trade talks is likely to be in focus among investors.

“Our base case … remains that negotiation and de-escalation will be the likely endgame. Having said that, China’s proportionate response has increased the risks of further escalation in ‘rhetoric’ in the coming weeks,” said Morgan Stanley analysts in a note.

European stocks had come under pressure following China’s announcement of those trade measures, which came before the U.S. market open.

The additional tariffs announced by China on Wednesday came less than a day after the U.S. unveiled the list of Chinese imports, including high-tech products, that could be targeted in response to what the White House deems an unfair trade relationship.

The dollar extended gains against the safe-haven yen following Wall Street’s overnight rebound, trading at 106.81 by 9:07 a.m. HK/SIN. That compared to levels around the 105 handle seen at the beginning of the week.

Meanwhile, the dollar index, which tracks the U.S. currency against six peers, was steady at 90.084.

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Chip shortage will last another quarter

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Xpeng Motors launches the P5 sedan at an event in Guangzhou, China on April 14, 2021. The P5 is Xpeng’s third production model and features so-called Lidar technology.

Arjun Kharpal | CNBC

BEIJING — Chinese electric car start-up Xpeng expects the global chip shortage will persist for at least another three months.

Automakers around the world have had to cut production due to a shortfall in semiconductors, or chips. High demand for electronics, U.S.-China trade tensions and a major factory fire have affected the highly specialized industry’s ability to manufacture enough chips.

“What we’ve seen is that this tight situation will continue for the next quarter or so,” Brian Gu, vice chairman and president of Xpeng, said Friday on CNBC’s “Squawk Box Asia.”

The challenge is “the visibility of chip supplies is by the minute,” Gu said. “We are paying very, very close attention to the situation. Right now, the impact is limited and it’s reflected in our guidance.”

Xpeng’s U.S.-listed shares fell nearly 4.9% in Thursday’s trading session despite the start-up reporting greater-than-expected revenue of 2.95 billion yuan ($456.7 million) for the first quarter.

The stock is now down nearly 45% for the year so far, but still holds gains of more than 50% from its IPO in August.

Xpeng expects to deliver between 15,500 and 16,000 vehicles in the second quarter. The company said it delivered 13,340 cars in the first three months of the year, topping its forecast for 12,500 cars.

Growing revenue from software

While car sales account for the majority of Xpeng’s revenue, the company noted first-quarter results were helped by customer demand for its assisted driving software. The start-up said it recorded revenue from the software for the first time after a rollout of an upgrade to paying customers in the first quarter.

Gu said on CNBC that more than 25% of customers have paid for the assisted driving software in the last month, up from 20% last quarter. He expects greater use of Xpeng’s software and lower vehicle production costs will increase the company’s margin in the near future.

Later this year, Xpeng plans to launch a second electric sedan, the P5, which includes support for the latest version of the start-up’s assisted driving software.

Vehicle margin, a measure of profitability, rose to 10.1% in the first quarter, up from 6.8% in the prior quarter. The company did report a year-on-year increase in net losses, of 786.6 million yuan in the first quarter, versus 649.8 million yuan during the same period last year. Research and development expenses rose 72.2% from a year ago to 535.1 million yuan.

Moving ahead into Europe

Xpeng pressed ahead with its European expansion plans in the first quarter by delivering more than 300 units of its G3 SUV to Norway, according to the company. The start-up had sent 100 of the cars to the market in December. Xpeng expects to begin delivering its P7 sedan to Norway in the second half of the year.

Competition in that overseas market is set to pick up with rival Chinese electric car maker Nio’s plans to open a showroom and begin deliveries in Norway later this year. Nio’s shares fell 7.3% Thursday and are down nearly 36% for the year so far.

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Dogecoin rallies on Elon Musk tweet, anticipated Coinbase listing

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Yuriko Nakao | Getty Images News | Getty Images

Dogecoin soared more than 40% early Friday after a tweet from supporter Elon Musk and as Coinbase said it would list the meme-inspired cryptocurrency.

The price of dogecoin rose to an intraday high of around 55 cents at 2:30 a.m. ET, according to data from Coin Metrics. It’s still down about 18% from a record high of nearly 67 cents only a week ago.

Musk tweeted Thursday that he was working with dogecoin developers to improve the efficiency of transactions.

On Wednesday, the Tesla CEO made a surprise announcement that his electric car firm would stop accepting bitcoin as payment due to concerns over its environmental impact.

That led to a brutal sell-off in cryptocurrencies, including dogecoin. Dogecoin had already fallen significantly after Musk’s appearance on Saturday Night Live, in which he called the digital coin a “hustle.”

Meanwhile, crypto exchange platform Coinbase said Thursday it would offer dogecoin support in the next six to eight weeks. Many crypto traders have flocked to the zero-fee investing app Robinhood to trade the meme token; now Coinbase’s move could lead to more trading activity.

Dogecoin isn’t taken very seriously by loyal bitcoin supporters. It started in 2013 as a joke, inspired by the “Doge” meme, but has since found a growing community online. Dogecoin is now the fourth-largest crypto by market value on CoinMarketCap, worth over $69 billion.

Financial experts warn that dogecoin is a highly speculative asset. It has stoked worries over a potential bubble in crypto markets — though some economists would say all cryptocurrencies are in a bubble.

Last week, Bank of England Governor Andrew Bailey warned crypto investors should be “prepared to lose all your money,” echoing a similar warning from the U.K.’s Financial Conduct Authority.

Bitcoin was marginally higher Friday, with the world’s biggest digital asset up about 0.3% at a price of $49,052. Ether, the second-biggest cryptocurrency, rose 3.6%, to $3,805.

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Slow population growth leading to lower real interest rates

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Slowing population growth across the globe could have a major impact on real interest rates, according to new research from JP Morgan.

With more old people saving for retirement and fewer young people borrowing for things like properties, cars and education, demographics are weighing heavy on interest rates in a trend that is set to continue, Jesse Edgerton, a senior economist at JP Morgan and author of the report, told CNBC.

“The slowdown in population growth, which we’ve been seeing for decades in both developed and emerging markets, is a reason to expect lower real interest rates,” Edgerton told “Street Signs Asia” Thursday.

His evidence? “The history of economic development, really,” he said.

Interest rates on the decline in developed nations

A woman holds a baby at a local park on May 12, 2021 in Beijing, China.

Kevin Frayer | Getty Images News | Getty Images

That’s because money is not being put to work in the same way, driving down returns and interest rates, said Edgerton.

“Slow population growth essentially means that there’s excess capital in the world. There’s excess money searching for yield. And all that money that people are trying to save — it’s going to push down interest rates, it’s going to push down returns on capital,” he said.

Knock-on effects for savings and investments

The shifting interest rate outlook has implications not only for savings accounts and assets like bonds, which are directly correlated to interest rates, but also equities and real estate. Falling rates could mean lower average price-to-earnings (PE) ratios, said Edgerton.

PE ratios are used to determine valuation, and high PE ratios could mean the asset is overpriced, or that investors predict strong future growth.

If you’re living in a world with lower population growth, you should expect to earn lower returns.

Jesse Edgerton

senior economist, J.P. Morgan

“I do think we should expect higher PE ratios to be the new normal in this world of lower population growth,” he noted.

And while a declining population growth is not necessarily a bad thing overall, said Edgerton, it does mean saving for retirement could become even more elusive moving forward.

“If you’re living in a world with lower population growth, you should expect to earn lower returns on your assets when you’re saving for retirement. You might be needing to set aside more,” he said.

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