Oct 15 Asian Markets +VE FT China's GDP, PPI & Policymaking. TSMC and more

15 Oct

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

Market opened higher following the gains seen in the US overnight. Resistance at 7,370 level and the markets eased back to 7,320 level around lunch before rebounding but resistance approaching 7,360 and then traded 7,340/360.
Rio Tinto in focus as it is due to releases its Q3 update. Energy names +VE as oil continue to moves higher, Gold and Iron ore +VE. Qantas moving higher as travel restrictions are being lifted in Australia and other countries too.
The Harvey Norman Holdings Limited (ASX: HVN) share price is trading ex-dividend for its fully franked 15 cents per share final dividend this morning and could trade lower. Elsewhere, shareholders of Eagers Automotive Ltd (ASX: APE) and HUB24 Ltd (ASX: HUB) can look forward to being paid their latest dividends later today.
Nikkei opened higher and trading sideways around 28,800 level but around 10:50am rallied to test 28,950 but failed and eased into lunch.  PM opened higher and tested 29,000 but failed to break above.
Topix traded around 2,005 level before moving higher to 2,012 at lunch. PM has tested 2,017 but currently +27pts (+1.4%) @ 2014
Leaders Machinery, Electrical Appliances, Metal Products, Shippers
Laggards Airlines, Fish/Agri, Textiles, Apparels.
Earning increasingly in focus. Robotic names seeing interest Faunc +4.5% and Yaskawa +3.4%, Keyence +3%
S Korea 
Third +VE day but first day of Tech leading as Foreigners turn buyers; Hynix +3.6% and Samsung +1.4% after good TSMC numbers.
Earnings in focus.
Kospi opened higher and initially tested to 3,022 but then eased back to 3,000 before slowly working better; currently +28pts (+0.9%) @ 3,015.
Kosdaq opened higher and tested 992 before selling down Thursday’s close bounced but then sank to 981 and tested there for awhile before rebounding back to the opening level and currently trading around 990 level (+6pts +0.7%)
Taiex opened higher at 16,426 and quickly broke through the 16,500 resistance and then tested 16,700 at 10am but resistance around 16,750. Tech leading with strength in TSMC after earnings but all sectors trading in the green.
CSI 300 opened lower but rallied in early trades to 4,930 before easing back slightly below Thursday’s close before rebounding but choppy trading. Developers and Banks helped by the news that China is to ease banks mortgage limits for the rest of the year; and pushing banks to speed up mortgage approvals as well as to sell mortgage backed securities. Some weakness in on-line brokers that allow access to US markets -VE
In the pm I would expect some caution ahead of Monday’s GDP, Retail Sales, Industrial Production, Capacity Utilisation and Fixed Asset Investment data. Talk of re-opening borders early 2022 if population vaccination rate is 85% plus
Hong Kong
Pre market opened @ 25,187 +225pts vs +68pts ADR’s as the market played catch up after a two day break. But initially the market sold back down to flat I would have thought on margin call selling from Tuesday’s sell off. Then market rallied back to 25,200 level on news of China easing mortgage limits. Market then traded 25,100/200
Internet stocks +VE along with Auto’s after some good passenger sales data. Oil refiners and coal stocks seeing weakness.
Expect markets to open higher following the moves in Asia but high energy costs remain a concern.
Data due
Eurozone Balance of Trade
France Inflation Rate
US Futures
Opened in Asia 
Dow Jones Industrial Average +36 points. S&P 500 futures +0.11%, and Nasdaq 100 futures +0.12%.  Earnings from GS in focus.
Data due Retail Sales, Import & Export Prices, NY State Empire State Manufacturing Index, Michigan Prelim Data, Baker Hughes Rig Numbers, Monthly Budget Statement.

On line edition
China GDP: Five things to watch when quarterly data are released
‘Considerable uncertainty’ surrounds growth prospects as Beijing prepares to announce figures next week
Worth a read. Notes that Premier Li Keqiang said on Thursday that growth had slowed in the third quarter but did not say by how much, according to Reuters.
Key questions: level of growth, Impact of Evergrande, Power Shortgages, Impact on Retail sales. Will all these factors impact Xi’s policies going forward.

Fumio Kishida
Fumio Kishida pledges to steer Japan away from Abenomics
New prime minister says programme has failed to deliver broader growth in first international media interview as leader

Print edition Front Page
Beirut attack
Snipers spark sect tensions
Fighters from Hizbollah and Amal take aim during clashes in Beirut yesterday, after six people were killed when snipers opened fire on a protest at the handling of an investigation into the port blast last year that left 200 people dead.

Top EU states push to put bloc on standby for trade war with Britain
• Response to UK threat over Brexit deal • Germany, France and Netherlands most vocal.
Comes as the UK threatens to suspend the trading arrangements for Northern Ireland currently in the Brexit deal. The European retaliation could include restricting the UK’s access ‘to the bloc’s energy supplies, imposing tariffs on British exports, and, in extreme circumstances, terminating the trade agreement between the two sides.’
It illustrates the ongoing Brexit problems.

LinkedIn shuts China networking site as tough compliance demands take toll
Increased regulation of the social content element of the app being the main issue. As a result it will relaunch the app as a purely job listing platform.
Interestingly ‘The White House welcomed the move and accused China of forcing companies to be “complicit in its repression and authoritarian practices”.’

Labour market. Industrial action
Emboldened US workers find their voice
Employees pressed to do more in the Covid crisis have gained leverage to boost conditions. Worth a read because it underlines that US workers are looking for wage rises and increased benefits. Bearing in mind that the Fed has previously noted that it is wage inflation that they are worried about it is worth a read. Also the fact that workers are taking to strike action, something that has not been widely seen for many years in the US.

China factory prices surge amid coal shortage
Looks at yesterday’s PPI data, which saw the biggest increase since 1995. Drivers were rising global commodity prices and energy costs. What is surprising is that those same forces are not being seen in Consumer Prices as September inflation was less that August’s but I would expect it to be reflected in the October data, especially considering the impact on food prices from the recent flooding. It mentions that some are expecting it to result in stagflation, in part due to the ambitious goals on emission control for the next few years.
Worth noting that China’s coal imports in September were up 76% YoY as it tries to provide more stocks. It has also allowed for changes in the way power is priced in China. Previously the power companies ability to increased prices was restricted, despite coal prices rising. That was part of the reason for power shortages. What is interesting is the comment from China that these changes were unlikely to impact CPI.
For China it is one more headache as it seeks to redirect the economy away from dependence on property to higher value manufacturing.
News today that China would ease banks mortgage limits for the rest of the year; ask banks to speed up mortgage approvals and to sell mortgage backed securities may reflect that they are realising that changes of such a fundamental nature cannot happen quickly without incurring a lot of pain.

Companies & Markets
M Stanley and Citigroup post strong earnings on M&A wave

• US banks overcome low interest rates
• BofA also boosted by dealmaking fees
An interesting read and with the expectation of tapering and rate hikes ahead the outlook for the banks looks increasingly rosy.

Oil & gas. Inflation
Shale patch hits supply-chain and labour snags
Rising expenses including for steel, wages and equipment put squeeze on operators. Another example of inflation creeping into the system.

TSMC expects profit leap as customers grow accustomed to higher chip prices 
The investor company revealed that it could achieve a gross profit margin of 50% or higher because customers have become more willing to pay higher prices amid an extended global chip shortage.
Its results beat forecasts and its increasing capacity but still expects capacity to remain tight through 2022. But its not a broad demand outlook; PC and smartphone may see demand easing and that could lead to customer reducing inventory. ‘But Wei said this was partly caused by component shortages. He added that if there were an inventory correction, the company would be less affected than in the past because the number of chips needed in products ranging from smart-phones to cars was rising.’
To meet the rise in auto demand they gave more detail regarding the Japan and US plants. TSMC’s decision to invest in mature production capacity in Japan deviates from its traditional focus on the most cutting-edge manufacturing technology. Its global market share, about 60 per cent for made-to-order chips, is highest in the newest process technology, where it exceeds 90 per cent.
An interesting read. TSMC stock performing strongly today; currently +4.6%.
Lex TSMC/chip shortages: layer ache
‘Input shortages will abate faster than chip shortages. Those could extend into next year. Moreover, advanced chips are a growing source of revenue, accounting for more than half of all TSMC’s revenue during the third quarter. New technologies such as AI and self-driving cars require smaller, faster, more complex chips. There will be no lack of demand. TSMC and Samsung remain good investments regardless of whether their contractors can source cardboard boxes.’

Markets Insight
China’s policymaking process in spotlight after Evergrande woes
By Logan Wright director of China markets research at Rhodiu Group
Notes the arguments for and against the case as to whether China is ‘investable’ still. But puts forward that the real question should be about ‘Beijing’s policymaking process rather than political objectives — the means rather than the ends.’
His worry is that by not acting the policy makers will make the situation worse. He suggests that ‘But political analysts argue there is growing evidence that the leadership’s campaigns to reshape the economy are constraining the countercyclical responses that markets are accustomed to seeing.’ ‘Similarly, these analysts argue the centralisation of authority has weakened some of the balancing forces within the party-state system that might correct policy mistakes midstream. As a result, while the outcome of this debate is still uncertain, policy overshooting has become a far more significant risk.’
He concludes ‘But how and when Beijing responds to the market contagion is now more important than the leadership’s original objectives and will determine how investable China remains.’
Worth a read

For interest
‘Disruption on top of disruption’
The Biden administration has announced measures to ease bottlenecks at ports that have already caused shortages and could complicate Christmas. But the problems in the logistics system are deep-seated.

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