Oct 12 Asia weak inflation concerns FT Energy, Inflation, Climate. Also Taiwan/China/US/The World.

12 Oct

This and previous notes can be found at Substack ( Asian Market Sense )
Check out ERI-C.com  for your research needs

Market trended lower on the open following the US but rebounded as Business Confidence was stronger than forecast and with Energy and Iron Ore +VE but then sold down  to 7,260 mid-morning as the rest of Asia traded lower.  It then traded sideways until a small uptick into the close to finish -19pts (-0.3%) @ 7,281.  
Tech and Financials weak (Westpac warned of 2H write downs totalling $1.3bn hit), Techs: Appen (-3.3pc), Afterpay (-3.1pc), and Zip Co (-3.2pc), along with Ansell (-4.4pc), Worley (-4.3pc) and REA Group (-3.4pc). Star Ent -2.7% continued selling. Miners +VE Alumina (+4.2pc), Perseus Mining (+4.2pc), Ramelius Resources (+2pc) and BlueScope Steel (+2pc).
Business Confidence Sept 13 vs -6 Aug revised (F/cast was -2)
Nikkei opened lower and trended down to 28,200 mid morning and then traded sideways around 28,250 into lunch.  PM trading 28,200/230
Topix similar pattern low of 1,980. PM trading 1,981/85
Yen remains weak but the spread between Value and Growth widening.
Leaders Non Ferous Metal, Shippers, Iron/Steel and Oil/Gas
Laggards Utility, Retail/Consumer, IT/Telco and Airlines
Pre Market Data
Bank Lending Sept +0.6% YoY vs +1.5% Aug
PPI Sept +0.3% MoM vs 0% Aug (F/cast was +0.2%)
PPI Sept +6.3% YoY vs +5.5% Aug (F/cast was +5.7%)
S Korea 
Foreigners and Local Institutions selling Tech (SEC -3.7%) & Pharma.
Leaders Energy/Chem
but LGE and LG Chem earnings miss on recall provisions on GM battery recall.
Kospi re-opened lower and trended down to 2,901 in the first hour and then worked slightly better, currently -34pts (-1.2%) @ 2,922
Kosdaq traded in along similar lines currently -9.5pts (-1%) @ 944
BoK kept rates unchanged at 0.75% but statement was hawkish suggesting an imminent rate adjustment could be on the cards.
Taiex re-opened lower and sold down to 16,350 before a small bounce and then traded sideways around 16,450 for the rest of the session and closed -178pts (-1.1%) @ 16,463
Weakness in Tech, Transport, and Plastics and higher oil prices and concerns over slowdown/power cuts in China impact sentiment.
Apple supply chain names weak following the worker shortage in Vietnam.
CSI 300 opened lower and traded 4,900/920 in the morning session. PM trending lower, support at 4,860. Sentiment weak on news President Xi is now targeting the Financials and their ties with private firms for a crackdown. PBoC drained another 90b Yuan from the system this morning; removing the holiday liquidity. Concerns over power shortages but NDRC says it will allow price reform on electricity pricing but does not expect it to impact inflation.
PM Sept Passenger retail vehicle sales -17.3% YoY (4th month of declines)
Pre market opened @ 24,996 -329pts vs -202pts ADR’s but saw an initial rebound back above 25,100 and traded around that level for most of the morning but dipped pre lunch. PM trending lower currently -425pts (-1.7%) @ 24,900
Futures indicate a lower open following the sell off in Asia and rising inflation concerns as Energy and Commodities continue to rally.
Earnings updates from LVMH and Givaudan.

Wholesale Prices Sept +13.2% YoY vs +12.3% Aug (F/cast was +12.7%)
Wholesale Prices Sept +0.8% MoM vs +0.5% Aug (F/cast was +0.3%)
To come ZEW Economic Sentiment & Current Conditions Index.
BRC Retail Sales Monitor Sept -0.6% vs+1.5% Aug
Employment Change Jul 235k vs 183k Jun (F/cast was 225k)
Ave Earnings Inc Bonus Aug +7.2% vs 8.3% Jul (F/cast was +7.1%)
Ave Earnings Ex Bonus Aug +6% vs +6.8% Jul (F/cast was +6%)
Unemployment rate to come
US Futures opened: Dow -20 pts, S&P 500 futures and Nasdaq 100 both -0.1% but have dropped to Dow -132pts with S&P and NDX -VE.  
AHEAD Redbook, NFIB Business Optimism, JOLT’s job openings, Consumer Inflation Expectations, WASDE report.

FT  focuses on Energy, climate control issues, KKR and Shipping costs but also has a thought provoking Opinion piece by Gideon Rachman on the Strategic ambiguity over Taiwan between China and the US.   I would suggest that it is time more nations step up to demonstrate that despite what President Xi may say; Taiwan is a free nation that in its recent free elections determined that it does not want to be part of Xi’s China.


Supply shakes
US oil price at 7-year high  Key being that demand is running ahead of supply; in part driven by shortages in other energy markets notably gas.  Raising fears that inflation is real and not transitory; and being seen in the sell off in Asia today.  
See inside Moldova calls for EU help over gas supplies
Country unwilling to agree new deal with Russia’s Gazprom at higher price
Oil supply fears drive US benchmark to 7-year high in the Companies & Markets section
Big Read Energy  What is driving Europe’s energy crisis?
Domestic supply shortages, tensions with Russia and an over-reliance on a volatile import market are contributing to record gas prices. But the issues could persist as the transition to renewables accelerates.
Lex Gas crisis/Russia: bear necessities ‘The gas price spike is dealing apt punishment to EU and UK politicians for their short-sightedness. They can atone by writing energy transition plans featuring natural gas as a transitional and reserve fuel, supplied by the US eagle as well as the Russian bear. That should make the latter pull in those bullish horns it has grown.’

Buyout adventurers Kravis and Roberts hand over helm at KKR
• Private equity firm pioneered leveraged deals • Next chiefs inherit $60bn corporation.
A milestone in the firm’s history.   A more detailed article inside Kravis and Roberts bequeath a formidable KKR  Their successors are taking charge of not just one of the biggest buyout funds but an all-purpose financial institution.
LEX KKR founders: a permanent monument

UK’s early herd immunity strategy was ‘public health failure’, Covid report finds.  Reflects what many had thought, that the government and its scientific advisers failed to take account of research available from other countries.  Many have felt that the government group was too narrow minded.  The more important question is what, should another pandemic situation arise, would they do differently.
See inside
Population data glitches pose threat to global Covid response  Many countries do not know how many residents have been inoculated.
Vaccines greatly reduce risk of trip to hospital for over-50s


Solar-powered steel mill blazes green trail
Plant in Colorado threatened with closure has switched to renewables and is hiring again.
Worth a read that shows renewables can provide a viable alternative; in this case solar.

Kim orders officials to improve living standards in ‘food crisis’
An interesting read if only because of the futility of leader telling his officals to address the problems of nation without giving them to fools or resources with which to accomplish the task. It also notes that despite denying any covid cases that the WHO has started ‘shipping “essential Covid-19 supplies” to North Korea from Dalian.’
Also see  Seungil Bridge sets in stone the division of the Korean Peninsula  Another view on the widening differences between the two Korea’s.

Shipping industry hits choppy waters amid uncertainty over costs.
Shipping costs are falling due to the power shortages in China that mean ‘factories have produced fewer of the parts and manufactured goods that lie at the core of global supply chains, leaving the containers that ship them from Shanghai and Shenzhen to the US and Europe empty.’
Rates are falling from the recent highs but are above pre-pandemic levels and it is uncertain about whether this is a temporary respite or a return to normality. I would imagine that there is still an element of a container shortage or at least empty ones being in the wrong location.
It notes ‘The pandemic is also a spectacular example of what supply chain aficionados refer to as the “bullwhip effect”, where relatively small increases in demand in Europe and the US can have a big impact on manufacturers further down the supply chain, many of whom are based in Asia. That makes it tough to predict what comes next.’
I would expect a dampening ocsillation effect as demand and supply return to balance post pandemic.
Worth noting the comment ‘Mary Lovely, a senior fellow at the Peterson Institute, a Washington think-tank, notes that the logistics challenges posed by labour and equipment shortages run deep, even predating the pandemic. “The geographically asynchronised pace of recovery made these challenges worse, resulting in some ports, trucking facilities and even container shipping routes stretched beyond capacity.”’
The key for the shipping companies is that recent super profits are unlikely to remain. Fortunately few have embarked on large ship ordering sprees; mainly because there is a lack of consensus over engine types to meet future emission targets. That should mean that valuations remain reasonable.

Chinese coal futures hit record high as floods force dozens of mines to shut
The recent floods in China are adding to the already fraught situation and threatening both the recovery in China and globally whilst adding to the threat of inflation. Key being these surprising floods in the north have hit the coal sector, whilst the hydro region in the south of country has seen a lack of rainfall. All coupled with emission controls ahead of the winter olympics and in repsonse to global calls.

The moment of truth on Taiwan is getting closer  By Gideon Rachman  
Looks at the growing possibility of China annexing Taiwan as Taiwan says it will resist any unification and defend its independance. The key question is whether that would prompt the US to go to war with China. Basically the article says no one knows. It suggests that just as for years the US had adopted “strategic ambiguity” on the issue that now China is adopting the same tactic.
It concludes ‘Both China and the US increasingly feel as if they are engaged in a potentially deadly poker game over Taiwan, as they attempt to bluff each other into backing down. Strategic ambiguity has kept the peace for decades. But a dangerous moment of clarity may be approaching.’

For me I think the strategic importance of Taiwan in terms of tech and esepcially semiconductors mean that it should not be just down to the US but that more nations who depend on Taiwan for electonics should step up and support Taiwan; recognising that it is its own nation, own army, own currency and most important own decision that it does not want to be part of China; as demonstrated in the recent free elections.
A good article to read.

For Interest COP26. Scotland summit
Island nations face trek to reach climate forum
Even before Covid curbs, Pacific delegates on other side of world would have had convoluted trip. Covid restrictions, vaccinations, quarantine/visa rules and a lack of direct travel routes means that delegates from the pacific region and I would imagine a number of other regions will be creating a lot more emissions than normal.
It notes that the UK is preparing a virtual platform for the event but many fell attending in person is still key.
There may be some criticism for that but as yet virtual conferences rarely enable the chance meeting or interaction of face to face.

US-EU methane drive gains backers
Fresh support from Japan, Canada and Germany brings total to 34 parties. But it still lacks the major emitters like China, India, Brazil and Russia.

Ivory Coast hails oil find but experts fear joy will fade as west snubs fossil fuels   
Highlights that developed nations have used oil and coal to develop their economies and damage the world and so should be providing assistance to those that now want to use those some resources to similarly develop their own economy’s. Effectively this is a global issue but until we operate in a truely federated global state there is going to be frustrations.
Read also Chris vs Crispin shows hedge funds’ divergence on climate change  Compares and contrasts the approaches of Odey AM and TCI towards fossil fuels.  It concludes ‘Whether your climate activism involves letters to central bankers, or gluing yourself to a motorway, the fight to save the planet will clearly involve battles against political populism and opportunist investors alike.’
Also Hohn steps up campaign over banks’ fossil fuel loans.  
Along with ‘Carbon neutral’ shipments branded greenwashing
Trend of pairing liquefied natural gas cargoes with offsets draws criticism.

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