Nov 5 Asian Macro Initial Thoughts +VE opening but caution ahead of US Jobs and China Trade data.

05 Nov

This and previous notes can be found at  Substack ( Asian Market Sense )
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Free Mifid compliant Webinar with Russell Napier today Friday
Topic: 'Why The Growing Deflationary Risk From China Sets The Scene for Higher Global Inflation'
Session 1 :  9am London 4pm HKT Click to register
Session 2: 3pm London 10am EST Click to register

The President of China, in pursuit of common prosperity, is attempting to re-orientate his financial system to redistribute wealth. This re-distribution will be largely effected through redirecting the credit of the state-run financial system.
This shift comes at a time when China is already running too tight a monetary policy and with a large residential property market overhang. These are the ingredients to push the cost of credit higher, the price of property lower and raise questions as to the solvency of the private sector credit system.
The Solid Ground has long accepted such a disinflationary/ deflationary outcome for China even as the developed world shifted decisively to inflationary policies in early 2020.
So how do the deflationary forces emanating from China interact with the policy of monetary largesse in the developed world? Is there one last deflationary shock to come? How should investors position for the major structural transition already underway in China?

Asia  Expect weakness in Financials and Oil related names after BoE and OPEC+ decisions.  Strength in Tech but some general caution ahead of US jobs report Friday and China’s Trade Data due out Sunday.

Market to opened higher and testing 7,460 in early trades. Re-opening names in focus. Energy names -VE as OPEC+ maintains production levels. Gold +VE but Iron Ore futures remain weak.
Westpac Ex Div today.
Data out
Services Index Oct 47.6 vs 45.7 Sept (F/cast was 52)
Nikkei futures opened lower but turned +VE as Household spending beat F/casts.  Expect Energy, Tech and Auto +VE  But Utilities weak. Another big day for earnings which is likely to keep investors cautious.
S Korea 
Expect markets to open flat and drift lower. Sentiment cautious. Earnings still in focus. Pre market data a slight +VE
Expect market to open higher with focus on Tech after QualComms numbers but with caution ahead of Hon Hai’s October revenue numbers. Airlines +VE on increased cargo demand.
Expect market to open lower with concerns over covid and property developers.
ADR’s -250pt @ 24,974 with broad weakness, ECommerce leading the declines.
US Futures 
Opened Dow -8pts, S&P and NDX flat

DOW -0.09%, NDX +0.81%, S&P +0.42%, Russel 2K -0.08%
Dow opened flat and drifted lower (Financials weak), S&P traded largely sideways just above flat to a new high.  NDX worked better to a new high and Russell initially rallied but then sold down.  Jobs data was slightly better than F/cast.
Qualcomm +12.7% after a strong earnings beat +VE for tech. Moderna -18% after cutting covid vaccine revenue outlook. Roku -7% on disappointing Q3 revenue
Peloton -24% after results disappoint and it cuts FY outlook -VE for cycle makers but +VE for gym operators and outdoor sports makers
Banks JPMorgan Chase -1.3%, Citigroup -2% Wells Fargo -2.3%, Amex -0.05%
Work from home names: Facebook +1.3%, Apple -0.4%, Amazon +2.8%, Netflix -2.9%,  Disney +0.1%, Zoom Video -1.2%, Alphabet +1.1% and Microsoft +0.7%,
Tech NXP Semi +1.6%, Nvidia +12%, Micron +1.4%, AMD +5.3%, Skyworks -1.2%
Re-opening stocks  Boeing -0.16%, Caterpillar +0.02%, Simon Property -0.3%, Kohl’s +0.6%, Nordstrom -0.3%, Gap +0.2%, United Airlines +0.2%, Carnival -1.3%, Wynn Resorts -2.6%, Chevron +0.4%, Exxon Mobil +0.8%,  
Lock down names Campbell Soup -1.5% General Mills -0.7%, JM Smucker -0.5%
Challenger Jobs Cuts Number Oct 22.822k vs 17.895k Sept (F/cast was18.2k)
Balance of Trade Sept $-80.9b vs -72.8b Aug (F/cast was -75b)
Unit Labour Costs Prelim Q3 8.3% QoQ vs 1.1% Q2 revised (F/cast was 4.9%)
Non Farm Productivity Prelim Q3 -5% QoQ vs 2.4% Q2 revised (F/cast was -1.4%)
Initial Claims 269k vs 283k prior (F/cast was 275k)
4 wk Ave Claims 284.75k vs 299.75k prior (F/cast 285.75k)
Continuing Claims 2.105m vs 2.239m (F/cast was 2.09m)
Exports Sept $207.6b vs 214b Aug (F/cast was 209b)
Imports Sept $288.5b vs 286.8b Aug (F/cast was 284b)
EIA Natural Gas Change 63 Bcf vs 87 Bcf prior (Consensus was 63Bcf)
USD was stronger. Bitcoin -2.5% @ 61,446.02, VIX +2.3% @ 15.44, US T10 @ 1.53%
OIL Brent -1.27%, WTI -1.89% as OPEC+ maintain supply levels despite international pressure.
Gold +1.65%, Silver +2.71%, Copper +0.02% Platinum +0.54%, Palladium +0.72%. Gold rallies on Fed’s willingness to allow inflation run hot and the BoE to keep rates unchanged.
Total Vehicle Sales, LMI Logistics Managers Index Current, Non Farm Payrolls, Unemployment Rate, Government Payrolls, Non Farm Payrolls, Average Hourly Earnings, Average Weekly Hours, Manufacturing Payrolls, Participation Rate, Average Hourly Earnings, Baker Hughes Oil Rig Data and Consumer Credit Charge.

DAX +0.44%, CAC +0.53%, FTSE +0.43%
Expected to open higher after Fed statement but trading sideways with some caution ahead of BoE meeting where rates were kept on hold despite the wide expectation of a rate hike; sterling dropped 1% vs the USD on the news.  Tech led and Financials were the laggards.
Earnings still in focus with Credit Suisse, BMW, Commerzbank, Deutsche Post,Tate & Lyle, BT, Monte dei Paschi di Siena, Enel and SocGen reporting.
Credit Suisse Q3 beat analyst estimates but took a hit from charges settling allegations of corruption in Mozambique and other legal issues. It also revealed that it expects to report a net loss in the final quarter of 2021 and said it plans to scale back its investment banking operations.
Societe Generale +1% Q3 beat on higher revenue in its corporate and investment banking business.
Alstria Office REIT +17% after announcing a 3.5 billion euro ($4.1 billion) takeover bid from Brookfield Asset Management.
BT +11% on good earnings
Tate & Lyle rose after a strong earnings report.
German chemicals company Lanxess weak after warning that increased costs would mean its 2021 core profit will come in at the lower end of its guidance range. Virgin Money -9% on cost pressures as it moves into digital banking.
Services PMI Oct 50.7 vs 47.8 Sept (F/cast was 50.7)
Composite PMI Oct 50.7 vs 47.9 Sept (F/cast was 50.7)
PPI Sept 2.7% MoM vs 1.1% Aug (F/cast was 1.7%)
PPI Sept 16% YoY vs 13.4% Aug (F/cast was 14.8%)
Factory Orders Sept +1.3% MoM vs -8.8% Aug revised (F/cast was +2.5%)
Services PMI Oct 52.4 vs 56.2 Sept (F/cast was 52.4)
Composite PMI Oct 52 vs 55.5 Sept (F/cast was 52)
New Car Registrations Oct -34.9% YoY vs -25.7% Seopt
Services PMI Oct 56.6 vs 56.2 Sept (F/cast was 56.6)
Composite PMI Oct 54.7 vs 55.3 Sept (F/cast was 54.7)
New Car Sales Oct -24.6% vs -34.4% Sept (F/cast was -26%)
Construction PMI Oct 54.6 vs 52.6 Sept (F/cast was 54)
BoE left rates unchanged against most expectations
EUROZONE Construction PMI, Retail Sales
GERMANY Industrial Production, Construction PMI
FRANCE Industrial Production, Private Non Farm Payrolls, Construction PMI, Retail Sales
UK  Halifax House Price Index, Mortgage Rate.

Nikkei futures opened lower but turned +VE as Household spending beat F/casts.  Expect Energy, Tech and Auto +VE  But Utilities weak. Another big day for earnings which is likely to keep investors cautious.
Yen currently 113.73
Data out
Household Spending Sept -1.9% YoY vs -3% Aug (F/cast was -4%)
Household Spending Sept +5% MoM vs -3.9% Aug (F/cast was +2.5%)
Japan's trade minister Koichi Hagiuda has asked the United States to abolish extra tariffs on steel and aluminium imports from Japan in a meeting with Washington's trade representative, the ministry said on Thursday.
The head of Japan's largest labor federation says she is determined to listen to the voices of all workers in fighting for better wages and conditions. Tomoko Yoshino is the first woman to head Rengo, the Japanese Trade Union Confederation. In an interview Thursday with The Associated Press.
Toyota Motor Corp raised its profit outlook on Thursday helped by favourable currency rates but warned that the global semiconductor shortage still posed risks to its full-year production plans. +VE
Sharp Corp. said Thursday its net profit in the April-September period surged 78.9% from a year earlier to ¥42.52 billion ($372 million), helped by rising sales of office devices and increased profitability in its display business. In the hope of driving growth, the Osaka-based company is looking to re-enter the U.S. television market next spring, five years after withdrawing due to poor performance. +VE
The cars Mazda has in the works for next year in Japan know when drivers have a stroke or heart attack.  By 2025, the cars will even know when drivers are about to have a sudden health problem and warn them, according to the Japanese automaker. +VE

Expect markets to open flat and drift lower.  Sentiment cautious. Earnings still in focus.  Pre market data a slight +VE  
Data out
Current Account Sept $10.07b vs 7.51b Aug (F/cast was 8b)
Rising new covid cases (2,482 new cases to Wednesday midnight) with more than half being teenagers and senior citizens, casting a pall over the nation’s plans for a step-by-step transition to normalcy.
South Korea opened COVID-19 quarantine centres on Thursday to house potentially thousands of teenagers with COVID-19 ahead of the country's gruelling eight-hour college entrance exam in two weeks.
President Moon Jae-in expressed high hopes for battery partnerships with Poland, the Czech Republic, Hungary and Slovakia at a first business forum held between South Korea and the Visegrad Group nations in Budapest on Wednesday.
SES on Thursday unveiled the world’s largest lithium-metal battery that is big enough to power an electric vehicle.   According to the Singapore-based startup, the battery cell, dubbed “Apollo,” weighs just 0.98 kilogram and can deliver 107 amperes of electricity per hour. Also, it supports quick charging, taking just 12 minutes to go from 10 percent to 90 percent. +VE
The head of KT Corp., a South Korean telecom giant, was indicted Thursday along with more than a dozen of company officials for allegedly making illegal political donations in the past, prosecutors said. -VE
Samsung Biologics has purchased land in Songdo, Incheon, to build a production facility for genetic medicines, the Incheon Free Economic Zone Authority said Thursday. +VE
Doosan Heavy Industries & Construction Co. said Thursday that it has built an 18-megawatt wind farm in the southern tip of the country. +VE

Expect market to open higher with focus on Tech after QualComms numbers but with caution ahead of Hon Hai’s October revenue numbers.  Airlines +VE on increased cargo demand.
Data due after market: Inflation, Wholesale Prices and Foreign Exchange Reserves
Taiwan raised a trade complaint against China at a World Trade Organization meeting over Beijing's moves to block imports of two types of fruit from the island, its council of agriculture and two other sources said. +VE
U.S. Republican lawmakers introduced legislation on Thursday seeking to provide $2 billion per year and other assistance to bolster's Taiwan's defenses as it faces rising pressure from China.
Novatek Microelectronics Corp, which designs driver ICs used in flat panels, expects revenue to drop up to 6 percent sequentially this quarter from an all-time high, as demand for consumer electronics, such as TVs and more affordable Chromebook computers, slackens in the low season. Revenue is to fall to between NT$36 billion and NT$37 billion (US$1.29 billion and US$1.33 billion) this quarter, compared with NT$38.35 billion in the third quarter, Novatek president Steven Wang told investors in a virtual conference yesterday. -VE
HannStar Display Corp which makes flat panels used in handsets and PCs, yesterday reported a 50.35 percent sequential decline in net profit for last quarter, as prices plunged 73 percent quarterly on slumping market demand.  Net profit dipped to NT$1.36 billion (US$48.8 million) during the quarter ending Sept. 30, compared with NT$2.74 billion in the second quarter. -VE
China Airlines Ltd (CAL) yesterday reported a net profit of NT$2.91 billion (US$104.43 million) for last quarter, the highest since the outbreak of the COVID-19 pandemic, thanks to its booming air cargo business.  Although fuel prices have soared and pushed up airlines’ operating costs, CAL said it tried to mitigate the impact by integrating its passenger and cargo jets to boost efficiency and raise its cargo capacity.  The airline is upbeat about the outlook for this quarter — a peak season for air cargo, it said.+VE
EVA Airways Corp on Wednesday reported a net profit of NT$1.48 billion for last quarter, up from NT$144 million in the second quarter, backed by better yields on its passenger and cargo operations.
International air travel remained sluggish, but given a limited supply of passenger flights, travelers were more willing to pay higher fares, which helped raise EVA’s yield by 49.4 percent annually last quarter and its passenger revenue by 2.1 percent to NT$2.47 billion, it said.
For the first three quarters, EVA posted a net loss of NT$569 million, or loss per share of NT$0.11, company data showed.
The climate monitor for presale and newly completed houses last month signaled “green” for a second straight month, reflecting a sustained recovery in the market on the back of ample liquidity and low interest rates, the Chinese-language My Housing Monthly said yesterday. +VE

Expect market to open lower with concerns over covid and property developers.
No data due but on Sunday Trade data will be released.
President Xi says China is willing to talk about cutting the subsidies to SOE’s and digital economy to meet international standards for a level playing field, allow more opening up of the economy.   This is in support of its application to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership which Taiwan has also applied to join.
Britain could revive domestic production of super strong magnets used in electric vehicles and wind turbines with government support, to cut its reliance on China and achieve vital cuts in carbon emissions, two sources with direct knowledge  Reuters said. Slight -VE
A State Council official on Thursday spoke in affirmation on border reopening between Hong Kong and the mainland, the first time Beijing made such remarks publicly, hinting a possible resumption of quarantine-free travel with Shenzhen next month the earliest. +VE for HK Retail names.

ADR’s -250pt @ 24,974 with broad weakness, ECommerce leading the declines but increased concern over Chinese Developers
Data due Foreign Exchange Reserves

SHORT SELLING HSI Thursday 18.4% vs 19.8% Wednesday
Top shorts 
Country Garden (2007) 63%, Wharf REIC (1997) 53%, Henderson Land (12) 51%, Hang Seng Bank (11) 51%, Hengan (1044) 46%, Bud Apac (1876) 40%, Mengniu Dairy (2319) 37%, BoC (3988) 36%, CM Bank (3938) 35%, ICBC (1398) 35%, Baba-SW (9988) 33%, CG Services (6089) 32%, HSBC (5) 32%, BoC HK (2388) 30%, Sinopec (386) 30%, Sunny Optical (2382) 28%, Techtronic (669) 27%, CCB (939) 26%, HK & China Gas (3) 25%, CK Asset (1113) 25%.

A spokesman for the Hong Kong Special Administrative Region (HKSAR) Government said today (November 4) that the HKSAR Government will continue to strengthen anti-epidemic measures with the target of "zero infection" in order to foster favourable conditions for the early resumption of quarantine-free travel between the Mainland and Hong Kong
in a gradual and orderly manner, with a view to meeting the aspirations of the general public. To enhance mutual understanding, a video conference exchange was conducted between the experts and relevant officials of the HKSAR Government and the Mainland authorities on November 2 to further discuss and elaborate on the feedback and information provided by the HKSAR Government in response to the first meeting held between the two sides on September 26. The video conference exchange was constructive, heading towards the goal of resumption of quarantine-free travel, and was conducive to the forthcoming second meeting. +VE for Retail

Moody's changed the rating outlook on AGILE GROUP (03383.HK) to negative from stable to indicate the rating agency's view that acute operating and funding conditions will dampen the company's liquidity and credit metrics in the next 6-12 months.   Moody's also affirmed the company's Ba2 corporate family rating and Ba3 senior unsecured ratings. -VE for the company and sector

CRRC (01766.HK) announced that it entered into certain contracts for the period from June 2021 to October 2021 with an aggregate value of approximately RMB27.81 billion. Slight +VE

CHINA OVERSEAS (00688.HK) announced that for October, the contracted sales amounted to RMB27.182 billion, with a year-on-year decrease of 6%; and the corresponding GFA sold was 1.264 million square meters, with a year-on-year decrease of 26.1%. -VE

SJM HOLDINGS (00880.HK) announced the results for the first three quarters ended 30 September 2021. The loss expanded to HK$2.714 billion, as compared with a loss of HK$2.444 billion in the same period of 2020. This reflects the absorption of pre-opening costs and depreciation of Grand Lisboa Palace and interest expenses. Adjusted EBITDA was negative HK$970 million, narrowing from negative HK$1.766 billion in the same period of 2020.  -VE

COUNTRY GARDEN (02007.HK) announced that, for the single month of October 2021, the company achieved contracted sales of approximately RMB45.83 billion, down 14.99% YoY, with the contracted sales GFA amounting to approximately 5.95 million square meters. -VE

LENOVO GROUP (00992.HK) announced the interim result ended September 2021. Infrastructure Solutions Group (ISG) benefited from strong commercial upgrades and reported record-breaking revenue, while narrowing its operating loss by 81 percent year-on-year to around US$17 million. Corporations are speeding up cloud migration amid the pandemic, leading to Lenovo's double-digit CSP revenue growth, said the latter's EVP and Data Center Group President Kirk Skaugen. He was confident about ISG's turnaround to profit for the fiscal third quarter ended December 2021, which will be the Group's key growth driver ahead. In order to achieve the medium-term growth target for net profit margin it will continue to pursue active and innovative strategy in future, revealed the CFO Wai Ming Wong. In the coming three years, the company plans to double up the R&D expenditure for each year, from FY2020-21's about US$1.5 billion to US$3 billion. Asked about the shortages of chips and components, Chairman Yang Yuanqing projected that the problem will persist into 1H22, yet citing the fact that the group still managed to reap growth in the last quarter despite component woe, thanks to its edges on supply chain.  Overall +VE

HENDERSON LAND (00012.HK) won the bid for the commercial New Central Harbourfront Site 3 at $50.8 billion. At a video conference, HENDERSON LAND Co-chairman Peter Lee Ka-kit mentioned the good health of his father Lee Shau-kee, aka "Uncle Four". Colin Lam, the group's Vice Chairman, expressed that HENDERSON LAND's net gearing is expected to rise from about 20% at end-June to slightly above 30% after paying for the newly acquired land site, and yet such gearing will still be at a very reasonable level. Lam emphasized that the group's cash flow condition remains satisfactory at the moment and has therefore absolutely no need or pressure for rights issue. Also, HENDERSON LAND will keep its dividend distribution policy unchanged in the future.   +VE

The Census and Statistics Department (C&SD) announced that the value of total receipts of the restaurants sector in the third quarter of 2021, provisionally estimated at $24.5 billion, increased by 43.8% over a year earlier. The provisional estimate of the value of total purchases by restaurants increased by 41.2% to $8.0 billion. A Government spokesman said that business of restaurants improved further in the third quarter of 2021, thanks to the stable local epidemic situation, improved labour market conditions and the Consumption Voucher Scheme. The value of total restaurant receipts increased sharply by 43.8% in the third quarter over a low base of comparison a year ago. On a seasonally adjusted quarter-to-quarter comparison, it increased further by 2.1% after a strong rebound in the preceding quarter. +VE

ANTA SPORTS (02020.HK)'s audit and supervision department found the Deputy Director of Adult Wear Department of FILA Shoe Purchasing to have suspected malpractices leveraging convenience of duty, as the company disclosed on its WeChat public account. The employee, surnamed Zou, had constantly and repeatedly extorted bribes on the company's suppliers, which ran into tremendous amount of money and posed grave influence. On 3 November, Public Security Bureau of Jinjiang City arrested and detained the suspect Zou at the ANTA's building in Xiamen for alleged bribery crime. ANTA SPORTS's share closed at $124.7 Thursday, up about 2%.  -VE

The Shenzhen regulatory department will hold a special theme meeting today  (5th), with the aim to discuss the liquidity issues of FANTASIA (01777.HK) and KAISA GROUP (01638.HK), reported Chinese media. The two companies have been required by the Bureau of Housing and Urban-Rural Development of Shenzhen to attend the meeting.

KAISA GROUP (01638.HK) Chairman Kwok Ying Shing has held a phone meeting with the group's investors in Shenzhen, through which Kwok reassured the investors that KAISA GROUP is a responsible company and that, given sufficient time, the group will be able to repay the relevant debts, reported Chinese media.
Kwok further added the group will announce the repayment plans for its wealth management products in the afternoon. Nearly 1,000 investors were involved, and the total amount of wealth management products approximated $12.7 billion, said the report. -VE for sentiment

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