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Market opened higher but then sold down into the red for about an hour before rebounding back to 7,380 and then to 7,395 level which was tested a number of times before drifting lower from about 1:30pm into the close; to finish +5pts (+0.1%) @ 7,367
Banks and Energy were strong but weakness in Healthcare
Nikkei opened slightly higher but quickly sold down with 28,950 being a support level and prompted a rebound to 29,144 but shortlived and market sold back down as the weak Chinese data worried investors. But it did then see a small rebound into lunch. PM opened higher but drifting lower.
Topix similar trading pattern but failed to regain the green and currently -7pts and trading sideways.
Auto’s firm as Toyota sets out its new production schedule and Yen continues to weaken.
Energy names strong.
Foreigners quiet, Local Institutions sellers
Shipping weak as FT and Bberg run storys on port conjestion
Battery names +VE as SDI reported in talks with Stellantis
Kospi opened slightly +VE but sold down to 2,990 before working better to 3,021 by 1pm but then drifting lower currently -5pts @ 3,010
Kosdaq initially sold down to 985 and then worked better currently +6pts @ 996
Taiex opened higher and tested 16,862 in early trades but then drifted lower in choppy trading bounced off 16,695 to close -48pts (-0.3%) 2 16,733
GDP Growth Rate Q3 4.9% YoY vs 7.9% Q2 (F/cast was 5.1%)
GDP Growth Rate Q3 +0.2% vs +1.3% Q2 (F/cast was 0.4%)
Industrial Production Sept +3.1% vs +5.3% Aug (F/cast was 4.4%)
Retail Sales Sept +4.4% vs +2.5% Aug (F/cast was 2.3%)
Fixed Asset Investment (YTD) Sept +7.3% vs 8.9% Aug (F/cast was 8.1%) Industrial Capacity Utilisation Q3 77.1% vs 78.4% Q2 (F/cast was 78.1%) Key to remember that much of this data is pre the power outages recently seen and does not reflect the crackdown on property.
CSI 300 opened slightly lower and sold down initially to 4,860 level and then traded sideways around there into lunch. PM drifting lower currently -75pts (-1.5%) @ 4,858
PBoC drained a further 10b Rmb this morning. The data was weaker than expected and whilst that means that policy may ease investors are not expecting any immediate changes as Govt seems set on re-orientating the economy. F&B weak as Baijiu sector weak as US reduces investment.
Property weak as PBoC says Evergrande containable. Wider sector risk containable and widening of Property Tax trial.
MSCI China A50 MMA Connect Future start trading today. The Top Ten Weighted Stocks: CATL (300750) MOUTAI (600519) LONGI (601012), WANHUA (600309) WLY (000858) LUXSHARE (002475), CMB (600036) BYD (002594) BOE (000725) CTG (601888).
Pre market opened 25,425 +94pts vs +98pts ADR’s with some Chinese Developers +VE after the containment comments from the PBoC. Tencent, AIA and HSBC +VE but Meituan weak. Ecommerce names turned weaker on news that China said it would strengthen supervision of the internet industry.
Macau names +VE as mass testing completed and news that govt rescheduled public consultations on new casino law.
Zijin +4.4% as earnings beat forecasts.
Markets set for a weaker open following the weak China data and caution ahead of more US earnings
FTSE flat -1pt at 7,232, DAX -3 points at 15,581, CAC 40 +4 pts at 6,733 and Italy’s FTSE MIB +21pts at 26,209, according to data from IG.
Opened slightly lower Dow -23pts, S&P -0.1% and NDX -0.2%. But now Dow -3pts and S&P and NDX both slightly weak after ness the China data and ahead of a big week for earnings which include Netflix, Johnson & Johnson, United Airlines and Procter & Gamble on Tuesday. Tesla, Verizon and IBM are among the other names on deck for the week.
FT Front Page Mecca move
Holy site lifts Covid curbs
They are now allowed to operate at full capacity.
China’s leap in hypersonic missile technology shakes US intelligence
• Globe-encircling rocket stuns officials • Threat to ‘American homeland’, says lawmaker.
China demonstrates its advances which underlines the advances that are possible despite the US seeking to restrict its access to modern technology. It also mentions about China’s growing nuclear capabilities.
Apple ad business booms after privacy shift hinders rivals’ path to consumers.
An interesting read that highlights the changes that have occured since Apple changed its policy on third party tracking. The change has increased the revenue at Apples advertising business even though it says the move is to protect users and not advantage Apple. The key is that using Apples Search Ads does give better feedback about what is effectvive.
Port congestion pushes supply chains close to breaking point
Container ships forced to wait at sea as facilities struggle to cope with demand.
An interesting read. Everyone seems to be aware of the problems but resolving them is far from easy; with many expecting the situation not be resolved until after Chinese New Year next year.
Whilst many have been concerned about supplies for Christmas it seems the bigger issue will be about spring and summer catalogue items. That will leave the interesting issue about Christmas sales. Other surveys are suggesting that whilst households have savings to spend the lack of goods or the availability of labour means that purchases are being deferred.
I still think that demand for goods made by the likes of Techtronics (669 HK) will remain good and would suggest looking to accumulate the stock around the HK$150 level having eased back from its September high at HK$180.00.
It also means that shipping valuations are going to remain attractive in the short term.
See also Opinion Supply chain lessons from Long Beach by Rana Foroohar
Chinese factories face power supply crisis
Rising demand hampers Beijing’s attempt to move away from dirtier fuels.
Worth a read but again highlights that the move away from fossil fuels is going to take time. Calls for more efficiency and increased use of renewables are being made but many of those changes will take years. Meantime due to unseasonal weather impacting power supplies it is reacting quickly to reinstate the use of coal and to amend the pricing mechanism so that power companies are incentivised to meet the demand.
The recent push for cleaner energy is laudable but needs to be tempered with a realisation that change will take time. In part because of the need to build up spare capacity as seen this year in China which saw droughts in south where it would normally benefit from Hydro and flooding in its coal mining areas.
Today’s GDP data showed weakness in the economy and the Q3 data will have only partly reflected the impact of the power shortages so we are likely to see more slowing in Q4.
HK ex-leader urges boycott of US law firm in Tiananmen statue dispute
CY Leung calling for a boycott of Mayer Brown; saying: ‘The firm owes Hong Kong a full account of its decision to cease to act for Hong Kong university, and of the foreign interventions leading to that decision,’
The article notes this ‘illustrated the conflicting pressures western businesses face in China, where Beijing demands their support for its repressive policies but doing so earns the opprobrium of western governments.’
CY Leung is saying that Mayer Brown has bowed to US political pressure in deciding to no longer represent the University of Hong Kong.
It does illustrate the increased pressure that foreign firms will face when operating in Hong Kong.
Companies & Markets
Personal & household goods
Cosmetics group Shiseido hunts acquisitions
Looking to diversify its footprint beyond China. It is hoping that things will improve when Chinese tourists are allowed to start travelling to Japan again, expected next year. But also looking at expand in US and Europe as well as consider India and Africa.
It will be worth watching to see what impact China’s change to ‘common prosperity’ has on its China sales. It comes as it has effectively completed its re-organisation ‘having sold off bareMinerals and two other US cosmetics brands to private equity firm Advent. It also offloaded its personal care business to CVC for $1.5bn in February.’
It remains focused on higher margin skin care products with Nars and Drunk Elephant.
Fuel price rise threatens carriers’ recovery
Industry under pressure after cost of oil surges to its highest in seven years.
Whilst some countries are loooking to open up travel corridors and hence the prospects for airlines improve fuel costs could undermine that; with fuel costs doubling over the past year to $750 per metric tonne over the past year.
Troubling times as many try to attract travelers back with low fares and made worse by the fact that many also dropped their fuel hedging strategies last year leaving them unhedged. The one bright spot maybe that with problems with sea freight there is the potential for air freight. But still though and for Cathay Pacific it will be further hampered by Hong Kong following China’s zero tolerance approach of dealing with covid; making other regional airlines look more attractive.
Yen faces further losses against dollar as energy crisis bites
Yen hitting 3 year lows largely blamed on the rising fuel prices prompting the need to sell yen to pay coupled with the BoJ sticking to its loose monetary policy with no indication of any intention to raise rates.
Having dropped out of its long term trading range, some are now saying that it is now likely to see more volatility with the expectation that there would be more retail activity in the currency leading to forecasts of the yen dropping to 116 or even 120. But not everyone is convinced and some think that it has already gone too far; especially when considering that the gap between US and Japanese bond yields remains narrow.
Another factor that may also need to be considered in that the new PM is talking about a move towards ‘common prosperity’ and a redistribution of wealth which would be easier with a stronger Yen.
So the current move could just be an anomily. Difficult to see a good way the hedge in the short term; it will be more of keeping vigilent.
See also Kishida maps out a ‘new capitalism’ for corporate Japan By Leo Lewis for an insight into PM Kishida’s hopes for re-structuring Japan.
US banks take diverging bets on the direction of interest rates
BofA puts trust in debt securities but JPMorgan has been sceptical on Treasuries.
Results showing that the US banks have no greater insight than anyone else with Bank of America and JP Morgan adopting opposing strategies about how to use their balance sheets. What is clear from both is that loan demand remains sluggish in the US as consumers pay down debt.
Worth a read.
LinkedIn’s unsustainable compromise in China
Western companies will have to decide between profit and ethics
Looks at what is behind the change of tack on its China offering. The bigger question that remains is how will that imapct Hong Kong as China looks to increasingly police the on-line world. The Economist also has a couple of articles on the subject, showing that it is becoming an increasingly important issue.