🌎 Aussie wine corked by China | Two countries blocking trillions | Nepal is calling to you
November 27th, 2020
The soccer world suffered a tragic loss this week. The legendary footballer Diego Armando Maradona passed away at the age of 60, just a few weeks after having brain surgery. In all fairness, Maradonna surviving to 60 was a miracle in itself due to his rock roll lifestyle and well publicized drug habit.
He was not only a considered god in Argentina but also in Naples. Maradona's time at Napoli marked a, before and after, in the history of Italian football.. and even more notable, he was able to breach the gap between northern and southern Italy… making him an italian legend.
Did You Know...
Diego Maradonna holds the record for most appearances as a captain for their country in a World Cup with 16.
Do you know how many World Cups he played in?
Aussie wine corked by China
It turns out coronavirus isn't the only pandemic in 2020, there seems to be a nasty bout of the trade war going round. In a massive blow to Australian winemakers, Chinese regulators served up notice of heavy tariffs on the Aussie grapes. In a move that will only further cork the relationship between the two countries, Australian wine import duties will now be between 107.1% and 212.1%. Enough to cause you to need a stiff drink.
We never really had the Chinese as big wine drinkers, but surprisingly they are the largest importer of Aussie wine and make up a whopping 39% of imports.
Considering the appetite to guzzle the grape, it's no doubt that this is a bold move by the Ministry of Commerce and comes off the back of 40 allegations of unfair government subsidies to Aussie producers. Subsequent investigations confirmed cases of dumping, which was causing “material damage” to China's wine industry.
How did we get to this?
Well, it all started earlier in the year, where Australia asked China for an investigation into the origins of the coronavirus pandemic. China didn’t take it well and subsequently stuck two fingers up to one of its largest trading partners in the form of suspending some imports of beef and slapping heavy duties on barley.
Australia then turned up the heat by ‘effectively blocking’ the sale of a dairy business to a Chinese business, in an acquisition which was described by officials as “contrary to the national interest”. Therefore, you wouldn't be blamed for thinking that Canberra and Beijing won't be exchanging Christmas cards this year.
All is not lost…
Analysts believe there is a chance that relationships could sweeten after both countries signed onto a major trade deal called Regional Comprehensive Economic Partnership (RCEP). This agreement could be the coming together needed to better align for these two reactive nations.
You never know, maybe they will exchange gifts after all, but I doubt a bottle of wine will be on the cards.
FX | The AUD is trading at its highest levels since early September. Despite Australia posting disappointing numbers this week, it hasn't impacted the pair AUD/USD, which kept firm at 0.7400. The Aussie exhibits high volatility (more than 12% annual) over a year owing to be closely tied to the price of commodities.
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Corruption, power, and trillions of Euros
The leaders of Poland and Hungary, who effectively vetoed the European Union’s $2 trillion spending package last week, have hardened their opposition to a plan to tie European Union funding to the rule of law on Thursday, in a clear act of confrontation that will seriously complicate the bloc’s efforts to approve a new seven-year budget.
Under the draft rule-of-law, which is the main mechanism linked to the package, a qualified majority of EU member states can approve sanctions based on the recommendation of the EU’s executive commission if they are considered harmful to the bloc’s financial interests.
What lies behind this defiance from both countries is pretty simple:
Their governments are already under formal EU probes into whether they have violated the democratic norms, making them prime candidates for potential funding cuts in the future. The Hungarian Prime Minister Viktor Orban commented this week that linking millions of euros under rule-of-law could threaten his political future in parliament. In other words, “Better to save my skin than thousands of jobs across the bloc”.
Fueling the discussion, a former Belgian Prime Minister summed up the situation succinctly - it’s a question of corruption. According to the latest European Anti-Fraud Office Report, Hungary has over ten times the EU average of financial irregularities in handling EU investment and it has recommended the EU recall 3.93% of the payments it made to Hungary under the umbrella of structural investment funds and agriculture, in the period 2015-2019. Moreover, other nations with high investigation numbers were Romania (40), Italy, and Poland (22), and Bulgaria (20).
Thus, to the surprise of all, it will be the first time that countries create obstacles to receive money.
FX | Although positive news from Covid-19 vaccine developments last week and this one offset the surge in Covid-19 cases, further restrictions across the bloc raised concerns over the economic recovery. Political conflicts are also in focus with the European Union having problems getting its recovery plan and long-term budget on track with Poland and Hungary obstructing approval. Nonetheless, the pair EUR/USD remains on the upside despite a mild loss of upside momentum.
Unfreezing the Nepal economy
Climbing Mount Everest was never a good idea, even more now in 2020 with the risk of being infected by the coronavirus at an altitude of 8,848 m. Nonetheless, for the tiny nation of Nepal, which is home to 8 of the 14 highest mountains in the world, it is high time to have more adventures in search of adrenaline.
After closing its mountains to climbers in March because of the Covid-19 pandemic, Nepal is trying to restart the economy that is partially dependent on Mount Everest. The tourism sector accounted for 7.9% of GDP in 2019 (Fig 1), with the sector supporting more than 1 million jobs. Everest expeditions alone contributed more than $300 million last year. For that reason, the Nepali government launched a campaign “Visit Nepal Year” aiming to boost its tourism sector… but will the brave climbers come?
Figure 1. Leisure Travel & Tourism contribution to GDP. Source:
While Nepal may not see an explosion of tourists in the coming months, the country remains the best bet for international investors. According to the Department of Industry, more than two-thirds of the foreign investment pledges received in the five months ended on November 8th were in hotels, resorts, and restaurants. The tourism sector accounted for Rs13.8 billion, or 72% of the total Foreign Direct Investment commitments worth Rs19.07 billion, with China, India, and the U.K ranking the 10 top investors’ list (Fig 2).
Figure 2. Top ten countries on FDI
Surprisingly, foreign investors seem to ignore a recent study entitled Rapid Assessment of the Social and Economic Impacts of Covid-19, which said that with international travel restrictions and a fall in discretionary disposable incomes worldwide, tourism receipts in Nepal are projected to fall by 60% in 2020, resulting in a loss of foreign currency earnings, worth $400 million.
Regardless investors have in mind, such investments must have a distant break-even, because empty restaurants, rooms available and with nobody conquering the most feared peak, that deficit will remain.
FX | The pair USD/INR tried to consolidate in a range between 1,180 and 1,200 throughout the month of November. The market is mainly narrative-driven with the country heavily dependent on trade with India.
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Quiz of the week
Maradonna played in four World Cups, winning it in 1986 in Mexico.