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Asia generally weak with concern over Treasury yield movements and the forecast for inflation. Earnings in focus with very mixed results; with many investors prefering to remain on the sidelines.
Market tested lower in early trades with weakness in Energy and Iron Ore names but Gold slightly higher. ANZ reported bumper numbers on home loan boom but outlook less clear but that helped the market rebound. Market worked better through the morning to 7,450 level but then sold down in the PM to test 7,400 level before bouncing
Concerns at the Aussie 3 year bond yield rose to 1.1% as the RBA held back from buying April 2024 debt inthe
Fortecue released a Q1 update showing record iron ore exports but it kept its FY export forecast unchanged.
Export Prices Q3 +6.2% QoQ vs +13.2% Q2 (F/cast was +10%)
Import Prices Q3 +5.4% QoQ vs +1.9% Q2 (F/cast was +2.3%)
Retail Sales Sept -0.6% YoY vs -3.2% Aug (F/cast was -2%)
Retail Sales Sept +2.7% MoM vs -4% Aug revised from -4.1% (F/cast was 1%)
Department Store/Supermaket Sales Sept -1.3% vs -4.7% Aug (Consensus -3.3%)
Yen slight strengthening. Volumes increasing.
Nikkei opened lower at 28,871 and traded in a tight range. Initially dipped to test 27,740 and bounced, tested again and then trended better to test 28,900 but sold down into lunch. PM opened around 28,800 and working higher.
Topix opened lower tested 1,990 in early trades then worked better to 2,003 before easing into lunch. PM trading around 2,000 level ahead of the rebalance in the close.
Weakness in stocks with poor results; like Fanuc, Fujitsu, and Dainippon Sumitomo Pharma whilst Screen leading the gains. Another large day for earnings. Retail data a slight +VE but overwhelmed by the earnings data.
BoJ out at the start of the lunch break; no real changes but lowered their CPI forecast for FY 2021 to zero from +0.6%.
Ahead the Topix rebalance on close.
Leaders Airlines, Chemicals, Other Products
Laggards Miners, Oil/Coal, Iron/Steel and Insurers.
Foreigners & Local Insts small net sellers.
Insurers weak as US treasury yields ease to a 2 week low with the T2ys under pressure. Banks firm on solid earnings. Tech firm as SK Hynix rallies. Recent leader Entertainment taking a breather. KIA +VE on share buyback (buying by Foreigners and Local Insts). Earning in focus.
Kospi opened lower but trended higher in the first hour in choppy trading to test 3,035 but then eased back and around over the next hour with support at 3,030 but then just after 11am sold down to 3,020 only to then work back. Currently +5pts (+0.2%) @ 3,032
Kosdaq choppy trading during the morning between 1,011 and 1,006. Worked better since midday, currently +2pts (+0.2%) @ 1,011
Taiex opened flat tested lower to 17,050 in early trades then rebounded to test 17,100 but failed to break out and trended lower some brief support at 17,020 but currently -75pts (-0.5%) @ 16,997
Cross straight tension hightened as President Tsai confirmed the presence of US troops in Taiwan and China saying it will punuish the Czech Republic for recognising Taiwan but Taiwan is seeing more international support and the US has pushed for more countries to support its admission into the UN.
Earnings in focus along with concerns about the slowdown in China. Weakness in Energy, Materials and Tech.
CSI 300 opened lower and tested down to 4,875 in early trades. Spiked to test 4,890 at 10:15 but sold back down again. Worked back to 4,890 before easing back into lunch. Continued concerns over the property sector with Kaisa being flagged as the latest risk with downgrades from S&P and Fitch.
Comes as Beijing says it will extend the preferable tax treatment for overseas investors in its bond market. PBoC continues to inject liquidity with another 100bn yuan today.
Cyclicals weak as Beijing’s bluesky policy ahead of the Olympics expected to hurt Iron ore prices other metal stocks weak too. Coal futures weak as Government intervenes; press mentions increased imports from Russia and Indonesia with Australia still banned.
Pre market opened @ 25,648 +20pts vs -159pts ADR’s with strength in Ecommerce names. Li Ning -7% after placement. PingAn -3.8% on disappointing earnings. HSBC also pulled back. Initial margin call selling but then rallied to 27,735 but unable to hold sold down to test flat, retested 25,700 but again failed and sold down to 25,550; traded around there before working better into lunch. +14pts (+0.1%) @ 25,651
Small manufacturers slight +VE to be allowed to delay taxpayments
Leaders IPP’s, Beer, Aviation, HK Property
Laggards Coal, Materials, Steel, Auto, Education
Expect market to open lower following weakenss in Asia with caution ahead of ECB decision. No change expected but Lagarde expected to say too early to withdraw stimulus raising concerns about the strength of the recovery.
Ahead Eurozone Sentiment Data (Economic, Industrial & Services) and Consumer Confidence along with the ECB interest rate decision.
UK Car Production
Opened slightly higher Dow +50pts, S&P and NDX +0.1% but have eased slightly Dow +45pts S&P and NDX both slightly +VE
AHEAD GDP Growth Rate, Initial, Average and Continuing Claims, Core PCE and PCE Prices, Pending Home Sales, EIA Natural Gas Report, Kansas Fed Manufacturing Index.
Earnings: Apple, Amazon, Caterpillar, Comcast, Merck, Northrop Grumman, Altria, Intercontinental Exchange, Sirius XM, Yum Brands, American Tower, Gilead Sciences, Starbucks, Molson Coors, T. Rowe Price, Airbus, Anheuser-Busch InBev, Sanofi, STMicroelectronics, Volkswagen, Royal Dutch Shell, Stanley Black & Decker, AllianceBernstein, Check Point Software, Brunswick, Oshkosh.
UN steps up hunger alert
The UN has called the situation in Afghanistan “the world’s largest humanitarian crisis”, with widespread hunger and a growing terror threat since the Taliban takeover in August.
Inside other articles look at the threat from and within Afghanistan.
Pentagon chief admits alarm over China’s hypersonic weapon tests
• Milley confirms flights • Event likened to ‘Sputnik moment’ • Concerns in Congress
Loeb’s Third Point fund seeks to split Shell into legacy and clean energy arms
Key being that he feels the company is being held back by an incoherent strategy. Comes after a court in The Hague ordered the Anglo-Dutch group to accelerate plans to cut greenhouse gas emissions. It also follows an activist campaign run by a hedge fund against Shell’s US rival ExxonMobil.
I think the key is that many of these companies have paid lip services to turning green whilst paying millions to lobbiests to try and slow or reverse the move away from fossil fuels and that was particularly evident in the Trump era. That has now changed and the idea of splitting the company makes sense.
Isis-K jeopardises Taliban grip on Afghanistan
Islamic militants attract disaffected fighters and carry out murderous attacks in pursuit of cross-border caliphate
Looks at the turmoil that currently exists as the Taliban seek to establish control. Isis-K is more radical than the Taliban and seeking a a wider Islamic caliphate across Afghanistan, Pakistan and parts of India and Iran.
An interesting read that highlights that peace is not going to come anytime time soon and those countries surrounding it will remain on edge. It is also going to make it difficult for China to protect its interests in the country which could impact its Belt and Road plans.
See also Pentagon warns of attack on US in months
It is warning that Islamist extremists operating in Afghanistan could attack America
Companies & Markets
Xi purge costs Evergrande boss $25bn
China rich list shows Hui’s personal fortune has shrunk nearly 70%
An interesting read but I doubt those on the list are worried. It also notes that “Half of this year’s list are new faces compared with five years ago, showing the dynamism of China’s private sector,” Hoogewerf said. “New sectors and business models are changing the landscape.”
It gives an insight into why President is seeking to bring in ‘common prosperity’ and the question is whether the up coming entrepreneurs will be enabled and incentivised in the same way that many have been over the recent past. The regulatory changes suggests that new start ups will no longer be able to profit from the overwork of individuals in the same way that a number of the Ecommerce firms were able to do so.
Food & beverage
Heineken hit by return of Asian lockdowns
Asian lockdowns hit sales significantly, especially in Vietnam, Cambodia, Indonesia and Malaysia. It also noted that ‘beer sales in Singapore, South Korea and Laos were back above pre-pandemic levels, said Heineken, which also brews the Amstel, Sol and Tiger brands.’
Watch for the earnings from Anheuser-Busch InBev today, to see if it is seeing the same.
China internet stocks rebound this month on hopes worst curbs are over
An interesting viewpoint but there is still uncertainty about future policy as well as the impact of events outside China; like the FCC forcing China Telecom to close its US business. Equally it is important to recognise that Beijing will no longer allow the Ecommerce companies to abuse workers in terms of working hours and benefits. It is more likely, going forward, that Beijing will more closely regulate how they operate and the profits they make. That could mean higher wages/benefits for the workers or the requirement for ‘contributions’ to government projects.
Beijing urges developers to pay offshore debts in run-up to Evergrande deadline
The National Development and Reform Commission (NDRC) calling on companies to get their books in order so that they can pay their offshore debts. It is worth noting that they are not offering assistance but making it clear what the government expects.
The issue for China I think is that the developers have built up significant offshore debt due largely because China would not allow the developers to raise money on-shore to finance their rapid expansion over the past 10 years. Going forward China is likely to need to be able to raise off-shore money to finance its move into advanced manufacturing and technology and so it cannot afford from the property sector debts to queer the market or raise the ‘China premium’ to a level were it is effectively untenable.
It also acknowledges that most people expect Evergrande to struggle to repay its debts if the government doesn’t help. But it is difficult to beleive that the government will do anything as it seeks to move the economy away from property dependence to drive the economy. It is interesting that yesterday saw a call on the founder to use his own money to help the company. Outside that the government might put pressure on him to sell assets to other developers but as seen recently the problem is likely to be agreeing the value of the assets.
Electrolux warns of price rises after profits fall
Worth noting ‘Price increases compensated for rises in raw material costs but not higher prices for logistics or electronic components, the group said.’
That would suggest that shippers and the electronic sector will continue to see good numbers in the short term.
Crypto. Regulatory worries
Token named after Musk’s dog aims to mark territory in UK
Floki is being promoted with a full-scale marketing ‘assault’ on London transport network.
The digital token is undertaking a big marketing campaign which promote the coin but give little insight into its purpose and is likely to raise concerns about the direct marketing to retail customers.
Sometimes it is easy being green (and lucrative) By Brooke Masters
Effectively makes the point in the current time of cutting carbon emissions etc one way to help is to ensure that we use our current energy better and waste less.