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Biden / Xi summit gets underway. Initial minutes on TV; interesting to see the different styles, Biden personal, Xi slightly more formal and business focused but did call Biden ‘friend’. Key being that it is a lot friendly than might have been expected and +VE for setting a framework to avoid misunderstandings going forward. Watch for more sound clips and updates over the next hours.
China & Hong Kong rallying on the CCTV headline saying that Biden tells Xi; US doesn’t support Taiwan independence. It will be interesting to see if the White House confirms that.
Market opened lower with caution ahead of RBA minutes, Energy names weak along with Iron Ore futures and Gold -VE BHP and Rio but Coal prices continue to surge in US. CSL and Commonwealth Bank lower too. Westpac raised mortgage rates for the third time in a month.
Market found support around the 7,420 level and after the initial sell off, traded 7,440 down to 7,420 although it did at one point dip to 7,415.
RBA minutes showed it changed it’s mind on inflation in the past month with a shift to rising inflation ahead.
Lovisa +VE on Macquarie upgrade. Telstra weak on investor day but T/O light. Elders weak despite good earnings.
RBA Meeting Minutes
Nikkei saw a weak open and saw resistance at yesterday’s closing level until 10:45 when it broke higher to 29,960 before easing back into lunch at 29,835. No clear trigger but +VE comments from the Biden/Xi summit. PM opened flat working higher.
Topix opened higher saw an early dip to test yesterday’s close before resuming higher. Also spiked, to 2,063 before easing into lunch. PM opened lower currently +7pts (+0.3%) @ 2,055
Turnover remains muted. Recruit weak after good result, MurataMfg strong after releasing business plan. MUFJ weak despite good earnings and outlook. Softbank +VE share buybacks underway? Seems sell the news is the plan for today.
Leaders: Insurers, Miners, Autos and Wholesale
Laggards: Shippers (Freight rates falling), Services, Rail, Machinery.
Data due at 12:30 HK time.
Tertiary Industry Index Sept (Aug was -1.7% MoM F/cast is -2%)
Foreigners resume as buyers of Internet names, Tech and Financials but selling Pharma and Auto. Local Institutions sidelined watching to see if 3,000 holds, likely to turn buyers as it does. SEC slight +VE as it holds investor day. Krafton +VE latest game seeing good adoption and rumours China to resume approving online game approvals. Dear U continued buying after last weeks IPO debut.
Kospi opened lower having seen resistance at 3,000 yesterday, dipped to 2,985 in the first 35 mins but then rallied at the Biden/Xi summit got underway, opening minutes on TV were +VE. Hit resistance at 3,005, dipped before rallying to 3,010, but then eased back to trade around 3,000 level; currently 2pts @ 3,002
Kosdaq flat open, early dip to 1,027 before rallying; initially 1,033 before working higher, some resistance around 1,035; currently +5pts (+0.5%) @ 1,034.
Taiex opened higher and worked higher to 17,708 as Biden / Xi Summit started well, resistance at 17,710 around 9:50am and then traded sideways/lower for an hour before selling down to test Monday’s close. Bounced back to 17,670 and currently +22pts (+0.1%) @ 17,654
Leaders Industrials, Consumer names
Laggards Energy, Materials, Healthcare and Property.
CSI 300 opened flat but rallied initial to 4,895, retrenched but then to test 4,910 as the Biden / Xi summit got underway on seemingly friendly terms. Then market traded sideways but with resistance at 4,910 level.
Gaming names +VE on news China to start approving online games
again. Property +VE on easing of curbs to allow developers to make sales. Coal prices being hit by drop in demand from Steel mills -VE
Pre market opened @ 25,446 +55pts vs -43pts ADR’s; Tencent +VE as it sells down Hengten Net. HSBC +VE. Saw an initial dip but then rallied as Biden / Xi summit got underway in a frank and friendly tone. Saw some resistance 25,575 and then later at 25,600 before clicking higher into lunch; +267pts (+1%) @ 25,658. Helped by Tencent rallying on news that online game approvals to resume and news ‘Honor of Kings’ regains #1 spot in global revenue. Macau names +VE as it talks about easing restrictions for those who are fully vaccinated and boosted. Wynn Macau +8% as occupancy recovered to 50% sincecovid outbreak stabilised and the coming weekend bookings at 60%. Galaxy & Sands +7%
Expect a +VE open but with caution ahead of European and US data.
Germany Employment Change, GDP Growth Rate
France Inflation Rate
UK Unemployment Rate, Claimant Count Change, Employment Change, Average Earnings, Labour Productivity,
Opened flat Dow +18pts, S&P and NDX just +VE
AHEAD Retail Sales, Export & Import Prices, Redbook, Industrial Production, Manufacturing Production, Capacity Utilisation, Business Inventories, NAHB Housing Market Index, Retail Inventories, Foreign Bond Investment, Overall Net Capital Flows, Net Long Term TIC flows, API Crude Oil Stock Change.
Earnings Walmart, Home Depot, La-Z-Boy, Vodafone, Aramark, NetEase, TransDigm
Fed Speakers Richmond Fed President Thomas Barkin, Atlanta Fed President Raphael Bostic, Kansas City Fed President Esther George, Minneapolis Fed President Neel Kash
Bannon gives himself up
He was charged with failing to appear at a deposition and failing to produce documents related to the deadly riot that attempted to prevent lawmakers from certifying Joe Biden’s presidential election win.
Shell plan to move tax base to UK spurs Dutch into last-ditch action
• Bid to scrap dividend levy • Oil major seeks to boost buybacks • London welcomes step
An interesting read that demonstrates that some of the UK legislation makes it an attractive place for businesses to be listed and trade.
See Companies & Markets Shell’s shift aims to keep shareholders happy
Move of CEO and tax residence from Netherlands to UK brings opportunity to return more capital to investors
Portugal gives home workers a break as bosses banned from calling out of hours
An interesting read about social legislation. ‘Companies in Portugal will be forbidden from contacting employees outside working hours and must meet their extra energy and communications costs under one of Europe’s most employee-friendly laws for regulating homeworking.’
Beijing accuses EU over ‘new trade barriers’
Envoy voices China’s fears over bloc’s bid to boost economic self-reliance; saying that ‘throwing up regulatory and trade hurdles to foreign businesses, warning “discriminatory” practices could strain the global recovery from the pandemic.’ Noting the EU/US deal on Steel which puts China at a disadvantage. China said it ‘would “aggravate the tension” in industrial supplies and worsen inflationary pressures.’.
An interesting read as President Xi pushes China into ‘dual circulation’ and begins to feel pushback from what many have seen as China taking advantage of open markets without giving reciprocal access into Chinese markets.
It concludes ‘The EU has been divided over how hard it should push back against the Chinese Communist party’s aggressive model of state capitalism, as it seeks to position itself between the US and China. After concluding an investment agreement last December, Brussels put it on ice this year after Beijing imposed sanctions on several members of the European Parliament. That followed EU sanctions responding to the treatment of Muslim Uyghurs in Xinjiang.’
I think China could see further push backs from nations as they realise that a number of past deals have benefited China but not the local economy.
China’s real estate woes in big cities dent outlook for economy
Falling new home prices in China could cause serious upset as the government seeks to re-position the economy. The timing is bad as it coincides with mainland developers needing to refinance off-shore loans. Worth noting that they hold those loans because Beijing previously sought to deflate the property bubble in China by restricting their on-shore borrowing. The importance of property in China, can be seen in that it is estimated that 70% of households wealth is tied up in homes. For the economy it is even more important not just because of the unsold stock of property and partial completed but also the impact for the suppliers of goods that go into homes (aircons, TV’s, sofa’s, beds, etc. etc).
The slowdown will also hurt local governments who rely on landsales for financing. The imposition of restrictions to limit price cuts on new sales will not solve the problem but likely make it worse as it further limits developers ability to realise cash and does not stimulate sales. Obviously there is a knock on to the banks too; as many purchasers decide to wait on the sidelines, either for developments to be complete before buying or for prices to drop, or both. Historically people used presales to benefit from the rising land values but those days in China seem to have passed at least until the overhang is cleared.
There is also likely to be a knock on to retail sales as people ‘feel’ less rich. China is unlikely to see a full blown property crash but equally it is unlikely to see the market overhang clear anytime soon. There are already reports of some large unsold developments that may not have had proper permissions being demolished but that is still wasted capital and usually in the lower tier cities.
It also means that Beijing’s hope to introduce a property tax as a way to reorganise its taxation system may have to be delayed, which will put a further strain on the government’s income and hence ability to support the economy.
Lastly worth remembering that the official data is probably lagging the real market situation; so values are likely to have dropped further already.
Japan suffers hit to spending and exports
Looks at yesterday’s GDP data which interestingly the market took positively, no doubt hoping that it would mean that PM Kishida would increase the size of his stimulus plans, due to be released shortly.
The article quotes ‘Naohiko Baba, chief economist at Goldman Sachs in Tokyo, said the dent to business and residential investment was bigger than feared, exposing the damage wrought from the global supply chain turmoil.’
For investors the fact that covid cases have dropped significantly could potentially mean a swifter recovery, especially as global supply chains resume operation. But as the article notes ‘Japan’s recovery has been underwhelming compared with other advanced economies.’ There is still going to be the need to encourage the people to spend. I still think the BoJ’s policy on keeping interest rates at zero deters the aging population from spending. Especially as Japanese firms for the most part appear cashed up and not borrowing. Interestingly MUFJ’s results were good in part because it reduced its bad loans provision.
I think the outlook for Japan is improving and that more investors will be attracted to invest.
Companies & Markets
Dimon trip to HK is first by US bank chief during Covid
• JPMorgan head flies in to thank staff
• Territory waives quarantine curbs
He must be one of the few finance bosses that has been able to take advantage of the HK administration to make exemptions; ‘The Hong Kong government said the exemption for Dimon was justified because the visit was so short and was “in the interest of Hong Kong’s economic development”.’ He will be in HK for just 32 hours.
He made clear that he thought Hong Kong’s zero tolerance policy was hurting business.
It will be interesting to see, as China and Hong Kong maintain the zero covid policy whether they need the banks and access to international markets more than the banks need China? I’m sure the carrot of Wealth Management is key but whilst China pushes the Greater Bay Area, wealth managers can be located in Singapore where international travel is still allowed.
Hong Kong tech IPOs to require Beijing approval under national security rules
Another move by the recently empowered The Cyberspace Administration of China; releasing draft rules ‘that would require companies listing in Hong Kong to undergo a cyber security review if the share sale could implicate national security, threatening a recent shift by tech groups to the territory.’
It seemingly undermines bankers hopes that Chinese companies could list in Hong Kong as a ‘a more politically palatable destination for tech groups to access global financial markets after the cyber security reviews halted a lucrative listings pipeline in the US.’
It seems to be another step in making Hong Kong more integrated with China. ‘The draft rules would also require companies with large amounts of data related to China’s national security, economy or public interests to submit to a cyber security review when pursuing a merger or restructuring.’
FT Big Read CHINA
‘One of the largest shifts in geostrategic power ever’
The Pentagon believes Beijing will quadruple its arsenal of nuclear warheads by 2030. Could this alter the balance of power in Asia? And would it allow China to neutralise the threat from US weapons?
An interesting read, one point that stood out to me in the light of the sixth plenum’s commitment to integrating Taiwan ‘But others argue that Chinese president Xi Jinping wants to raise the stakes for Washington to ensure that the US does not try to use nuclear weapons to prevent China from taking military action against Taiwan.
“China is not developing its nuclear forces for some bolt out of the blue attack on America,” says Caitlin Talmadge, a nuclear expert at Georgetown University. “It’s trying to lock the US and China into a deeper ‘mutual vulnerability’ stalemate, so that the US cannot play the nuclear card in a conventional war, for example over Taiwan.”’
The stakes are definitely being raised.
For interest Opinion
Central banks will stay on the alert as they steer the recovery
Tiff Macklem governor of the Bank of Canada.
Sets out the need for a framework and the elements of that framework.
Concludes ‘What our resolve does mean is that if we end up being wrong about the persistence of inflationary pressures and how much slack remains in the economy, we will adjust. Our framework enables us to do just that.’