Oct 22 Asian update. FT thoughts Inflation, Gold or Crypto, Caixin, Japan/Taiwan


22 Oct

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

Biden says he can vow to protect Taiwan which comes after 43 countries were critical of China’s stance on human rights, an increase of 4 YoY and the EU says that it will increase links to Taiwan all of which annoys China.

Markets saw initial weakness but most have rebounded.

Australia 
Market tested lower in early trades to 7,390 after the RBA defended its bond target with market intervention but rebounded to test 7,430 around mid day after the good PMI data. But then sold down but found support approaching 7,400 level. Bounced back to flat around 2pm and currently flat and trading sideways.
Weakness in BHP & Rio Tinto as Iron Ore prices continue to fall. Energy names weak. Interest in the re-opening names as lockdown restrictions are eased and in gold as inflation concerns grow.
Data out
Flash PMI data
Manufacturing Oct 57.3 vs 56.8 Sept (F/cast was 56)
Services Oct 52 vs 45.5 Sept (F/cast was 48)
Composite Oct 52.2 vs 46 Sept (F/cast was 48.5)
Japan
Tech leading the market higher despite the weak Intel numbers.
Energy and Finance weak along with re-opening stocks despite news that Tokyo and Osaka to ease restrictions.  Pre Market data was also encouraging.   Expect muted upside in the PM session ahead of earnings next week.
Nikkei opened lower around 28,600 level but worked better through the morning to test 29,000 late morning before easing back into lunch at 28,900.  Re-opened higher at 28,954
Topix traded in a similar fashion morning high was 2,013 easedback to 2,007 at lunch. Reopened @ 2011.
Data out
Inflation Rate Sept +0.2% YoY vs -0.4% Aug (F/cast was -0.3%)
Inflation Rate Sept +0.4% MoM vs -0.2% Aug (F/cast was -0.1%)
Inflation Rate Ex Food & Energy Sept -0.5% YoY vs -0.5% Aug (F/cast was -0.4%)
Core Inflation Rate Sept YoY vs 0% Aug (F/cast was +0.1%)
Later Flash PMI data
Manufacturing Oct 53.0 vs 51.5 Sept (F/cast was 51.3)
Services Oct 50.7 vs 47.8 Sept (F/cast was 49)
Composite Oct 50.7 vs 47.9 Sept (F/cast was 49)
S Korea 
Foreigners net sellers of Internet names. Local Insts small net buyers across most sectors. Leaders are Telco, Laggards; Steel & Utilities . Mixed are EV Battery plays, Apparel and Entertainment
SEC unch despite weak Intel but Hynix higher
Kospi opened lower but trended higher in choppy trading through the morning to flat and then worked better to currently +9pts (+0.3%) @ 3,015
Kosdaq opened lower but worked better currently +6pts (+0.6%) @ 1000.
Taiwan 
Taiex opened flat and trended lower through the morning to 16,800 mid morning before rebounding back to flat before easing back and trading sideways in the red, currently -12pts (-0.1%) @ 16,878
China 
CSI 300 opened higher and traded mostly 4,940/50 before spiking into lunch at +43pts (+0.9%) @ 4,971
PBoC injects another 90b yuan into the system. NDRC meets with Miners, tells them to set reasonable prices and suspends tax collections as it seeks to address the power shortage
Hong Kong 
Pre market opened @ 26,115 +97pts vs +13pts ADR’s with some relief as Evergrande reported to have paid $83.5m on bond interest that fell due Sept 23. But market initially sold down to 26,000 before rebounding in choppy trading before working better to 26,195 late morning but eased back to +115pts (+0.4%) @ 26,133 at lunch.
Ecommerce +VE as sentiment believes the crackdown is now complete. Tech, Apparel and Auto +VE Property sector rebounding on the Evergrande news. But Coal weak on government intervention and Oil names weak as oil price eases.
Europe
Expect a flat open ahead of the PMI data
Eurozone Flash PMI
Germany Flash PMI
France Flash PMI
UK Retail Sales data, Flash PMI
Already released UK Gfk Consumer Confidence Oct -17 vs -13 Sept (F/cast was -14)
US Futures
Opened Dow -26 points. S&P 500 futures -0.3% and Nasdaq 100 futures - 0.5%  but improved to Dow +18pts but S&P and NDX still slightly -VE
Ahead Flash PMI, Baker Hughes Oil Rig Count
Earnings: Honeywell, American Express, Schlumberger, Regions Financial, Roper, VF Corp, HCA Holdings, Seagate Technology

Front Page
Merkel seeks to moderate
Angela Merkel arrives at the European Council in Brussels for what is likely to be her final EU summit. The outgoing German chancellor urged her fellow bloc leaders to tread carefully in the dispute with Poland that is set to dominate the meeting.
Inside Merkel tries to defuse Poland-EU dispute
German chancellor speaks out ahead of summit due to debate rule-of-law tension

ECB’s tough Brexit stance pushes banks to shift staff from London
• Pandemic-era leeway ends • Small lenders rethink EU business • Risk of BoE tensions.
ECB putting pressure on banks to move more staff and capital into Europe to support their operations there and whilst it affects global banks the obvious target is the UK post Brexit.
It is also becoming apparent that the ECB is being very strict; nice quote “It’s not stricter than the letter of what was agreed, but there was a perception that, ‘surely they can’t mean that, surely they’ll see reason once we get under way’,” he added. “Turns out they did mean that, and they’re pretty good at enforcing it.”
Which raises the question of how costly it is becoming to do business in Europe. It also seems to undermine remote working.
There seems to be an element of spite involved which will not really benefit anyone in the long run.
An interesting read.

US drops tariffs threat after reaching digital tax deal with European nations.
Another move forward in the resolving some of the issues surrounding taxing multinationals.

INSIDE
Global wage pressures add to inflation fears
Staff try to take advantage of employers’ difficulty filling vacancies during pandemic.
Key is the concern about whether we return to 1970’s style inflation spirals. Last week the IMF warned that Central Banks needed to watch the issue very carefully. Some say its just a catch-up and ‘rebalancing of income towards labour after years of rising asset prices and high returns to capital’.
Currently the rises seem reasonable but there is potential for the spiral and it is worth remembering that unlike the Fed who can say that inflation is transitory the man or woman on the street is not usually prepared to endure ‘transitory inflation’ they just want enough money to pay their bills now.
A good read.

Beijing targets news outlet Caixin in media crackdown 
‘The Cyberspace Administration of China (CAC) removed Caixin from a list of more than 1,300 media sources approved for domestic republishing.’
Caixin has often been able to uncover and publish news that no one else could and the crackdown on access to information means that investors are deprived of another useful source of information.
It notes ‘the award-winning publication has built a formidable reputation for investigative journalism and exposés of financial malfeasance, while not shirking from covering companies with links to high-ranking officials.’
‘In a statement, the regulator said authorities must strictly manage “illegal” investigations and reporting and cut off such information at the “source”.’
It would appear that protection of the party is becoming paramount.

Taipei finds hope in Kishida family ties
Taiwan seeks support from Japanese PM’s connections as Chinese assertiveness grows.
An interesting read about a personal connection betweent the new Japanese PM’s family and Taiwan and the hope that might lead to closer co-operation and support.
Personal ties may help but Japan is very aware that China is a key trading partner so relations with Taiwan will have to be approached with care.

Companies & Markets
Blackstone warns on inflation after record results
A good read and key the successful asset manager thinks that inflation is here to stay. I think increasingly more people are less convinced by the Fed’s ‘transitory’ talk.

NHS rubber glove supplier banned by US
Malaysian company Supermax is now subject to a customs order after allegations that it mistreats its workers in Malaysia. It follows Top Glove who was also banned.

Crypto. Hedging strategy
Inflation fears push investors to flee gold for digital currencies
More than $10bn pulled from biggest ETF tracking the metal while bitcoin hits record high.
The role of gold being overtaken by crypto as an inflation hedge; worth noting ‘According to Fidelity’s latest Institutional Investor Digital Assets Study, which surveyed 1,100 professional investors, bitcoin’s lack of close correlation with other asset classes and perceived potential as a hedge against inflation added to its popularity.’
It is also worth noting that ‘More than half the hedge funds surveyed in Europe and the US said rising inflation was a main driver of their attraction to digital assets with nearly eight in 10 of the surveyed investors stating that cryptocurrencies have a place in a portfolio.’
Not everyone is keen on crypto and it has its faults like volatility but it is becoming increasingly popular.

Evergrande punished for collapse of $2.6bn sale
Looks at yesterdays resumption of trading which has been usurped by today’s news that it has made the bond interest payment which was due 23 September and has thus avoided default. It still has difficulties ahead as it needs to raise more cash to make repayments. It also has has to restore confidence in its brand in order to make new sales. Furthermore there are other property developers in trouble and the Evergrande incident is going to make it harder for the whole sector to raise money and sell units in my view. The upside is that good companies will should be recognised by investors.
See also Lex Evergrande: default lines 
Notes that ‘A deeper property slowdown could help margins of other sectors hit by surging raw material prices. Demand for iron ore, steel and cement should fall. This would aid makers of cars, domestic appliances and any business with high construction costs. The risk to them of financial contagion from real estate meltdown remains low.’
I think investors need to remember that under ‘Dual Circulation and Common Prosperity, the aim is to steer money away from property and into advanced manufacturing but changing established norms in China is difficult as the party has found with the one child policy.
News out this morning was that the Hang Seng was rallying hard on the Evergrande payment news and because ave mortgage rates fell in China +VE

Markets Insight
Today’s shortages are revenge of the ‘old economy’  By Jeff Currie global head of commodities research at Goldman Sachs.
Points out that some of today’s shortages are a result of years of under investment. He concludes ‘If policymakers’ goals of broad-based prosperity and a massive buildout in green infrastructure are to be met, commodity prices will need to significantly overshoot to the upside to provide the incentive for investment.
This is needed to compensate for the growing risks involved in long-cycle capex projects and the inherent complexities surrounding the green energy transition. As we argued a year ago, a new commodity supercycle is upon us.’

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