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Volumes light ahead of the US long weekend, with many US funds clients quiet; either because of being on holiday or caution over settlement issues with US closed on Monday.
Market opened higher as Miners and Biotech forms rallied, Energy was +VE and offset the weakness in Tech. It worked better to 2pm when the market touched 7,539 but then trended lower and currently +34pts (+0.45%) 7,519.
Group Construction Index Aug 38.4 vs 48.7 Jul (F/cast was 44)
Services PMI Aug 42.9 vs 44.2 Jul (F/cast was 43.3)
Composite PMI Aug 43.3 vs 45.2 Jul (F/cast was 43.5)
Retail Sales Jul -2.7% MoM vs -1.8% Jun (F/cast was -2.7%)
Markets gapped higher over lunch after PMSuga supprised investors by announcing that he would stand down from the LDP; allowing a change of leaderships and PM.
Pre the Suga news
Leaders were Materials, Energy and Semi’s
The focus was on the possible announcement of a Nikkei reshuffle being announced today.
Nikkei opened higher and was trading sideways as PMI data was firm for the first two hours but then worked higher on news that PM Suga would address the press at 1pm Tokyo time. After gapping higher it continues to work higher; currently +561pts (+2%) @ 29,104
Topix traded in the same way currently +32pts (+1.6%) @ 2,016
Data due after the open
Services PMI Aug 42.9 vs 47.4 Jul (F/cast was 43.5)
Composite PMI Aug 45.5 vs 48.8 Jul (F/cast was 45.9)
KDCA announced 1,709 new covid cases (-252 DoD) Kospi opened higher initial dipped to 3,182 but then rallied to 3,203 before easing back to test support at 3,190 and then traded sideways. Currently +22pts (+0.7%) @ 3,196
Kosdaq similar; initially dropped to 1,048 and rallied to 1,055 eased back but the worked higher but saw resistance at 1,054 level. Currently +6pts (+0.6%) 1,053
Foreign Exchange Reserves Aug $463.93 vs 458.68b Jul
Taiex opened higher and worked better to 17,541 around 11am, before easing back and trading sideways to close +197pts (+1.1%) @ 17,517
T/O was US$13.05bn vs US$12.54bn Thursday
CSI 300 opened around flat but initially sold down to 4,840 before working better to 4,887 but then sold back down into lunch. PM trended lower to 4,830 before ticking up to close -26pts (-0.6%) @ 4,843 Brokers rallied on the concept of a new board. General sentiment mixed; more weak data although some expectation from some that it could mean more support from Beijing. I’m not so sure but its being talked about.
Data after the open
Caixin Services PMI Aug 46.7 vs 54.9 Jul (F/cast is 54)
Caixin Composite PMI Aug vs 53.1 Jul (F/cast is 52.9)
Pre market opened @ 26,023 -68pts vs -33 ptsADR’s with weakness in Ecommerce, Ping An, Macau names. Leaders were Petrochems and Chinese Financials. Market then sold down to 25,812 news of Evergrande’s domestic bonds being suspended and ahead of the China Caixin data. It then rebounded to the opening levels only then to trend lower into lunch with concerns over the debt default. PM the market has drifted lower to 25,811 but trending higher ahead of the HSI rebalance on the close.
Data out pre market
PMI Aug 53.3 vs 51.3 July (F/cast was 51)
Markets open lower ahead of the PMI data due shortly
Eurozone Services & Composite PMI’s, Retail Sales
Germany Services & Composite PMI’s
France Budget Balance, Services & Composite PMI’s, Retail Sales
UK Services & Composite PMI’s
Opened Dow +6pts S&P+0.05% and NDX flat ahead of Non Farm Payrolls, Unemployment Rate, Ave Weekly Hours, Ave Hourly Earnings, Participation Rate, Government Payrolls, Manufacturing Payrolls, Services & Composite PMI’s, ISM Non Manufacturing Data (PMI, Business Activity, Prices, New Orders, Employment), LMI Logistics Managers Index, Baker Hughes Rig Count and a long weekend in the US.
Xi unveils plan for new SME stock market in Beijing
• Part of ‘common prosperity’ goals
• Support for innovation and start-ups
China is looking for ways to support the SME’s, some years ago President Xi mentioned it but we have not really seen it being implemented and the SOE banks appeared to be thwarting that ambition. Now there is a new tack; in a new market focused on financing SME’s that have struggled for so long to raise money.
It could be a recognition that the recent clampdowns have destroyed a large number of jobs. China is going to need more jobs and SME’s are a prime source for job creation. His addressed lacked detail on how it would work but it is clearly seen as part of the common prosperity drive and seeking to target resources.
The question is whether investors will get involved, especially in the light of large successful companies now ‘donating’ profits back to the community rather than paying shareholders.
Whilst President Xi may have a ‘common prosperity’ goal and as we saw reported yesterday there is a nationalistic blog promoting serious change as being a good thing, there are also a lot of ordinary people who have lost money from investing in Tencent, Baba etc. who may not share that same view.
As the article notes China’s newer boards have struggled. The recent crackdown will have done nothing to help.
‘Bond king’ calls time on Treasuries and predicts big losses for investors
‘Bill Gross has lashed out at the asset class that made his name and fortune, predicting that buying “trash” US government debt will be a losing bet.’
Re-iterating what he has said before, albeit more strongly but it is increasingly likely now that the Fed is talking about tapering
China tells US not to derail climate talks
Beijing chides Washington on eve of Kerry visit amid strained bilateral relations. It’s warning Washington of a “strategic miscalculation” in its relations. Comes as John Kerry and Xie Zhenhua, climate envoys for the world’s largest economies meet in Tianjin.
Beijing is suggesting that the US should let up on the pressure it is putting on China over ‘Hong Kong, Taiwan, Xinjiang and the South China Sea to technology and the origins of the pandemic’ if it wants China’s co-operation on climate.
Many had hoped that climate and other issues could be twin tracked but China seems to be taking a different view. It comes as China is also being pressured to bring forward its emission targets and especially its continued use of coal in the meantime.
It is a delicate game being played here as China wants to be seen as a climate leader as well as a global leader but some of its actions are undermining that status.
It would appear that China is looking to try and lay the blame on the US should climate targets not be met. I’m not sure it will be that clear cut, this call seems to be aimed at the domestic Chinese audience but it will make a future compromise difficult and I think Biden and the allies he has gathered are unlikely to back down on any of the other issues; especially after Harris’s speeches during her recent visit to Asia.
Company & Markets
Alibaba vows $15.5bn for Xi’s prosperity programme
• Rush to deflect Beijing tech scrutiny
• Group follows rival Tencent’s lead
Looks at how most companies, especially those that have been targeted by Beijing are scrambling to get ‘onside’ with President Xi’s latest policy.
For investors it means that there is now an extra cost to bear in mind when investing in these companies. More crucial is whether it impacts the world leading entrepreneurship that China has in financial and consumer apps. The Economist looked at this a couple of weeks ago and pointed out that both the risks and the cost now to setting up a new venture have increased significantly.
Stimulus moves by Beijing provide boost for beaten-down tech stocks.
Looks at the reasons behind yesterday’s rally; basically the speech by President Xi’s pledging support for SME’s and the PBOC’s injection of more capital into the banks. Those moves prompted some to speculate that Beijing is looking at more stimulus ahead.
Hard to get excited about era of inward looking investment
By David Lubin head of emerging markets economics at Citi.
Looks at how China’s account now accounts for around 33% of global GDP but that is down from 47%. Furthermore its getting less as China focuses on domestic issues (dual-circulation) and at the same time the US and Europe are committed to investing more.
He concludes ‘In theory, more investment activity should make us all more optimistic about growth. But if all this investment is inward looking, aiming to substitute global trade rather than complement it, it is difficult to get excited about a new global investment push.’
Xi aims to redraw China’s social contract
A campaign to address vulnerabilities risks a return to radicalism.
A good read makes the point that many of the announcements are well intended and good but others are more questionable.
It concludes ‘A campaign-driven approach to policy can easily spill over into radicalism. Wealth redistribution, for instance, would be better achieved in China by legislation that tweaks the tax code. Levying tax on property sales, inheritance and some other expressions of wealth would be seen to be transparent and equitable. This is a path that Beijing may yet decide to follow.
Xi appears intent on redrawing China’s social contract. The old mantra that some will “get rich first” is giving way to a more equitable creed. That may ultimately benefit some 600m Chinese who live off a monthly income of about $154 or less. But if such good intentions are derailed by radicalism, China will face a darker future.’
Digital currency shift shakes up finance cartels By Gillian Tett
Looks at why Central Bank Digital Currencies and crypto / distributed ledger technology and sets out four reasons for why these are important.
1. Because crypto / distributed ledger technology is becoming mainstream.
2. Because there is a fight to determine which DLT will dominate the market
3. Because Asia and most of all China is at the forefront of designing the system which in my opinion is part of their effort to reduce dependence on the US$, especially as Powell is not a fan of CBDC’s or crypto.
4. The potential that whilst existing banking systems seem well established, that could change very quickly and that would bring down costs very quickly and put the position of existing banks in question.
It concludes ‘So if CBDCs can shake up the sometimes sleepy finance cartels, we should all cheer. And celebrate the principle that the economist Adam Smith championed three centuries ago: competition is a wonderful thing for spurring innovation — and growth.’
See also LEX Central banks: digital cash dash
‘There will be no overnight revolution. It is notable that bitcoin, the crypto that alarms central bankers most, is used primarily for speculation. Despite the hype, it is an awkward and insecure medium for payments. Chief executives of large universal banks would meanwhile be making more fuss about their own trials of blockchain currencies if these were going brilliantly.
Even so, once a technological genie gets out of the bottle, it stays out. This one is beginning to push harder on the cork.’
China’s crackdown is not the way to deal with video games By
Notes that the edict will be difficult to enforce. But that it should be seen from the perspective of Chinese Communist party control; so less about protecting children and more about control of alternative sources of influence. Acknowledges that some of the moves are good but limiting children under 18 to 3 hours is an overreaction. For most children there is no harm in playing the games and there can be some benefits.
‘It is hard to avoid the conclusion that the moral panic over video games partly reflects the timeless concern of older generations about technologies they little use or understand. This phenomenon was memorably captured by the writer Douglas Adams in his three rules of technology:
1. Anything that is in the world when you’re born is normal and ordinary and just a natural part of the way the world works.
2. Anything that’s invented between when you’re 15 and 35 is new and exciting and revolutionary and you can probably get a career in it.
3. Anything invented after you’re 35 is against the natural order of things.
When our children grow up, they will view video games as just a natural part of the way the world works. They will doubtless recognise them more as escapist entertainment than electronic drugs.’
Worth a read.
Breathe easy Japan Tobacco says Nomura smoking ban will not stub out business ties.
An interesting read; notes that those that smoke view it as ‘intrusive’. Whilst also highlighting that those that don’t smoke often resent the smoking breaks that smokers take.
It’s interesting because, although I don’t smoke I think that those smoking breaks are rather like ‘water cooler’ chats.
An interesting read.
LEX Nomura/JT: no smokes without firings ‘Lost hours add up for companies where labour typically accounts for a fifth of operating expenses. For banks, the impact is higher. Payroll accounted for 43 per cent of Nomura’s non-interest expenses of $10.6bn last year.
Nomura’s smokers, meanwhile, face a dilemma when working from home. Should they light up secretly, knowing their employer cannot enforce its ban? For hardworking company men and women, it is the ultimate loyalty test.’
Singapore approves Spac listings ahead of Asia rivals
Key ‘Entities will require a minimum market capitalisation of S$150m ($112m), half of the SGX’s earlier proposed amount. Following a market consultation, the SGX softened some measures it had initially proposed, including removing limits on shareholder redemption rights.’
Key is that they are now available but already the enthusiasm for them has waned.
Bankers and investors braced for US corporate debt binge
Groups rush to lock in low borrowing rates after summer lull amid fears of inflation jump.
Worth a read, looks at the expected rush to issue debt after the labour day holiday.
FT BIG READ. AGRICULTURE
Russia sows seeds of ‘wheat diplomacy’
Food exports bring in welcome dollars to the sanctions-hit economy. But sales of wheat and grain are also playing a growing role in foreign policy and could help Moscow expand its global political reach.