Sept 28 Asia mixed Japan subdued on ExDiv reinvest. China +VE on PBOC comments FT Power cuts & Abortion

28 Sep

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Asian markets are mixed; concerns about the Power Cuts in China and knock on effects to supply chains and global growth are another concern to add to the Evergrande uncertainty. Comments from the PBOC about ensuring a stable property market +VE. Also China just issued white paper on journey from poverty to prosperity; the party vows to achieve breakthrough in core technologies by 2035 and to significantly expand middle income groups by 2035

Market trended lower initially to 7,340  then traded sideways for about a hour and then sold down  again to 7,320 level and traded sideways again.  Currently -66pts (-0.9%) @ 7,318  
Energy stocks +VE. Retail sales still suffering from the impact of the lockdowns. Healthcare weak along with Tech and Miners.Data
Retail Sales Prelim Aug -1.7% MoM vs -2.7% Jul (F/cast was -2%)
Subdued trading ahead of dividend reinvestment flows at today’s and Wednesday’s close plus the LDP leadership vote Wednesday.  Value and Energy plays +VE but Growth/Quality laggards.  Re-opening names and Transport +VE on expectations the Govt will lift restrictions by the end of Sept.  Also note Thursday sees the Nikkei 225 reweight.
Nikkei opened lower around 30,150 but trended down to 30,050 and then 30,000 before rallying back to 30,150 at lunch time -100pts (-0.3%)  @ 30,140
Topix traded in a similar pattern. -10pts (-0.5%) @ 2,078
S Korea
KDCA reported 2,289 new covid cases.
Consumer confidence pre market beat f/casts.
Kospi opened flat but trended lower to traded around 3,110 level.
Kosdaq trended lower first support at 1,020 but then dipped to 1,016 currently trading sideways -16pts (-1.6%) @ 1,018
Local Institutions selling Tech (concerns over China power cuts) Internet and buying Financials (rate hike hopes) and Chemical Refinery (margins improving).
Leaders Utiliities (esp Gas)
Laggards Pharm, Apparel
SK Innovation +VE on news tieing up with Ford for a battery plant.
Consumer Confidence Sept 103.8 vs 102.5 Aug (F/cast was 101.5)
Taiex opened lower to 17,113 then traded sideways mainly 17,150/200
Chinese power cuts -VE to manufacturers in varying degrees.
Pre market PBOC injected a further 100b Yuan to ensure liquidity; 8th day of injections. Last day for southbound connect (re-opens 9 Oct).
CSI 300 opened lower and dipped as the Industrial Profits number slowed which combined with Power Cuts is raising more slowing concerns. But encouragement from PBOC continuing to inject liquidity and saying it would ensure a stable property market. News of more infrastructure spending +VE Cement. Also China released a paper white paper on journey from poverty to prosperity - the party vows to achieve breakthrough in core technologies by 2035 and to significantly expand middle income groups by 2035
Industrials Profits (YTD) Aug 49.5% YoY vs 57.3% Jul (F/cast was 45%)
Industrials Profits Aug 10.1% YoY vs 16.4% Jul
HK Pre market opened @ 24,323  +114pts vs +113pts ADR’s with interest in Ecommerce, Energy, Macau and HSBC.  Initial weakness in Consumer names and HK Developers but market worked higher  hitting resistance at 24,600.  ECommence names and Property +VE although I remain vary on the Hong Kong developers.  Last day for Southbound Connect flows.  
Expect market to see a weak open.  Pre market Consumer Confidence and later Lagarde speaks.  
US Futures
Opened  Dow -4pts, S&P were flat and NDX-0.1%
Data ahead Goods Trade Balance,Wholesale Inventories, Redbook, Case/Shiller Home Price, Consumer Confidence, Richmond Fed Manufacturing Index, Powell’s Testimony to Congress, Fed Speakers; Bowman and Bostic. After Market API Crude Oil Stock Change

FT Front Page
German kingmakers open talks after Merkel party’s worst defeat

• Greens and liberal FDP hold balance of power • Centre-left SPD wins amid blow to CDU
After the close vote the negotiations over the formation of a new government get underway with no one expecting a swift resolution.
See inside Greens and FDP hold keys to power in Germany
Smaller parties set to determine shape of first post-Merkel government but coalition talks are likely to drag on for weeks

Ive turns to Ferrari to develop electric car in first big design deal after Apple.   Ive of Apple fame is to help Ferrari develop its first electric vehicle.

Fed official signals stimulus wind-down
New York’s Williams calls for patient approach on whether to increase rates.
An interesting read of opinions within the Fed but probably of more interest is the resignation/retirement of Kaplan and Rosengren which seems linked to the recent trading revelations. That means that the tone of the Fed could turn a lot more dovish depending on who replaces them; something that will be watched closely.

Magic pill Pharma rivals race to develop antiviral Covid drug
An interesting read and the next stage in dealing with covid on a longer term basis.

Companies suffer worker shortage despite end of pandemic aid 
‘As UK managing director for Manpower, the recruitment agency, he is seeing British companies raise wages, pay for training, relax job requirements — in fact do almost anything “to find the arms and legs to do the job”, as he puts it.’
Most seem to put the shortages down to a skills mismatch or an unwillingness to return to work and the third reason being that covid only amplified the pre-existing problem.
I think that in that unwillingness to return to work a lot of people have started alternative jobs; on-line sales, writing, consulting etc. The real gig economy.
Linked to all that is the threat of inflation from rising wages or the expectations of rising costs.

Power cuts pose threat to Chinese growth
Squeeze blamed on Xi’s carbon emissions targets and rising price of coal. But the consequences are likely to be far ranging.
A number of factors at play; emissions targets, rising fuel costs and the Winter Olympics.
It has always been said that China had set some ambitious targets which many linked to wanting to being seen as a leader ahead of Trump whilst not actually have the detailed plan of how to achieve the goal. Many believe China is ‘hoping’ that new technology will assist in achieving the goal.
Short term this is a further negative impact to supply chains in China and could increase the pressure on firms to re-orientate their China operations.
China it should be noted has been particularly unlucky this year; with flooding in areas without hydro facilities and drought conditions in those with. It is also worth noting that the article concludes; China’s ‘National Development and Reform Commission, a central planning agency, criticised some regions in August for not meeting energy consumption targets in the first half of the year. Those targets, analysts said, made local governments reluctant to expand their reliance on coal-fired power, forcing officials to ration electricity instead.’ The regional set up of power may also add to the problems. Longer term it makes it likely that there will be further upgrades to the grid system which is likely to increase demand for Aluminium as it seeks to use more renewable energy from wind and solar. Also I would guess is the issue of coal imports from Australia.

Beijing ramps up abortion controls as population crisis looms
Linked with the declining population Beijing is seeking to limit ‘non medical’ abortions. Comes following the revelation of the low birth rate which has prompted a change in policy from one child only (with severe punishments for non adherence) to encouraging larger families of two or three children.
The article quotes ‘Jane Golley, an expert in Chinese demographics at the Australian National University, said that China’s history of “vile” population control practices made it “hard to have good faith” that the policy was genuinely focused on protecting the reproductive health of women. “It might be a good move if it prevents sex-selective abortion. But if it forces couples to proceed with unwanted births, that’s just restricting freedom of choice,” she said’
She goes on to point out : “If you really want to promote a prosperous and productive workforce, you’d be far better off to tackle the gender inequality and the discrimination that women still face.”
“That would make people more likely to reduce their preference for sons if they know their future daughters can also have successful careers. It would also free up and enable close to half the workforce to work at their productive capacity.”
Whether China is willing to accept that remains to be seen.

Japan’s junior MPs push for greater political sway
Challenge made to the old men of the ruling LDP over who should replace retiring Suga. It seems there is more change taking in Japan; not just the leader of the LDP but the way he is selected.
Younger MP’s no longer want to be subject to ‘back room’ deals but rather open free voting. It would be a significant change but might not be enough to assure a the appointment on a single vote.

Evergrande’s EV business ditches plan to issue stock in renminbi
Another part in the saga related to Evergrande. Today the talk is about former poker pals selling down stakes and the potential for raising money elsewhere and the fact that the PBOC has said it will ensure a stable property market. Illustrating that Beijing has be concerned and whilst it is trying to prevent property being the dominant investment in China it cannot allow there to be a run on the sector either becuase too many people are invested.
It appears the fate of Evergrande’s bond holders remains unknown and the lack of news is a worrying sign.

Digital coin bourses start to sever ties with China customers
Looks at how the crypto exchanges have started to try and adhere to China’s edict last Friday. Whist the price of Bitcoin and other crypto’s came off on the news it quite quickly recovered.
See also LEX Cryptocurrencies/China: blocked chain
A fall in the number of Chinese investors will remove an important source of liquidity for trading in cryptos. Burgeoning demand elsewhere could soon make up for that. But China-focused Huobi cannot expect to offset fully its client losses.’

Anti-China hysteria lies at heart of action against IMF’s Georgieva
By Jeffrey Sachs  director of the Center for Sustainable Development at Columbia University.

For Interest
Crisis-hit UK energy companies are like macho banks of 2007

Compares the current power market crisis with the failure of Northern Rock Building Society back in 2007. Worth a read

Anti-China hysteria lies at heart of action against IMF’s Georgieva
By Jeffrey Sachs  director of the Center for Sustainable Development at Columbia University.

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