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China’s trade data in focus but rising covid cases and a snow in Beijing putting pressure on the economy as the sixth plenum get underway. It’s focus is on the 100 year history of the communist party as espoused by President Xi and promoting his importance and the need that he remains as leader.
Markets opened +VE on the news of the Pfizer covid pill and after good US jobs data but I think concerns about China’s slowing growth and the resurgence in covid cases is a concern.
Market opened flat but initially rallied to 7,474 briefly before trending lower through the morning to 7,433 at midday before trading sideways for a couple of hours before ticking higher but failed to break above Friday’s close.
Energy, materials and Industrial names leading the gains. Iron ore miners remain weak along with Healthcare and IT.
PolyNovo weak following the departure of the CEO on management style differences.
IPO Siteminder performing strongly on its debut.
Nikkei opened higher (29,735) but sold down to 29,518 around 10.30 am before rebounding to 29,590 at lunch. PM opened lower and trading sideways. Currently -59pts (-0.3%) @ 29,522
Topix traded in a similar pattern during the morning. PM seeing more selling pressure currently -6pts (-0.3%) @ 2,035
Re-opening plays +VE along with value numbers. Earnings remain in focus with Softbank’s due along with a number of others. Honda weak after cutting its FY F/casts.
Laggards Miners, Food, Tech and Pharma
Foreign Exchange Reserves Oct $1404.5b vs 1409.3b Sept
BoJ Summary of Options
Leading Economic Index Prelim Sept vs 101.3 Oct (F/cast was 101.5)
Conincident Index Prelim Sept vs 91.3 Oct (F/cast was 92)
Construction names seeing weakness after Obayashi cut its guidance by over 50% due to rising material costs.
Sega Sammy strong after announcing buyback.
Kospi opened at 2,965 just below Friday’s close and sold down to 2,930 in the first hour. Small bounce but only to 2,940 and then traded sideways.
Laggards Pharma names weak along with Finance and Services.
Leaders Textile/Apparel, Utilities, Transport.
Kosdaq followed a similar trading pattern to Kospi currently -9pts (-0.9%) @ 993.
Kakao Bank weak as share lock-up expires.
Taiex opened higher and trended higher in choppy trading; Currently +75pts (+0.4%) @ 17,373,
Leaders Iron/Steel, Shipping, Plastics, OptoElectric, Semiconductors
Laggards Electric Machinery, Electronics, Auto’s.
ASE +VE announces share buyback.
TSMC on track to move 3nm process technology into volume production in 2022 as planned; 5nm capacity to be fully utilised too.
After market Trade Data expected.
PBoC injected another 90m yuan.
CSI 300 opened lower and dipped to test 4,830 in early trades bounced to 4,845 then sold down again bounced to flat sold down to 4,827 before rebounded to 4,840 at lunch. PM opened flat. Concerns over growth after Trade data, resurgence of covid and the ‘zero tolerance’ policy. Chinese developers debts also an issue. Phama names hurt by news of the Pfizer pill’s effectiveness but some re-opening stocks rally on the news.
Sixth plenum underway likely to set the framework for Xi to be able to rule for life.
Pre market opened @ 24,744 -127pts vs -52pts ADR’s. Weakness in Ecommerce and Phama/BioTech weak but +VE moves for Macau names on the Pfizer covid pill news. Financials & Developers seeing bargain hunting; China Vanke +VE on news it will spin off its Property Management under a separate listing. Haidilao to shut 300 units with low traffic but will not lay off staff. Retail mixed on news China to restrict border opening to 1,000 per day vs 5,000 HK sought
Currently -89pts (-0.4%) @ 24,782
Expect a flat openwith concerns over rising covid cases in Europe & China and the mixed Chinese Trade data offsetting the re-opening of US flight routes. Earnings still coming and some caution ahead of PPI and CPI data from the US this week.
No data but ECB’s Lane speaks and Eurogroup meets.
Opened Dow flat, S&P -0.1% and NDX -0.3%
Seven Fed speakers, Consumer Inflation Expectations, Senior Loan Officers survey.
Earnings: Virgin Galactic, Zynga, PayPal, Trip Advisor, AMC Entertainment, Cabot, Lemonade, Marriott Vacations, US Foods, Roblox, Tencent Music.
Attempt to kill Iraq’s PM fails
On Friday, Iran-backed political groups that have refused to accept the election results and view Kadhimi as pro-US attempted to enter Baghdad’s Green Zone, sparking violent clashes with security forces.
Spread of new cases puts China’s zero-Covid policy under strain
• Beijing retains tight curbs • 1,000 infections since mid-October • Fears for economic impact
The recent surge has now extended to the majority of the its 31 provinces. Whilst China says it will maintain it’s zero tolerance policy this resurgence illustrates the problems it faces. It mentioned on Friday in a statement that part of the problem was the covid in other countries. Key for China in adopting a ‘zero tolerance’ is that it hasn’t reported suffering from the delta covid yet, if that were to become evident it could face a more serious surge.
It will be interesting to see the impact of the cold weather also now hitting China. For investors the spread is likely to lead to more lockdowns and that could impact the economy significantly.
Vatican to lose £100m of donations on sale of UK building at heart of scandal
An interesting read and an ongoing story.
Surge in global food prices hits emerging nations hardest
Poor weather and supply chain woes lead to uneven rises for consumers
An interesting read, notes that ‘The main reason consumers’ grocery bills are not rising at the same rate as indices suggest is that the latter captures the wholesale price paid to producers, and this accounts for only a fraction of what shoppers pay at the till.’
An interesting read.
Big projects threaten Hong Kong’s finances
‘Hong Kong’s renowned fiscal reserves are at risk after the city’s opposition-free legislature approved record public expenditure over the past year, analysts have warned.’
An interesting read; seemingly with more projects getting passed in quicker time. Comes as the reserves were already under pressure from measures taken to support the economy against the impact from covid. ‘Kevin Lai, chief economist for Asia excluding Japan at Daiwa Capital Markets, said: “Without proper checks and balances, the pressure on [fiscal reserves] will increase.”’
All this comes as revenue has been hit by covid restrictions and the impact of the protests against the government’s extradition legislation prior to covid.
Something that no doubt investors will be watching carefully.
Nigerians sign up for Africa’s first digital currency but critics raise doubts over wider adoption.
Looks at how the country is a leader in digital currency adoption as ‘the G7 group of advanced economies last month laid out guidelines to ensure the currencies will “support and do no harm” to the traditional monetary and financial system.’
The initial sign up and use appears to be positive but it raises the question of how the government will use the fact that it can see every transaction and whether distrust of the government will undermine its future. ‘Gadhia pointed to how the central bank froze the accounts of people involved in the #EndSARS anti-police brutality protests that swept Nigeria last year. “The eNaira actually makes it even easier if the government wants to shut down someone’s account . . . or even the whole system,” he added.’
The eNaira comes 9 months after the country banned cryptocurrencies. ‘Nigeria has become one of the biggest markets for cryptocurrencies in Africa, with citizens using it to get around capital controls, generate income amid rampant unemployment, and to hedge against the depreciating naira.’
No doubt the issue will be watched closely by many.
Companies & Markets
China’s top VC investor cashes out of tech stocks
• Sequoia chief Shen sells own shares
• Meituan tops list in $215m disposal
An interesting read which suggests that after months of watching the share price of a number of his personal holdings fall in value he decided to start selling in September. Interesting because a number of investors seem to be cautiously re-approaching the sector, following the launch of common prosperity and putting the Ecommerce companies to donate money to social causes.
The outlook for Ecommerce remains uncertain. What is clear is that the rules under which they used to operate have been changed and the profit margins will be reduced but they are likely to remain successful.
Streets ahead US corporate earnings outstrip forecasts and power equities to record highs
An interesting read, points out that whilst not as good as Q1 and 2, they are still good and that many companies whilst noting higher costs; many are able to pass those costs on to consumers. It also notes that equities have performed better than fixed income that has been wrong footed by central bank policy recently.
The key thing for investors seems to be buying names where they have pricing and brand power to pass on the costs.
Read also Surging paint prices colour outlook for businesses
Akzo Nobel and rivals pass higher costs on to customers across a vast range of sectors.
The key takeaway appears to be that this is going to feed through into inflation. Also that there is a risk that come companies that have been just surviving could be about to go under. Lastly that supply chains are going to be impacted either through localisation or higher inventory levels. An interesting read.
Berkshire earnings tumble by two-thirds
Buffett conglomerate sees net profit fall to $10.3bn while cash pile hits record. The rising cash pile frustrating some investors but Buffet remains concerned about current valuation levels when it comes to M&A
It concludes ‘Berkshire’s class A shares are up 26.3 per cent so far this year, on par with the benchmark S&P 500. The fair value of Berkshire’s equity investments increased less than 1 per cent to $310.7bn between June 30 and the end of September. About 70 per cent of the value of that portfolio comprises four companies: American Express, Apple, Bank of America and Coca-Cola.’
Why innovation could stop inflation By Rana Foroohar
An interesting read; concludes ‘And yet, the fact that the global economy has become somewhat more fragmented over the past couple of years is also an opportunity for technology-driven innovation that could eventually bring prices down. Think about vertical farms that grow produce minutes from where people eat it, telehealth and virtual education platforms that eliminate travel costs, and 3D manufacturing that cuts through complex and far-flung supply chains.
These are just a handful of the many new technologies that are currently booming. The change such innovation could bring is arguably the only major disinflationary trend right now. But it may prove to be the most powerful.’