Oct 26 Asian Macro Initial Thoughts: Markets cautious trading earnings, inflation & covid.


26 Oct

This and previous notes can be found at  Substack ( Asian Market Sense )
Check out ERI-C.com for  interesting research and trading analysis

Asia
Expect markets to continue to trend cautiously higher; with Tesla supply chain names +VE but inflation, covid and earnings overhanging the markets.

Australia 
Market tested higher in opening trades; Energy names mised but Gold and Iron Ore +VE Tech seeing a rebound after +VE moves in US overnight.
Crown deemed not suitable to hold Melbourne Licence but didn’t remove the licence but to be overseeen whilst reforms take place.
Japan
Nikkei futures indicate a slightly lower open.  Panasonic likely to see a further boost from Tesla receiving a 100k vehicle order from Hertz.  Earnings remain in focus.  Softbank  +VE as Tiger Global reportedly increases its stake.
S Korea 
Expect markets to open flat with +VE expectations for good earnings; SK Hynix today but high also for Samsung Electronics, Shinhan Financial Group, Hyundai Motor, Kia and other heavyweights that are scheduled to release their earnings later this week. Also DRAM’s +VE after Taiwan earthquake expected to have affected production and hence squeeze prices higher. BUT GDP data slightly light.
Taiwan 
Expect market to open slightly higher on good Retail Sale and Industrial Production data and following the moves in US tech overnight.
China 
Expect market to open lower with concerns over covid resurgence. Key will be ‘Team China’ and their involvement in the market.
HK 
ADR’s +29pts @ 26,161 with Telcos and Chinese Financials under pressure. Expect an initial squeeze as some recent shorts cover.
US Futures 
Opened Dow S&P and NDX

DOW +0.18%, NDX +0.9%, S&P +0.47%, Russel 2K +0.93%
Dow traded effectively sideways but touched a new high, S&P and NDX worked higher bouyed by Tesla +12% hit the $1tn market cap having got a record order from Hertz for 100,000 vehicles. Energy names +VE as crude oil moves higher.
After market Facebook +3% after earnings beat and announced a buyback but revenue missed. Blamed Apple’s app changes and global supply chain issues.
Banks JPMorgan Chase -0.5%, Citigroup -0.2% Wells Fargo -0.1%, Amex -2.6%
Work from home names: Facebook +1.3%, Apple flat, Amazon -0.5%, Netflix +1%,  Disney +1.5%, Zoom Video %, Alphabet -0.1% and Microsoft -0.3%,
Tech NXP Semi +0.2%, Nvidia +1.9%, Micron +1.9%, AMD +2.1%, Skyworks flat
Re-opening stocks  Boeing -0.1%, Caterpillar +0.8%, Simon Property +1.2%, Kohl’s -0.2%, Nordstrom +0.2%, Gap flat, United Airlines %, Carnival -1.1%, Wynn Resorts +1.5%, Chevron +0.9%, Exxon Mobil +2%,  
Lock down names Campbell Soup -1.2% General Mills -1.3%, JM Smucker +0.1%
DATA
Chicago Fed National Activity Index Sept -0.13 vs +0.05 Aug revised (F/cast +0.18)
Dallas Fed Manufacturing Index Oct 14.6 vs 4.6 Sept (F/cast was 3.2)
USD was steady vs Yen & Euro. Bitcoin +4.1% @ 62.950.90, VIX -1.23% @ 15.24, US T10 2 1.633% dipped slightly.
OIL Brent +0.54%, WTI -0.06% but closing at a 7 year high.
Gold +0.7%, Silver +0.82%, Copper +0.71%, Platinum +1.08%, Palladium +0.73%.
AHEAD Redbook, Case-Shiller Home Prices, House Price Index, New Home Sales, Consumer Confidence, Richmond Fed Manufacturing Index, API Crude Oil Stocks change.
Earnings Alphabet, Microsoft, Visa, Advanced Micro Devices, Texas Instruments, Twitter, Chubb, 3M, General Electric, Robinhood, Eli Lilly, UPS, Novartis, JetBlue, Lockheed Martin, Raytheon, Archer Daniels Midland, Sherwin-Williams, Invesco, Hasbro, Boston Properties, Teradyne, Fortune Brands, Hawaiian Holdings, NCR, Boyd Gaming.

DAX +0.36%, CAC -0.31%, FTSE +0.25%
Markets opened cautiously higher; FTSE trended slightly lower but in the green, DAX slightly higher despite the German Ifo survey showing a slow down and the CAC slightly lower but in the red. Earnings in focus; HSBC good headline numbers and a buyback. But covid and inflation overhang the markets. Auto’s +VE
The Italian government on Sunday ended talks with UniCredit over the rescue of bank Monte dei Paschi di Siena -VE
Exor +4.6% after a report that the holding group had restarted discussions with French insurer Covea over the possible sale of reinsurer PartnerRe.
DATA
Data
German Ifo data
Business Climate Oct 97.7 vs 98.9 Sept revised (F/cast was 98.4)
Current Conditions Oct 100.1 vs 100.4 Sept (F/cast was 99.9)
Expectations Oct 95.4 vs 97.4 Sept revised (F/cast was 96.5)
AHEAD
Eurozone No data due
Germany No data due
France No data due  
UK  CDI DistributiveTrades

JAPAN
Nikkei futures opened slightly lower Panasonic likely to see a further boost from Tesla receiving a 100k vehicle order from Hertz.  Earnings remain in focus.  Softbank  +VE as Tiger Global reportedly increases its stake.
Yen flat currently 113.69
Data due PPI Services
Earnings in focus 
Bengo4.com Inc. (6027 JP) 3 p.m.
Canon Inc. (7751 JP) 3 p.m.
Cawachi Ltd. (2664 JP) 3 p.m.
ES-Con Japan Ltd. (8892 JP)
Fujitsu General Ltd. (6755 JP) 4 p.m.
Hitachi Construction Machinery (6305 JP) 3 p.m.
Hitachi Metals Ltd. (5486 JP) 3 p.m.
Nidec Corp. (6594 JP) 3:15 p.m.
Nitto Denko Corp. (6988 JP) 4 p.m.
Obic Business Consultants Co. L (4733 JP) 2 p.m.
Obic Co. (4684 JP) 3 p.m.
Shimano Inc. (7309 JP) 3 p.m.
Shin-Etsu Polymer Co. (7970 JP) 3 p.m.
Shinko Electric Industries (6967 JP) 3 p.m.
Stanley Electric Co. (6923 JP) 3 p.m.
Tokyo reported 17 new covid cases (-2 DoD) with 153 nationwide  +VE
New Minister Takayuki Kobayashi is being watched closely by China and any new moves by him as the new economic security minister; especially after the Oct. 31 general election; that China takes to be a  threat to Beijing’s are likely to cause offence.  The post was set up by Prime Minister Fumio Kishida, who took office on Oct. 4, as Sino-Japanese ties have soured over issues surrounding democratic Taiwan, which China regards as a renegade province that must be unified with the mainland, by force if necessary.  Slight -VE for sentiment.
Govt raising 843bnYen (US$7.4bn) from Japan Post privatisation about US$1bn short of original target but still +VE
The fate of future hostile takeover bids in Japan could rest on an upcoming court ruling that will decide whether 105-year-old Tokyo Kikai Seisakusho Ltd (6335.T) will be allowed to not count votes from Asia Development Capital (ADC) (9318.T) - an investment firm that built up most of its 40% stake in a matter of weeks - when shareholders vote on issuing new stock that would dilute ADC's ownership.  A holding of more than 33% in Japan gives the stakeholder veto rights over important board decisions and sometimes de facto control.  ADC has sought an injunction and the Tokyo District Court's ruling - the first one to look at an attempt to exclude an investor from a shareholder vote on a poison pill - is expected sometime in the next week. A victory for Tokyo Kikai holds the potential to make it much easier for other Japanese companies to use poison pills.

SOUTH KOREA
Expect markets to open flat with +VE  expectations for good earnings;  SK Hynix today but high also for Samsung Electronics, Shinhan Financial Group, Hyundai Motor, Kia and other heavyweights that are scheduled to release their earnings later this week.  Also  DRAM’s +VE after Taiwan earthquake expected to have affected production and hence squeeze prices higher.   BUT GDP data slightly light.
Data out
GDP Growth Rate Adv Q3 +4% YoY vs 6% Q2 (F/cast was 4%)
GDP Growth Rate Adv Q3 +0.3% QoQ vs 0.8% Q2 (F/cast was 0.4%)
Govt expected to announce measures to curb household debt Slight -VE Consumer names
South Korea on Monday unveiled its road map for a “return to normal,” about a year and nine months since the first case of COVID-19 was confirmed here.  It said social distancing restrictions and other public health precautions will be lifted on a phased basis stretching over a dozen weeks. +VE
Hyundai Motor Group Chairman Chung Euisun vowed to cooperate with the Indonesian government in establishing an electric vehicle ecosystem there, during his visit to the Southeast Asian country on Monday. +VE
Netflix’s global success with “Squid Game” is providing the perfect ground for South Korea to push for legal measures that would make foreign streaming giants stop “free riding” on internet networks.
During the recently concluded National Assembly audit, parliamentarians from both sides of the aisle forged a united front on the issue, pressuring ranking government officials to do something to make Netflix pay. +VE providers but -VE providers.
Woori Financial Group Inc. on Monday reported its third-quarter net profit of 824.7 billion won ($705.9 million), up 58.1 percent from a year earlier. Operating profit for the July-September period was 1.09 trillion won, up 61.8 percent from a year ago, the company said in a regulatory filing. Sales rose 102.3 percent to 8.68 trillion won. The operating profit was 12.8 percent higher than the average estimate +VE
LG Chem Ltd. on Monday reported its third-quarter net profit of 679.9 billion won ($581.9 million), up 19.2 percent from a year earlier.  slight miss but looking to enter LFP Battery market  +VE
IMM Private Equity said Monday it has signed a binding term to become the largest shareholder of South Korean kitchen and interior furniture goods manufacturer Hanssem in a 1.45 trillion won ($1.24 billion) deal.  It said in a statement that the deal is under a strategic partnership with Lotte Group, allowing the proposed investor to create synergy with Lotte conglomerate businesses ranging from logistics to rental services, with Lotte Shopping as one of the partnering affiliates. But it still faces legal action posed by Texas-based hedge fund Teton Capital Partners in September. Teton, which held some 8.4 percent stake in Hanssem as of June, filed an injunction with the Suwon District Court in September, asking the court to stop the sales process, including due diligence.  Slight +VE Lotte group

TAIWAN
Expect market to open higher on good Retail Sale and Industrial Production data.  
No data due but after market Monday
Retail Sales Sept +1.26% YoY vs -4.3% Aug (F/cast was -0.3%)
Industrial Production Sept 12.24% YoY vs 13.69% Aug (F/cast was 11%)
a 20th consecutive month of annual growth, while industrial production for the third quarter increased 13.33 percent year-on-year for a ninth consecutive quarter, the Ministry of Economic Affairs reported yesterday.
M2 Money Supply Sept 8.69% YoY vs 8.44% Aug; suggesting ample liquidity, the central bank said yesterday.
Earnings Media Tek (2454 TT)  after market but forecast to have doubled its Q3 profit YoY  Watch for cross read to TSMC on wafer prices and 5G demand.
Business confidence last month weakened slightly among Taiwan’s manufacturers as demand diminished for devices used in distance learning and remote working, a survey released yesterday by the Taiwan Institute of Economic Research (TIER) found.
The nationwide level 2 COVID-19 alert, which is set to expire on Monday next week, is to be extended, Minister of Health and Welfare Chen Shih-chung said yesterday.
The Ministry of Foreign Affairs said that the 50-year-old decision only regards China’s place in the UN, not its right to represent Taiwan.  The UN must not succumb to Beijing’s political pressure and unduly expand the interpretation of UN Resolution 2758 to exclude Taiwan, it said.
A Taiwan Cement Corp  subsidiary yesterday broke ground for an advanced lithium battery plant in Kaohsiung’s Siaogang District  at the former site of the cement maker’s paper mill.  Molie Quantum Energy Corp has planned to initially invest NT$12 billion (US$430.5 million) in the facility, which is to begin operations in 2023.  The facility is to have enough annual output to supply the long-range batteries needed for 24,000 electric vehicles — or 1.8 gigawatt-hours (GWh) of battery capacity.  +VE
Holtek Semiconductor Inc, a designer of microcontroller units (MCUs), yesterday said that revenue this quarter would edge downward from last quarter’s peak, as electricity curbs in China and somewhat higher inventories at its distributors hit demand. -VE


CHINA
Expect market to open lower with concerns over covid resurgence.  Key will be ‘Team China’ and their involvement in the market.
No data due
Earnings
Asymchem Laboratories Tianjin (002821 CH)
Avic Aviation High-Technology (600862 CH)
Beijing New Building Materials (000786 CH)
Beijing Oriental Yuhong Waterp (002271 CH)
Bloomage Biotechnology Corp. Lt (688363 CH)
Chaozhou Three-Circle Group Co. (300408 CH)
China Resources Microelectroni (688396 CH)
Ganfeng Lithium Co. (002460 CH)
Glodon Co. (002410 CH)
President Xi Jinping vowed on Monday that China would always uphold world peace and international rules, amid concerns expressed by the United States and other countries over its increasing assertiveness globally.  The comments come after Taiwan said this month that military tension with China was at its worst in more than 40 years, amid mounting worries that the giant neighbour might try to take back by military force the self-ruled island it claims as its own.
Parts of northern China are bracing for more COVID-19 curbs as a wave of cases raises concerns of a broader outbreak, with three areas enforcing lockdowns, some schools halting classes, and an aerospace firm delaying work on a rocket project.
Tesla Inc (TSLA.O) said on Monday it had built a research center and a separate data center in Shanghai, where it manufactures Model 3 sedans and Model Y sport-utility vehicles.  The auto research and development center, Tesla's first outside the United States, employs engineers for software, electronics, materials and charging, it said in a statement.  The new data center for factory production will store Tesla's operation data locally. Last month, China's industry ministry published new draft measures that require companies to store important industry-related data locally.

HONG KONG 
ADR’s +29pts @ 26,161 with Telcos and Chinese Financials under pressure. Expect an initial squeeze as some recent shorts cover.
Data due after market 
Balance of Trade Sept (Aug was HK$-26.3bn F/cast was -27bn)
Exports Sept (Aug 25.9% YoY)
Imports Sept (Aug 28.1% YoY)

Earnings due 26 Oct include WH Group (288), Maanshan Iron &  Steel (323), ASM Pacific Tech (522), Skyworth (751), Huaneng Power (902), Huadian Power (1071), Xinjiang Goldwind (2208), Chalco (2600), Yitai Coal (3948).

SHORT SELLING HSI Monday 22.7% vs 22.8% Friday
Top shorts 
Hengan (1044) 61%, BoC HK (2388) 46%, Haidilao (6862) 45%, Country Garden (2007) 43%, Baba (9988) 40%, CKI (1038) 38%, Xinyi Glass (868) 37%, Ali Health (241) 35%, Wharf REIC (1997) 35%, China Res Land (1109) 33%, Hang Seng Bank (11) 33%, HSBC (5) 29%, Citic (267) 28%, AAC Tech (2018) 28%, Techtronic (669) 27%, HKEX (388) 27%, CK Asset (1113) 27%, MTRC (66) 27%, Geely (175) 26%, CM Bank (3968) 26%, Ping An (2318) 26%, China Life (2628) 25%.  

National security
International rights group Amnesty International said on Monday it would close its Hong Kong offices 
because a China-imposed security law had now made it “effectively impossible” for rights groups to work freely without the risk of reprisals.

WATCH
Eighty-one flats at The Henley III in Kai Tak will be put up for sale by Henderson Land Development (0012) on Friday on a first come, first served basis. 
Ranging from 229 to 778 square feet, the flats are priced from HK$5.87 million to HK$24.9 million. That means an average price of HK$28,672 per square foot after discounts.
At Kai Tak, the first phase of a new project from Wheelock Properties' at 10 Muk Tai Street has been named Monaco One. There will be a total of 492 flats, with one- and two-room units accounting for 80 percent of them.  An application has be made for pre-sale consent, and it is expected sales will open next month.  The developer has taken nearly HK$25 billion after selling 1,377 flats in projects this year, Wong added. +VE
Kowloon Development (0034) has meanwhile received nearly 3,000 checks for the first batch of 312 flats at Manor Hill in Tseung Kwan O. Another batch will be offered shortly and will include at least 156 flats comprising studios and one-bedroom units mostly. +VE
21 Borrett Road in Mid-Levels recorded two transactions via tenders yesterday, with developer CK Asset (1113) collecting HK$386 million. +VE
Despite the current red-hot primary property market, some people have backed out of flat purchases at The Arles in Fo Tan.  Four parties have lately forfeited deposits totaling HK$2.7 million after canceling deals.  

YONGDA AUTO (03669.HK) announced that the net profit attributable to owners of the Company in 3Q rose 31.4% YoY
to RMB631 million. Consolidated revenue dropped 4% YoY to RMB18.942 billion.

DATANG POWER (00991.HK) announced that as of 30 September 2021, the total power generation of the Company and its subsidiaries amounted to approximately 206.476 billion kWh according to the Company’s preliminary statistics, representing an increase of approximately 4.35% on a year-on-year basis, and total on-grid power generation amounted to approximately 195.183 billion kWh, representing an increase of approximately 4.37% on a year-on-year basis.

LI NING (02331.HK) announced that, for the third quarter ended 30 September 2021, in respect of LI NING POS (excluding LI-NING YOUNG) which have been in operation since the beginning of the same quarter last year, the same-store-sales (SSS) for the overall platform registered a high-twenties increase on a year-on-year basis. In terms of channels, retail (direct operation) channel registered a low-thirties increase and wholesale (franchised distributors) channel registered a mid-twenties increase; while the e-commerce virtual stores business registered a mid-thirties growth on a year-on-year basis.

TOWNGAS CHINA (01083.HK) announced that it has reached an agreement with its investor Affinity Asia Pacific Fund V, pursuant to which the investor conditionally agreed to subscribe for, and the company conditionally agreed to issue approximately 117 million subscription shares, representing approximately 3.7% of the total number of issued shares as enlarged by the allotment and issue of the subscription shares. The subscription price of HK$5 per share represents a discount of approximately 2.91% to the closing price before the trading halt.
In addition, the group announced to issue convertible bonds in the aggregate principal amount of RMB1.84 billion (equivalent to HK$2.22 billion at the agreed exchange rate). The aggregate gross proceeds from the share Issue and the convertible bonds issue will be about HK$2.802 billion. The company intends to apply the net proceeds for its general corporate purposes, including investing in its Smart Energy Business.
The company applied for a trading resumption with effect from 9 am tomorrow (26th).
Peter Wong, TOWNGAS CHINA's CEO, expressed at the press conference that, the city gas operation is vital to the company's business and therefore will not be sold to its parent company HK & CHINA GAS. Wong added that the company is targeting to expand the number of its carbon-free smart parks to 200 by 2025.

CHINA MOBILE (00941.HK) and Nokia extended the strategic alliance agreement through video signing. The two parties will, based on the satisfactory cooperative relationship, jointly explore the development opportunities in emerging segments and implement in-depth cooperation on aspects such as fundamental business, 6G, cloud network integration implementation and international operation, etc., with the aim to propel sustainable development for the sector.Laura Cha, chairman of HKEX (00388.HK) expressed that, as China quickened its pace of developing green finance in recent years, Hong Kong is hopeful to become the green financial center in Asia. HKEX has changed ESG information disclosure requirement from voluntary to mandatory and has required companies to assess relevant risks and opportunities, Cha added. Also, the chairman noted that, as the largest offshore RMB center in the world, Hong Kong issued $27.3 billion worth of green bonds over the past three years, and is planning to further issue $175.5-billion green bonds in the next five years, including HKD-denominated ones and retail ones.Zhejiang Geely Holding's Volvo Cars will go public in Stockholm this Friday (29 October), as the Company intends to fix its offer price at the low end, i.e. SEK53 each, and shrink the size of new class B common share issue to raise around SEK20 billion, below SEK25 billion in prior expectation.

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