Market opened slightly higher but eased and traded around flat for most of the morning but rallied from 11:30am and worked better to test the 7,450 level but failed and then trended back to flat and closed +2pts (flat) @ 7,415. Property strong but weakness in Consumer Staples.
Perpetual +7.6% +VE Q1 update and AUM +2.7% YoY. Healius +4.2% off highs after strong Q1 update BUT Flight Centre Travel -6% continued selling
Business Confidence Q3 was -1 vs +18 Q2
Nikkei opened lower and traded sideways for the morning 29,070/200 but very light turnover. PM saw a broad sell off down to 28,740 level with all sectors in the red.
Topix traded in a similar pattern Currently -23pts (-1.1%) @ 2,004
It could be comments from PM Kishida who is carrying out some election street speeches. Or just retail raising cash raising ahead of Japan Posts public offering. But with few headlines as most companies in news blackout ahead of earnings which kick off in earnest next week.
PPI Sept +0.2% MoM vs +0.5% Aug revised (F/cast was +0.7%)
PPI Sept +7.5% YoY vs +7.4% Aug revised (F/cast was 7.8%)
On the Open
Exports 1- 20 days Oct +36.1% YoY vs 22.9% Sept
Imports 1- 20 days Oct +48.0% YoY vs 38.8% Sept
Kospi opened flat but rallied on the Trade data but then sold down into the red at 10am. Then worked back to 3,025 at 11.45am before reversing and trended lower following the selling action in Japan.
EV/Battery weak as expected after the Tesla earnings. Gaming and NFT saw early interest.
Kosdaq opened higher but initially sold down to 955 before bouncing back to 1,005 but then sold down to the day low -9pts (-0.9%) 992
Taiex opened higher and worked better to 17,026 by 10.30am after strong Export data out after market Wednesday. But then reveresed and sold down to flat by 12.30pm and then traded around flat into the close. +2pts (flat) @ 16,890
CSI 300 opened slightly higher after the PBoC net injected a further 90bn Rmb. Initially traded around flat for the first hour before rallying sharply to test 4,940; tried a couple of time before easing back into lunch. PM opened and traded around 4,920 initially before dipping to 4,894 before bouncing to currently flat.
Pre market opened @ 26,142 +6pts vs +16pts ADR’s Evergrande resumed trading -10.5% in the pre-market. Traded in a tight range for the first hour then rallied following China and tested to 26,230 but then reversed into lunch @ 26,060. PM opened lower and tested to 25,849 following the wider Asian sell off before a small bounce; currently -212pts (-0.8%) @ 25,925
Expect a muted open FTSE -17pts @ 7,207 DAX -21pts @ 15,503 and CAC -7pts @ 6,701 according to IG data. Earnings in focus with Hermes, L’Oreal and Pernod-Ricard reporting their latest sales numbers, and earnings also coming Vivendi, Eurotunnel, Daimler, SAP, Randstad, ABB, Barclays, Unilever and Rentokil reporting
Eurozone Consumer Confidence
France Business Confidence & Climate Indicator
UK Public Sector Borrowing, CBI Industrial Trends & Business Optimism Index
Opened lower Dow -35pts S&P and NDX -0.1%
AHEAD Philadelphia Fed Manufacturing Index, Initial Claims, 4 week average and continuing claims, Existing Home Sales, EIA Gas Stocks report, CD Leading Index, 5yr TIPS Auction.
Earnings: AT&T, Intel, Blackstone, Union Pacific, Chipotle Mexican Grill, Snap, Whirlpool, Celanese, Southwest Airlines, AutoNation, American Airlines, KeyCorp, Crocs, Marsh and McLennan, Ally Financial, Freeport-McMoRan, Nucor, Quest Diagnostics, Mattel, Genuine Parts, Alaska Air, Tractor Supply
FT Front Page
Russia admits vaccines flop
As Russia recorded its highest Covid-19 death toll, with 1,028 victims in the previous 24 hours, President Vladimir Putin approved a proposal to keep workers at home for at least a week, from October 30 to November 7.
Weidmann to quit as Bundesbank head as ECB crunch meeting nears
• Critic of eurozone’s ultra-loose policy bows out • Lagarde ‘immensely regrets’ decision
Key insight I think ‘but colleagues said he was tired of opposing ECB policies and that he expected these frustrations to increase as the economy recovers, inflation rises and the ECB’s generous stimulus becomes harder to justify.’
It highlights the diversity of views at the ECB which I think is one reason the recovery in Europe is less certain. In the US there is effectively just the Fed. In Europe there is the ECB whose board have very different objectives.
Sale of Evergrande’s property services unit folds days before default deadline
So the saga continues, the stock has resumed trading and was -10.5% in the pre-market but it initially recovered from that level but is drifting lower again.
PBoC and other officials have been saying the situation is containable but there are still risks until the solution is clear. The fact that there does not seem to have been meaningful discussions with the bondholders and other parties suggests at the very least public confidence remains low and that could be a significant factor.
Greek port deal deepens unease over Beijing role
China cements control of Piraeus container facility as investment outcry grows.
A good read highlighting the unease at China’s involvement and commitment. Having acquired a 51% stake in 2016 it has just been granted a further 16% which was supposed to happen after certain investment projects had been completed. But many remain uncomplete, with China blaming ‘Greek bureaucracy and local opposition. Piraeus residents have launched lawsuits, claiming Cosco has failed to follow environmental protocols and damaged the marine environment.’ But the article notes ‘Local interest groups say investments that have not faced legal challenges have also remained incomplete. “They haven’t spent a dime here; even when they need to change a lamp, they bring it from China,” said Kanakakis.’
Something that many countries are finding; that only China really benefits and not the local economy. The deal is now being viewed as a lesson on what not to do. It was initially an example of how Belt and Road could work for good; that is less clear today.
Cosco now has 5 years to complete its part of the agreement otherwise Athens can reclaim the shares if it fails to do so.
It will be interesting to see whether Cosco can work with the locals to make the project a success for everyone.
China’s property sector downturn threatens emerging market exporters of raw materials
Concerns are rising that the slowdown in property will impact China’s demand of resources from countries like Brazil, S Africa and elsewhere.
It notes ‘For now, that prospect may look unlikely, given the supply shortages that have pushed up the prices of many commodities. Food prices are near a decade high. Fears the global energy crunch will hit the production of metals last week pushed up the price of copper, zinc and aluminium to more than 10-year highs. There is also the prospect of trillions of dollars spent on the green transition, prompting some investors to foresee a new commodity super cycle.’
A significant pull back in construction will have a significant impact as it accounts ‘about half of China’s steel consumption, and iron ore prices have almost halved since late July when Evergrande’s problems intensified.’
I think that the slowdown will impact certain companies; like Vale.
It concludes ‘Still, it is future prospects for commodity demand that worries analysts. That is especially so given that Beijing’s “common prosperity” agenda seeks to shift the economy from construction-led investment to consumption.’
First price fall since 2015
Looks at yesterday’s China house price data. The key being that China is trying to reduce the pressure in the property bubble as it seeks to move the economy to dual circulation and common prosperity. But it doesn’t want then to fall too fast considering the amount of ordinary citizens money is tied up there and the risk for social unrest.
But the Evergrande default along with others is undermining confidence in a way that the government cannot control. The developers are caught in ‘catch 22’ situation; told to conform to the three red lines; reduce debt, for which they are trying to sell more units but they cannot reduce prices by more than the local authorities allow usually around 15%. Even in those cases they often get complaints from earlier buyers.
It is a classic problem, President Xi realises so much money is tied up in property and often empty units and he needs that money freed up and re-invested into advanced manufacturing. But without a ‘property market crash’ people are going to continue to put their money into property as a safe investment. But a property market crash could create social unrest something President Xi cannot afford as he seeks to be endorsed for a third term as President.
Ma’s reported Spanish trip puts Alibaba investors in festive mood
The news is being taken to mean that he is no longer being ostracized by the Communist party. The article suggests that the new was responsible for the significant rise in Alibaba’s share price yesterday.
I think it was much more to do with the release of its new first self-developed CPU chip "Yitian 710". CEO Zhang remarked that BABA-SW is endeavoring to integrate itself into China's technological development layout and that it is committed to developing technology that is open and socially benefitting. It also laid out plans for new data centres in S Korea and Thailand.
Sinopec agrees Louisiana LNG deals
Venture Global contracts will see China more than double supplies from US.
Underlines China’s need for energy, the key here being that the Chinese are now prepared to longer term deals to lock in supplies. It also reflects how China is an increasingly important player in the energy markets. The signing of longer term deals will also benefit the US companies in supporting new investments.
S Korea’s cultural stars dance out of step with China
Beijing crackdown casts pall over near neighbour’s music, TV, film and gaming sectors.
The recent crackdown hurting S Korean game makers most as younger players are restricted to just 3 hour weekly. Mentions Krafton and Nexon. As a result they are now considering India. But other forms of entertainment too, in the case of boy band group BTS they were dropped after a singer alluded to the Korean war.
Dealing with the sensibilities of China is becoming increasingly difficult and the consequent ‘punishments’ meted out by China can be expensive. It is likely that China will find itself more isolated and with less options and the companies seek countries with more profit potential.
China presses McDonald’s to expand e-renminbi payments
China wants the company to expand a digital renminbi payments system at restaurants across the country before the Beijing Winter Olympics, as the country prepares to launch the world’s first big e-currency. Currently McDonalds is focused on setting up the service in Shanghai but China wants it rolled out to the whole country.
There are some concerns about the how the data might be used but more interesting was the comment from Republican Michael McCaul “Although China’s digital renminbi is new technology, it’s using the same old playbook where the Chinese Communist party uses commercial integration to decouple itself from the international system,”
China is leading the move to digital currency and hoping that by being a first mover it can set the standard and edge the USD out in the longer term.
China coal futures tumble as fears grow over state intervention in energy crisis
Looks at yesterday’s reaction to China saying that it would intervene in an effort to reduced energy costs and ensure sufficient supplies.
Follows its energy shortage after Beijing had been closing coal mines for pollution and safety reasons, whilst local governments have cut the use of thermal coal this year in an effort to meet strict emissions targets. That’s contributed to a shortfall in domestic supply and resulted in rocketing prices as winter approaches. The situation was made worse by flooding in Shanxi province which is traditionally a big coal supplier and a recent early cold spell in Northern China.
So it appears that China is being forced to reverse its earlier plan. It has already been reported that it has unloaded some Australian coal shipments and it will be interesting to see if it reversing its earlier decision to ban SoE’s from importing Australian coal.
This is another pressure on President Xi as he seeks to change the current social contract. Being unable to provide enough power to heat houses through the winter could be another trigger for social unrest. The further problem being who will pay the increased fuel bills. Historically power prices are controlled but rising coal prices has squeezed the power generators and dis-incentivised them so the state has announced new criteria to try and rectify the situation.
Lex Digital currencies: disrupt foe, disrupt friend
Looks at the relationship between Central banks and commercial banks and how digital currencies would undermine further the commercial banks. Worth a read