09 Jul

July 1  ASIAN MACRO INITIAL THOUGHTS  HK Closed  New Law details

Covid-19 Globally over 10.2m cases, 504k deaths
US Futures opened -25pts and have eased lower to -55pts
Dr Fauci warns ‘we are not in total control'

DOW +0.9%, NDX +1.9%, S&P +1.5%, Russel 2K +1.4% ending the quarter with record gains. Markets opened flat/higher and trended higher to close at the day highs.  Data was mixed. Covid -19 threat ignored as Dr Fauci warned if outbreak continues at its current pace, daily new cases could surpass 100,000 new infections per day. 12 States paused re-open plans.
AFTER Hours FedEx +9% as quarterly earnings and revenue beat estimates
Facebook -1% as Target announced suspending ads
Inovio Pharmaceuticals -1% (-15% earlier in the day) Medical news site Stat reported earlier Tuesday that the company has not provided data necessary to determine whether its coronavirus vaccine works. Inovio claimed positive results in its clinical trial in a press release Tuesday morning but has not disclosed how many patients produced Covid-19 antibodies, according to Stat.
Redbook 27 Jun -5.7% YoY vs -6.1% prior (-0.7% MoM vs -1.4% prior)
Case Schiller Home Price Apr +0.9% MoM vs +1.1% Mar (F/cast was +0.4%) [Apr +4% YoY vs +3.9% Mar (F/cast was +3.8%)]
Chicago PMI Jun 36.6 vs 32.3 May (F/cast was 44)
Consumer Confidence Jun 98.1 vs 85.9 (revised) (F/cast 90.1)
API Crude Oil Stock Change -8.156m vs +1.749
USD was slightly weaker vs Yen & Euro. Bitcoin -0.5% @ 9134.54, VIX -4.3% @ 30.43, US T10 0.658%
OIL Brent -0.3%, WTI -1.1% on demand concerns and ahead of futures expiry on Tuesday
Gold +0.5% to an 8 year high, Silver +1.5%, Copper +0.2%
AHEAD MBA Mortgage Applications and 30 year Mortgage Rate, Challenger Job Cuts, ADP Employment Change, Manufacturing PMI, ISM Data (Prices, New Orders, Employment, PMI) Construction Spending, EIA report, FOMC Minutes; Total Vehicle Sales

DAX +0.64%, CAC -0.19%, FTSE -0.9% FTSE and CAC open lower and trended lower for most of the day and then rallied into the close. DAX opened higher and trended higher into lunch, then sold down to flat before working higher into the close.
Shell -3% announced writing down its assets by up to US$22bn in Q1 and revised long term outlook.
Standard Life Aberdeen +0.6% on news CEO to stand down and be replaced by former Citi executive Stephen Bird.
Smiths Group +9%
Redrow -7% to shrink its London Business and warned about a drop in sales.
EUROZONE Core Inflation rate Flash Jun +0.8% vs +0.9% May (F/cast was +0.7%)
Inflation rate Flash Jun +0.3% YoY vs +0.1% May (F/cast was 0%) [Jun +0.3% MoM vs -0.1% May (F/cast was +0.1%)]
FRANCE Inflation rate Prelim Jun +0.1% YoY vs +0.4% May (F/cast was -0.2%) [Jun -0.1% YoY vs +0.1% May (F/cast was -0.3%)]
Household Consumption May +36.6% vs -19.1% Apr (F/cast was 22%)
PPI May -0.1% vs -2.9% May (F/cast was -0.7%)
GDP Growth Rate Final Q1 -2.2% QoQ vs 0% prior (F/cast was -2%)
Growth Rate Final Q1 -1.7% YoY vs +1.1% prior (F/cast was -1.7%)
Current Account Q1 GBP -21.1b vs -9.2b prior (revised) (F/cast was -14.2b)
Business Investment Final Q1 +0.8% vs +2.3% prior (revised) (F/cast was +0.7%) [Q1 final -0.3% QoQ vs -0.3% prior (revised) 9F/cast was 0%)]
EUROZONE Manufacturing PMI
GERMANY Retail Sales, Unemployment Rate & Change, Manufacturing PMI
FRANCE Manufacturing PMI, New Car Registrations
UK Manufacturing PMI

JAPAN Expect Nikkei to higher following US but the Tankan numbers could limit the upside. Yen currently 107.95
Data due
Tankan Large Manufacturers Index, Outlook and All Industry Capex, Non Manufacturing Outlook, Small Manufacturing Index, Manufacturing PMI, Confidence.
Government said existing border restrictions would remain in place except in cases involving humanitarian reasons. The country said it would add 18 countries to its entry ban from July 1, according to a June 29 posting on the foreign ministry website.
Japan calls China's reported move on Hong Kong ‘regrettable’
COVID New cases jumped to 31 in Kanagawa Prefecture on Tuesday, up from seven the previous day, the largest daily rise in a month, while neighboring Tokyo confirmed 54 cases, recording more than 50 for the fifth straight day. -VE
Nippon Telegraph and Telephone (NTT) plans to boost its renewable energy capacity manifolds to 7.5 gigawatts (GW) by 2030 as the telecommunications giant steps up its energy business to drive growth, its spokesman said on Tuesday.
Japan Display Inc. said Tuesday it posted a group net loss of ¥101.42 billion ($938 million) in fiscal 2019, a red ink figure for the sixth straight year, due to hefty restructuring costs and weak demand for products.

SOUTH KOREA Expect markets to open higher but premarket data likely to impact trading as investors watch he PMI data.
Data due
Balance of Trade, Exports, Imports, Manufacturing PMI
South Korea has the world’s lowest birth rate, according to a United Nations report released on Tuesday, as women in Asia’s fourth-largest economy struggle to achieve a balance between work and other life demands. -VE
New 5G subscribers rose by a record high in May for this year, with total network users reaching just under 6.9 million, official data showed Tuesday. Slight +VE for SK Telecom, KT and LG Uplus who have been aggressively promoting the new service to consumers but more +VE to 5G Smartphone makers.
Merck has opened the Korea Advanced Technology Center in Songtan Industrial Complex in Pyeongtaek, Gyeonggi Province, the company said Tuesday. “K-ATeC,” according to Merck, is a state-of-the-art facility that supports research and development for chemical mechanical polishing slurries as well as for the post-CMP cleaning of cutting-edge semiconductor devices. +VE
KT announced Tuesday that it has introduced automated robotic solutions at a local auto parts manufacturer’s factory. +VE
Samsung Electronics Vice Chairman Lee Jae-yong on Tuesday visited Samsung’s semiconductor equipment subsidiary SEMES, surveying the very foundation of the chip industry amid the country’s ongoing efforts to reduce dependence on Japan. Raising his profile whilst awaiting news on whether he will be prosecuted, trying to so it is important of him to be out of prison?

TAIWAN Expect market to open higher but the PMI data likely to impact the data.
Data due
Manufacturing PMI out at 8:30am
Chunghwa Telecom Co yesterday became the nation’s first telecom to debut its 5G services, offering tiered tariffs that include a threshold of NT$599 and flat rates, as it aims to switch half of its subscribers to the 5G network within three years. But warned 5G would not solve the problem of declining telecom incomes Slight -VE
TATUNG The election of board directors yesterday sparked controversy after the company blocked some institutional and individual shareholders from participating in the general shareholders’ meeting, prompting the Financial Supervisory Commission (FSC) to announce that the vote would be investigated.
Lite-On Technology Corp is to complete the sale of its solid-state drive (SSD) business today after announcing the US$165 million deal with Kioxia Holdings Corp last year. The transaction with Kioxia, formerly known as Toshiba Memory Holdings Corp, includes the SSD business, its assets, intellectual property, technologies and liabilities, as well as a 0.4 percent stake in CNEX Labs Inc, a California-based SSD start-up, Lite-On said yesterday. Lite-On said that it would continue to focus on power supplies and optoelectronic components, as well as applications in the cloud computing, server, network and communications, and Internet of Things sectors.

CHINA Expect market to open higher but investors will be watching the PMI data. Covid and international relations may limit upside too
Data due 
Caixin Manufacturing PMI Forecast is 50.5 vs May’s 50.7
Britain and some two dozen Western countries urged China on Tuesday to reconsider its new national security law for Hong Kong, saying Beijing must preserve the right to assembly and free press in the former British colony. I don’t think President Xi can back track on issue as he would lose face.
United States and its Asian and Western allies criticising a move that heralds a more authoritarian era for the former British colony. “As Beijing now treats Hong Kong as ‘One Country, One System,’ so must the United States,” White House National Security Council spokesman John Ullyot said in a statement. “We urge Beijing to immediately reverse course.”
KEY Points of the new law which took effect at 1500 GMT
The law defines four crimes: separatist activity, state subversion, terrorist activity and collusion with foreign forces.
* The security law overrides existing Hong Kong laws.
* Crimes of secession, subversion, terrorism and collusion with foreign forces punishable by up to life in prison.
* The activities of a new national security agency and its personnel in Hong Kong will not be under the jurisdiction of local government.
* Mainland authorities will exercise jurisdiction in “complex” cases such as those involving a foreign country or issues that pose a major and imminent threat to national security.
* Companies or groups that violate national security law will be fined and could have operations suspended.
* Property related to crimes under the new law could be frozen or confiscated.
* Damaging certain transportation vehicles and equipment will be considered an act of terrorism.
* Anyone convicted of violating security legislation will not be allowed to stand in any Hong Kong elections.
* Authorities can surveil and wire-tap persons suspected of endangering national security.
* The law will apply to permanent and non-permanent residents of Hong Kong.
* The management of foreign NGOs and news agencies in Hong Kong will be strengthened.
For me the fact that the punishment is life in prison is a significant increase but in line with Chinese law and the fact that it allows for the confiscation of assets which many will be worried about. It was the same with the failed extradition law last year; many think this is about the ability to seize assets from those that upset China. -VE for Hong Kong
US telecoms regulator designates China’s Huawei, ZTE as national security threats. US tech firms are banned from using Universal Service Fund to purchase or support any equipment or services provided by these suppliers. The announcement is a step forward in restricting 5G technological equipment made by Chinese companies from entering US telecoms infrastructure

HONG KONG Market Closed for SAR Day
ADR’s -34pts
No data due but After Market Tuesday
RETAIL SALES May -33.9% YoY vs -37.5% Apr revised (F/cast was -30%)
The revised estimate of the value of total retail sales in April 2020 decreased by 36.1% compared with a year earlier. A government spokesman said that retail sales continued to fall sharply in May from a year earlier, as inbound tourism remained at a standstill and job and income conditions were weak. Nonetheless, the decline narrowed further from that in April thanks to the stabilised local epidemic situation and consequential easing of social distancing measures.

Short Selling HSI Tuesday 17.5% vs 16.5% Monday Top Shorts Wharf REIC (1997) 58%, Hang Seng Bank (11) 43%, CCB (939) 40%, Henderson Land (12) 39%, Hang Lug PPT (101) 32%, HK & China Gas (3) 31%, MTR (66 HK) 29%, CLP (2) 24%.

For the public response to the imposition 
of a national security law on Hong Kong today
Hong Kong PLA garrison troops chase fugitives in drill as national security law is passed. Ground, navy and air force personnel take part in exercise testing their ability to intercept people trying to flee by boat. It was staged the same day Beijing’s top legislative body passed controversial legislation for the city. -VE for sentiment
The Government announced an extension to the social distancing measures for catering businesses, listed premises and public gatherings and continual inbound travel restrictions. The patronage ceiling on restaurants, bars and other premises will be relaxed from 50% to 80% of their normal seat numbers. Other rules and restrictions shall remain in place. Regarding the gathering ban, the maximum number of gathering participants in public premises is kept at 50, except for those granted with a waiver. The guidance, to last for 14 days, shall come into effect from 3 July 2020 till 16 July 2020.
Government announced that expenditure for the period April to May 2020 was HK$90.5 billion and revenue HK$45.8 billion, resulting in a cumulative year-to-date deficit of HK$44.7 billion.
HK Retail Sales data out May -32.8% improved MoM but missed f/cast
The Hong Kong Monetary Authority announced that the number of mortgage applications in May +38.4% MoM to 15,019.  Mortgage loans approved in May +26% MoM vs April to HK$41 billion.

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