Nov 11Asia mixed. FT Inflation in US and China. Rivian, Tencent, Climate and more

11 Nov

This and previous notes can be found at Substack ( Asian Market Sense )
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Market opened lower and tested yesterday’s close in early trades but then trended lower.  Weak employment data prompted further selling.  Market bottomed out around 12:30pm and then worked better but resistance around 7,400 level and then drifted lower into the close.
All sectors weak but Fortescue +8.5% on the back of a deal to supply green hydrogen to US-based Universal Hydrogen for use in the aviation industry, which softened the downside. Ramsay Health weak after Q1 earnings dropped, Xero also weak it flagged higher investment costs and unveiled lower than expected revenue and underlying earnings for the first half.
Nine Ent +VE as advertising rebounded rallied to A$3.13 before easing back.
Employment Data
Unemployment Rate Oct 5.2% vs 4.6% Sept (F/cast was 4.6%)
Part Time Employment Change Oct -5.9k vs -166.2k Sept revised (F/cast was +100k)
Employment Change Oct -46.3k vs -141.1k Sept (F/cast was +70k)
Full Time Employment Change Oct -40.4k vs +25.1k Sept (F/cast was +50k)
Participation Rate Oct 64.7% vs 64.5% Sept (F/cast was 64.5%)
Inflation concerns as PPI out pre market higher than expected but positive moves over the Chinese developers and good earnings propping up the market.
Nikkei opened lower but worked better through the morning to 29,336  just before lunch.  PM opened lower and drifting slightly lower.
Topix saw a choppier start but then rallied and worked better to a high of 2,019 pre lunch. A lower PM opend and drifting currently +5pts (+0.2%) @ 2,013.
Leaders NonFeros Metals, Warehouses, Precision Insts, Insurers
Laggards Miners, Construction, Property and Info/Comm
PPI Oct +8% YoY vs +6.4% Sept revised from +6.3% (F/cast was +7%)
PPI Oct +1.2% MoM vs +0.3% Sept (F/cast was 0.4%)
Tokyo Office Vacancies Oct 6.47% vs 6.43% Sept
S Korea 
Foreigners small net buyers, Local Institutions net sellers across most sectors.
EV’s +VE after Rivian strong debut. Internet’s +VE after NCSoft’s mixed earnings. Hugel trading halt; seeking clarification over of FDA cancelling its botox licence.
Kospi opened lower as inflation concerns elevated. Market traded sideways in a tight range 2,903/923
Kosdaq opened lower but rallied to 995 in early trades but then reversed, rallied and eased to currently trading around flat.
Taiex opened lower and sold down to 17,403 in early trades before working better to 17,520 the opening level but unable to hold and reversed back down to close -134pts (-0.8%) @ 17,426 TSMC leading the declines
Laggards Energy, Semicons, Plastics
Leaders Iron/Steel, Shipping, Electric Machinery
CSI 300 opened flat but rallied strongly in the first 30 minutes to 4,860 level led by the developers on hopes the regulator will ease the restrictions and Evergrande avoiding default again. PBoC continues to add liquidity. Financials +VE on the news too. EV’s and Clean Energy weak. Traded sideways with 4,860 as support into lunch. PM working higher and testing 4,880.
Covid concerns remain an overhang.
Hong Kong 
Pre market opened 24,856 -140pts vs -120pts ADR’s with broad weakness but most was Ecommerce. Wuxi Bio and AIA +VE. After initial choppy trading market rallied to test 25,100 as Chinese Developers rebound (shorts squeezed) on news that Evergrande had avoided default and that China might ease property curbs. But once shorts had covered the market sold back down, brief support at 25,000 but then continued down to 24,900. Good support there and rebounded into lunch 24,958. PM opened higher, tested 24,950 but then bounced higher. Ecommerce names remain weak and a drag on the market
Futures indicaate a mixed open; FTSE +4pts ahead of GDP data,  DAX -43pts, CAC -22pts as investors react to the US inflation data.  Follows a mixed handover from Asia.  Earnings still a big focus with Bilfinger, Delivery Hero, Merck, RWE, Siemens, Aviva, Tate & Lyle and Burberry, amongst others reporting.
Ahead Eurozone 
ECB Economic Bulletin
UK  Balance of Trade, GDP Growth Rate, GDP, Industrial & Manufacturing Production, Business Investment, Constructions Orders, NIESR Monthly GDP Tracker.
US Veterans Day Bond market closed
Opened Dow -5pts S&P and NDX +0.1% but now Dow -25pts, S&P flat and NDX +0.02%.  No data but earnings in focus.  After market Wednesday:
Disney, Beyond Meat, AMC Ent, Bumble were weak.  Affirm and Honest Company +VE following earnings.
Earnings today: 
Brookfield Asset Management, Siemens, Tapestry, Burberry, Lordstown Motors, Edgewell Personal Care

Front Page
US consumer prices increase at fastest pace in three decades
• Biden says inflation ‘top priority’ • Energy fuels 6.2% rise • Prospects of Fed action grow.
The broad base of price rises is what will worry investors. Interestingly Biden high lighted the rise in Energy costs probably because that plays into his beef with OPEC not increasing production.
Even without the volatile Energy and Food price rises were significant. US bonds reacted to the data as the pressure on Fed to raise rates sooner increased. The real key will be how quickly this flows into wage inflation which is what Powell has made reference to before as being important.
Overall the fact that the rises were across so many sectors makes the idea that inflation is transitory or limited to certain areas due to bottlenecks; increasingly unlikely.
Raising rates sooner would be positive for the banks and negative for the Tech growth players.

Electric vehicle start-up Rivian races on debut to overtake Ford and GM.
An interesting read but worth reading Mark Tinker’s view too. Do we care about Tesla Vapourware?  .  
Electric vehicles are an important part of dealing with emissions but getting good sound vehicles actually is just as important. Also interesting that Amazon and Ford are shareholders. Now actually producing the vehicles will be key.

Covid surge hits German economic recovery
Growth forecasts cut as rising cases compound supply chain problems. This is likely to be a recurring issue as we go through the winter and people continue to get vaccinated.

US and China issue rare joint pledge to fight climate change
Big polluters including Russia dig in despite clamour to set tighter targets.
The announcement came as a surprise but I think reflects the fact that both countries what to be seen as world leaders in addressing what is going to be a global issue for many years to come and neither wants the other to get all the credit.
It will help in maintaining the prominence of the issue but it is difficult to see how, in the short term, it’s going to prompt more countries into action.

China’s factory gate inflation hits 26-year high
Power shortages and rise in input costs combine to fuel fears of stagflation
Looks at yesterday’s Factory gate data; ‘refers to the cost at which wholesalers buy materials from producers, not taking into account transport and distribution fees.’
The real question is whether PPI inflation has peaked or not. The fact that as a command economy, Beijing can act to contain costs could be help but that can only go so far. For example the power issues was created by policy misunderstanding over the curbing emissions and the way that the power producers price their electricity with their margins being squeezed by higher coal prices. That can be addressed by capping miners prices but that hurts the miners.
There are also questions about how much scope the PBoC has to loosen policy to try and assist; especially in the face of a struggling property market, a resurgence of covid outbreaks and rising CPI.
Without doubt China faces significant problems as it seeks to move the economy to dual circulation and common prosperity. For investors key will be understanding that China does not want to kill any of its companies; be they in Tech, Property, Education but what it does want to do is squeeze them; stop them making the historic profits and ensure that ‘society’ is a large beneficiary rather than a few individuals.

Pro-Beijing figure becomes Japan foreign minister 
‘Fumio Kishida has appointed a pro-China heavyweight (Yoshimasa Hayashi) to the post of foreign minister as the Japanese prime minister aims to strengthen the country’s national and economic security after his election victory last month.’
An interesting read into the background of Yoshimasa Hayashi; seen a a possible future prime minister, Harvard educated, former defence and education minister. Key is that whilst he may be pro China he is very aware of the Biden’s stance on China and unlikely to do anything that would upset that.
The article goes onto look at other appointments; the market will be looking for clarity on stimulus and policy now the election is over.

Companies & Markets
Tencent revenue growth falls after China curbs on children’s gaming time.

Looks at the results which were a disappointment and the stock is trading lower today.
Interesting to see ‘Martin Lau, the company’s president, said stricter regulation was “the new normal” both in China and internationally.
He expected the amount of new rules to decrease, though he did not offer details. “The impact on industry will be less and less over time,” he told analysts yesterday.’
I think he is right in saying its the new normal but I’m not sure regulation will decline; either within China or Internationally. The fact that China is now driven by doctrine over profit means that regulation could intensify. Importantly for investors is the fact that international gaming revenue outpaced domestic. But other areas of its business are under pressure too; advertising as it has to open up the previously ‘walled garden’ to other platforms. On the positive side Tencent’s model of taking stakes in the smaller companies that operate on its platform has helped but whether it will be allowed to continue that remains to be seen.

LEX Tencent: bad optics looks at the results and makes the point that WeChat is losing its shine as young people increasingly use ‘platforms such as Douyin, the Chinese equivalent of TikTok, both of which are run by ByteDance.’  
Being forced to cut down on gaming, for which it is best known; is likely to push young people onto platforms.
It concludes ‘Investors should not rely too much on the gaming business, which made up almost a third of revenues last year. It remains just one official criticism away from another sharp decline.
That regulatory risk has been priced in for now. Shares are up 15 per cent from an August low. Tencent’s future course now depends more on the online preferences of young people than government disapproval.’

For interest
Markets Insight  Kornai’s warning echoes in a world after coronavirus  By Matthew C Klein is publisher of The Overshoot research service and co-author of Trade Wars are Class Wars’
Starts ‘If the pandemic has taught us anything, it is that downturns are essentially optional. Governments across the rich world were able to protect household and corporate balance sheets from the most severe disruption since the second world war simply by printing money. How should we use this new knowledge?’
Answers by looking at the work of economist Janos Kornai.
Concludes ‘We would probably all be better off if there were less self-insurance for bad times and a greater reliance on a robust and reliable public safety net.
But it is also easy to see how exploring the possibilities revealed by the pandemic could potentially create a new set of social problems as expectations and behaviours adjusted. Undermining the incentives that make workers and businesses productive would ultimately make everyone worse off.’

China’s overseas students vote with their feet
In his column “Isolated China is a concern for us all” (Opinion, November 9) Gideon Rachman notes that China’s zero-Covid policies risk deepening that isolation. But an unintended effect works the other way round. The two-week quarantine required of anyone entering either the US or China means that many of my Chinese students choose to stay in the US rather than return home for visits.
Chinese students in other countries must have made similar decisions. Thus, in isolating itself from the west, China leaves its overseas students to marinate longer in those “pernicious juices”.
Granted, the US and Australia do show lower Chinese enrolments than in 2019.
But their best-known universities have seen little impact, and UK universities have benefited by the cousins’ fall from grace. According to the UK’s Universities and Colleges Admission Service (Ucas), between 2019 and 2021 its Chinese applications increased by 30 per cent.
Jim Stodder
Visiting Professor of the Practice Department of Administrative Sciences Metropolitan College, Boston University Boston, MA, US

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