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Where next for Luckin Coffee’s share price amid new fraud details?

Share price of Nasdaq-listed Chinese coffeeshop chain Luckin Coffee opened 13% lower on Monday 08 June 2020, after it was reported that its chairman Lu Zhengyao may also have been directly involved in recent fraud charges that have plagued the company.

Share price of Nasdaq-listed Chinese coffeeshop chain Luckin Coffee opened 13% lower on Monday 08 June 2020, after it was reported that its chairman Lu Zhengyao may also have been directly involved in recent fraud charges that have plagued the company.

IG trading data showed that the stock plunged nearly US$1 per share to begin Monday’s session at US$4.79 each.

Luckin Coffee chairman also accused of committing fraud

Lu had allegedly instructed colleagues to commit accounting fraud in a series of emails that have been discovered by Chinese authorities, according to news site Caixin Global.

The report went on to add that China’s Ministry of Finance are currently in possession of evidence that could prove that Luckin Coffee had paid taxes on fabricated transactions, this is according to several people with proximity to the company’s internal investigation team.

Lu could possibly face criminal charges in China.

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Balance sheet manipulation dates back to second quarter of 2019

This is in addition to earlier developments that had revealed a degree of balance sheet manipulation by other senior company executives and employees.

On 07 April, Nasdaq halted trading of Luckin Coffee’s shares after it admitted in a US Securities and Exchange Commission filing that Jian Liu, chief operating officer and a director of Luckin Coffee Inc., and several of his employees, had ‘engaged in the fabrication of certain transactions’ amounting to around 2.2 billion Chinese yuan in aggregate sales that date back to the second quarter of 2019.

Lu had himself issued the following apology following the uncovering of the fraud: ‘I have been in deep pain and guilt over the past month. I again apologise to all the investors, staff and clients of Luckin for the terrible impact of the incident.’

The Board of Directors then terminated Jenny Zhiya Qian and Jian Liu from their positions of Chief Executive Officer and Chief Operating Officer on 12 May 2020 after further internal investigations. In addition, the company also placed six other employees who were involved in or had the knowledge of the fabricated transactions, on suspension or leave.

Luckin Coffee to request hearing on Nasdaq delisting notice

Following that, on 19 May 2020 – just a day prior to trading being resumed, the company announced that it received a written delisting notice from Nasdaq on 15 May over ‘public interest concerns’ regarding the fabricated transactions disclosed by the company.

Luckin Coffee had stated that it plans to request a hearing on the delisting. Hearings will typically be scheduled to occur approximately 30 to 45 days after the date of the hearing request.

For now, Luckin Coffee will remain listed on Nasdaq, pending the hearing’s outcome. However, there can be no assurance that the panel will grant the company’s request for continued listing, according to Nasdaq.

Despite the stream of controversy, Luckin Coffee’s share price was still able to rally over 50% last Friday 05 June, in line with improved market sentiments globally.

How to trade US stocks with IG

Are you bullish or bearish on Luckin Coffee and other Nasdaq stocks? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs in a few easy steps:

  • Create a live or demo IG Trading Account or log in to your existing account
  • Enter <company name> or <ticket code> in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade
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Daily Financial News

Don’t Count On JPY Correction; Staying Long GBP/JPY

The path of the potential pace of the JPY decline may still be underestimated by markets, which continue trading the JPY long.

While the 10% USDJPY advance from September lows looks impressive from a momentum point of view, it may no thave been driven by Japan’s institutional investors reducing their hedging ratios or Japan’s household sector reestablishing carry trades.

Instead, investors seemed to have been caught on the wrong foot, concerned about a sudden decline of risk appetite or the incoming US administration being focused on trade issues and not on spending. Spending requires funding and indeed the President-elect Trump’s team appears to be focused on funding. Here are a few examples: Reducing corporate taxation may pave the way for US corporates repatriating some of their USD2.6trn accumulated foreign profits. Cutting bank regulation could increase the risk-absorbing capacity within bank balance sheets. Hence, funding conditions – including for the sovereign – might generally ease. De-regulating the oil sector would help the trade balance, slowing the anticipated increase in the US current account deficit. The US current account deficit presently runs at 2.6% of GDP, which is below worrisome levels. Should the incoming government push for early trade restrictions, reaction (including Asian sovereigns reducing their holdings) could increase US funding costs, which runs against the interest of the Trump team.

Instead of counting on risk aversion to stop the JPY depreciation, we expect nominal yield differentials and the Fed moderately hiking rates to unleash capital outflows from Japan.The yield differential argumenthas become more compelling with the BoJ turning into yield curve managers. Via this policy move, rising inflation rates push JPY real rates and yields lower, which will weaken the JPY. Exhibit 12 shows how much Japan’s labor market conditions have tightened. A minor surge in corporate profitability may now be sufficient, pushing Japan wages up and implicity real yields lower.

JPY dynamics are diametrical to last year . Last year, the JGB’s “exhausted”yield curve left the BoJ without a tool to push real yields low enough to adequately address the weakened nominal GDP outlook. JPY remained artificially high at a time when the US opted for sharply lower real yields. USDJPY had to decline, triggering JPY bullish secondround effects via JPY-based financial institutions increasing their FX hedge ratios and Japan’s retail sector cutting its carry trade exposures. Now the opposite seems to be happening. The managed JGB curve suggests rising inflation expectations are driving Japan’s real yield lower. The Fed reluctantly hiking rates may keep risk appetite supported but increase USD hedging costs.Financial institutions reducinghedge ratios and Japan’s household sector piling back into the carry trade could provide secondround JPY weakening effects

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Daily Financial News

Mexico raises interest rates, cites Trump as risk

The head of Mexico’s central bank says U.S. Republican candidate Donald Trump represents a “hurricane” sized threat to Mexico.

Banco de Mexico Gov. Agustin Carstens told the Radio Formula network Friday that a Trump presidency “would be a hurricane and a particularly intense one if he fulfills what he has been saying in his campaign.”

Trump has proposed building a wall along the border and re-negotiating the North American Free Trade Agreement.

Mexico’s central bank raised its prime lending rate by half a percent to 4.75 percent Thursday, citing “nervousness surrounding the possible consequences of the U.S. elections, whose implications for Mexico could be particularly significant.”

Mexico’s peso had lost about 6 percent in value against the dollar since mid-August. It recovered slightly after the rate hike

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Financial News

Africa’s first Fairtrade certified gold co-operative offers hope to gold miners living in poverty

Syanyonja Artisan Miners’ Alliance (SAMA) has become the first artisanal small scale mining co-operative in Africa to become Fairtrade certified, bringing much needed hope to impoverished communities who risk their lives to mine the rich gold seam that runs around Lake Victoria.

SAMA is one of nine previously informal groups from Uganda, Kenya and Tanzania which has benefitted from a pilot project launched by Fairtrade in 2013. This innovative program aims to extend the benefits of Fairtrade gold to artisanal miners across East Africa.

In that short time, SAMA has undergone training in business and entrepreneurship, as well as safe use of mercury, internal control systems, labour rights and better working conditions, health and safety and more. Previously, daily contact with toxic chemicals used to process gold meant members risked disease, premature births and even death.  Fairtrade gold was first launched in 2011, and SAMA now joins Fairtrade certified gold mines MACDESA, AURELSA and SOTRAMI in Peru.

The co-operative produces just 5 kg gold per year, but nevertheless has the potential to significantly benefit many people in the local community through better conditions through certification. It is expected that Fairtrade and organizations like Cred Jewellery will support the miners, ensuring their gold can be refined and made available to jewellers in the UK and other markets.

Gonzaga Mungai, Gold Manager at Fairtrade Africa said: “This is a truly momentous and historical achievement and the realisation of a dream that is many years in the making. Gold production is an important source of income for people in rural economies. Congratulations to SAMA, it sets a precedent which shows that if groups like this can achieve certification, then it can work for others right across the African continent.”

The Fairtrade Gold Standard encourages better practice and changes to come in line with international regulation around the production and trade of so-called ‘conflict minerals’. Under the Standard, miners are required to:

  • Uphold a human rights policy preventing war crimes, bribery, money laundering and child labour
  • Clearly represent where the minerals were mined
  • Minimise the risks of conflict minerals through robust risk assessments and collaboration across supply chains
  • Report to buyers and trading partners regarding the risks of conflict minerals

Now in its second phase, the programme will focus on supporting other mining groups in the region to access affordable loans and explore a phased approach to accessing the Fairtrade market, allowing more mining co-operatives across Africa to participate in the programme.

Gonzaga added: “Sourcing African metals from smallscale miners in the Great Lakes Region is the responsible thing to do. For a long time companies have avoided buying gold from this region, with devastating consequences for impoverished communities who were already struggling. It has driven trade deeper underground, as unscrupulous buyers pay lower prices and launder illegal gold into legitimate supply chains. That’s why we have chosen to work with these groups to help them earn more from their gold within a robust compliance system that offers social, environmental, and economic protections.”

The Fairtrade gold programme offers a small but scalable solution to sustainable sourcing of gold from the region in line with Section 1502 of the Dodd-Frank Act in the US, OECD Due Diligence Guidance and recent EU Supply-Chain Due Diligence proposals which could come into effect in 2016. This means that up to 880,000 EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products could be obliged to provide information on steps they have taken to identify and address risks in their supply chains for so-called ‘conflict minerals’.

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