Oct 29 Asia weak after Apple's warning. FT China Fuel Crisis & Climate, Japan elections and more.

29 Oct

This and previous notes can be found at  Substack ( Asian Market Sense )
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Asia earnings deluge in Japan & Hong Kong and companies reporting in other countries too, combined with month end as markets grow increasingly worried about inflation not being transitory and supply chain bottlenecks adding to the inflationary pressures.
Adding to that concerning numbers from Apple and Amazon and the expectation of selling by Pension companies as they rebalance for end of month. The election in Japan also a concerns and whilst the LDP are expected to win there are concerned about a reduced majority. The RBA worried Aussie investors by again not acting to defend yield target.

Market opened higher inline with futures but sold down in early trading.  Energy and Mining names weak as prices fall.  Banks weak. Concerns about RBA not announcing any purchases to defend the Bond Yield target hurting market sentiment Currently -74pts (-1%) @ 7,356
CSL +1.3% and Res Med +5% after good earnings.
HT&E +32% on settlement with Tax office. Seven West Media +6% as debt renegotiation seen as +VE.
Vulcan Energy -15% (off early lows) as it resumed trading after addressing allegations made in the J Capital report on Tuesday.
Retail Sales Prelim Sept +1.3% MoM vs -1.7% Aug (F/cast was -0.9%)
PPI Q3 1.1% QoQ vs 0.7% Q2 (F/cast was 1.4%)
PPI Q3 2.9% YoY vs 2.2% Q2 (F/cast was 2.5%)
Private Sector Credit Sept 0.6% MoM vs 0.6% Aug (F/cast was 0.5%)
Private Sector Credit Sept 5.3% YoY vs 4.7% Aug (F/cast was 4.9%)
Nikkei opened flat saw an initial uptick but trended lower to 28,475 by mid morning following the Apple/Amazon warnings and in reaction to recent Japanese earnings reports and maybe the weekend election. But rebounded to flat at lunchtime.  PM opened higher currently +76pts (+0.3%) @ 28,896
Topix traded in a similar pattern currently flat at 2,000.
Laggards Utilities, Property, Retail and Banks
Other sectors flat, slight +VE
Data pre market
Unemployment Sept 2.8% vs 2.8% Aug (F/cast was 2.8%)
Tokyo Core CPI Oct 0.1% YoY vs 0.1% Sept (F/cast was 0.3%)
Tokyo CPI Oct 0.1% YoY vs 0.3% Sept (F/cast was 0.4%)
Jobs Ratio Sept 1.16 vs 1.14 Aug (F/cast was 1.14)
Industrial Production Prelim Sept -5.4% MoM vs -3.6% Aug (F/cast was -3%)
Industrial Production Sept -2.3% YoY vs 8.8% Aug (F/cast was 7%)
Due 1pm HK time
Consumer Confidence, Housing Starts and Construction Orders.
S Korea
Foreign and local Inst selling with general selling of large caps.
Pharma weakest, Celltrion -6.2% currently. Insurance -VE. Recent laggards E&C and Cement slight +VE. Watch for end of month market on the close.
Earnings still in focus along with regional moves.
Kospi opened higher but sold down in the first hour to 2,990 level and then traded sideways; currently -19pts (-0.6%) @ 2,992
Kosdaq traded in a similar path currently -2pts (-0.2%) @ 998.
Data pre market
Business Confidence Oct 90 vs 90 Sept (F/cast was 97)
Construction Output Sept -8.4% vs -0.1% Aug revised (F/cast was-3.8%)
Industrial Production Sept -1.8% YoY vs +9.7% Aug revised (F/cast was +2.9%)
Industrial Production Sept -0.8% MoM vs -0.7% Aug (F/cast was -0.6%)
Manufacturing Production Sept -1.9% vs +10.2% Aug (F/cast was +3.2%)
Retail Sales Sept +3.7% YoY vs 3.8% Aug (F/cast was +0.9%)
Retail Sales Sept +2.5% MoM vs -0.8% Aug (F/cast was -0.5%)
Taiex opened flat but sold down to 16,920 in the first 30 mins in reaction to the Apple/Amazon warnings and caution from some local firms. From 9:30am the market worked slowly better currently -45pts (-0.3%) @ 17,000
Data due after market GDP Growth Rate.
CSI 300 opened slightly lower and traded around flat for the first hour before working better in choppy trading but seeing resistance around the 4,880 level. Looks like ‘Team China’ supporting the market as Government expected to to further intervene in coal and fuel pricing. Reports of petrol/diesel rationing not good for social stability going into the winter.
Concerns over growth, inflation and covid overhang the market.
No data due but on Sunday Manufacturing and Non Manufacturing PMI.
Hong Kong 
Pre market opened @ 25,467 -89pts vs +14pts ADR’s and sold down following the regional weakness on the Apple/Amazon warnings and in reaction to local earnings. Market then gradually worked better in choppy trading but saw resistance at 25,500 and sold down to 25,380 before rebounding and traded sideways around 25,440 level into lunch.
Insurance sector weak after poor numbers from Ping An and China Life, BYD also weak after poor results due to chip shortages. Petrochina +VE on good earnings.
Another large day for reporting but T/O remains at recent levels.
Markets I  expect to open lower following the Apple/Amazon comments and with a mixed handover from Asia.  Plus caution ahead of economic data and more earnings; Daimler, Phillips and BNP Paribas amongst those reporting.
Eurozone Inflation and GDP Growth data.
Germany GDP Growth Rate
France GDP Growth Rate, Inflation Rate.
UK Nationwide Housing Prices, BoE Consumer Credit, Mortgage Approvals and Net Lending to Individuals
US Futures
Opened  Dow flat but S&P 500 futures -0.3% and Nasdaq 100 futures -0.6% after Amazon and Apple warnings.  Dow futures dropped to -23pts S&P and NDX still -VE
AHEAD Personal Income & Spending, Employment Cost Index, PCE & Core PCE Price Index, Chicago PMI, Michigan Data Final (Consumer Sentiment, 5 yr Inflation Expectations, Consumer Expectations, Current Conditions and Inflation Expectations) and the Baker Hughes data.
Earnings: Chevron, AbbVie, Colgate-Palmolive, Lazard, Booz Allen Hamilton, Weyerhaeuser, Church and Dwight, CBOE Global Markets, Newell Brands, W.W. Grainger, Cerner, Aon, Charter Communications,  Eni,

Front Page
ECB quells talk of rate increase.
Lagarde rebuts increasing market expectations of increased interest rates next year. She says the ECB’s analysis doesn’t support that expectation, saying the pressures they see are only short term. ‘Inflation, expected to hit 3.7 per cent in the eurozone this month, would take longer to start falling than first expected but should fall below the ECB’s 2 per cent target by 2023, Lagarde said.’
As ever the question is; are they right. Are they making the right assumptions.
Inside Lagarde rejects expectations of ECB tightening
Bank chief admits to ‘soul searching’ on inflation as markets bet on rate rise

Climate summit clouded by main polluters’ refusal to tighten targets
• India dismisses ‘goalpost shifting’ • China’s goals unchanged • Both nations cling to coal
The position of India and China seem to be more realistic in terms of actual energy requirements today. They are acknowledging that currently alternative energy sources are not sufficient or reliable enough to replace fossil fuels.
The Big Read Can India kick its coal habit?
Despite pressure to set climate targets, soaring power demand means New Delhi will still depend on the fossil fuel. Some critics, however, believe the country is adding more coal-fired generation than it needs.

Biden hails progress in talks with top Democrats over $1.75tn spending deal
Shows the fragile nature of US politics and the difficulty in trying to reshape the US economy because of the mood of members of his own democratic party.
I would guess that many ordinary people in the US are happy with the package being financed by the better paid people in their society. We have even heard the likes of Ray Dalio saying he would be willing to pay more tax if it was going to be well spent. Many I am sure feel that this spending would be money well spent.

Japan’s new PM gambles on quick poll victory
Ruling Liberal Democrats seek mandate for plans to revive stagnant economy but struggle to project different image.
Looks at this weekend’s election which is expected to be close as the opposition parties have in many cases agreed to put forward just one unified candidate rather than splitting the opposition vote.  They may also benefit from the public’s disappointment with the appointment of PM Kishida; who whilst the he was the party’s choice, he lacks public support and hence the LDP may see some ‘punishment’ voting where normally loyal LDP voters support the opposition.

China fuel price surge heightens energy crisis
Looks at how government efforts to stabilise the situation are playing out; ‘volatile coal prices have been complicated by a surge in wholesale petrol and diesel costs, forcing filling stations to ration fuel.’ Today the NDRC has said on its official WeChat page that coal prices could fall further.
The situation has had a knock on effect to gas and diesel prices items that will further hurt individuals and businesses raising the chances of inflation and raising doubts about the strength of the recovery.
The fact that Beijing controls both the coal prices and the prices that the independent power providers (IPP’s) charge complicates the situation. Because if coal prices rise the IPP’s margins are squeezed or they just cut back causing shortages.
It seems very likely that the shortages combined with Beijing’s Blue Sky Policy for the Olympics is going to result in power rationing, hurting industry; especially the steel and other non-ferros metals.

Companies & Markets
Samsung gains profit boost after surging chip demand

Highest quarterly profits in 3 years thanks to surging demand for its products. But it like Apple overnight warned that component shortages may affect sales in the holiday period and into 2022.
It expected home-appliance sales to ease but is hoping smart-phone sales will increase.
In addition to the component issues the company still faces legal issues as it’s group leader still faces another trial.
See Lex Samsung: chipping in 
‘Local sales of the flexible phones recently hit the 1m mark. Since its launch two years ago, it has had the fastest take-up of any Samsung smartphone despite a price tag of about $2,000.
Its latest $999 model has broken a key psychological price barrier. This trend, plus normalising supply chains, should provide investors with a good buying opportunity.’

Regulators target DeFi with global standards
By applying anti-money laundering regulations to ‘creators, owners and operators of decentralised finance services’ the Financial Action Task Force, or FATF, has urged national regulators to apply standards to individuals who “maintain control or sufficient influence” over DeFi apps, it said in a report. Effectively a first step in trying to bring the sector under regulatory control. The problem remains that FATF lacks enforcement powers.
Highlights the need for new global regulatory powers.

Traders bet on ethereum price surge from mooted ETF approval in 2022 
Following the seeming approval of Bitcoin as the US allows a futures based ETF then next is expected to be Ethereum which in many ways is more useful and practical crypto currency.
Worth a read. Also worth noting Ether just upgraded to be more energy efficient and a faster network.

China needs to learn lessons from Japan’s 1990s collapse by Robin Harding
Notes the differences in circumstances between the two and why the outcome could be different if China heeds the lessons.
1. Japan was richer in 1990 than China is today. That meant Japan had little scope to grow richer but China still has scope to get richer. Moreover urbanisation in China is still lagging that seen in Japan.
2. Policy differences Japan was in a trade argument with the US and agreed on the Plaza Accord ‘which led to a sharp rise in the yen, a mild recession and then a period of low interest rates.’ Low rates fuelled a boom which combined with financial deregulation prompted the banks to lend and everything in Japan rallied to highs until it burst.
China has been at times stoke the property sector but also sought to release the pressure at times and has been strict recently in ensuring the bubble does not burst'; like the three red lines earlier this year.
3. Similarities; Aging populations with the number of workers declining. ‘In both cases, a development model based on extremely high levels of investment and accumulation of physical assets hit the point of diminishing returns.’
China has a many homes as it needs but the economy relies on the sector for a significant part of national growth.
The key is that China will need to accept lower growth that is achievable, Japan tried to carry on regardless. He concludes ‘The longer China hesitates to learn that hardest lesson, and accept a lower level of growth, the greater will be its ultimate pain.’
I think President Xi has already grasped that and hence the moves to Dual Circulation and Common Prosperity; my concern is whether in his rush for change he creates social unrest. That would be equally bad for China.

For Interest
Investors are warming to clean-power promise of nuclear fusion
Looks at the sector that seems tantalisingly close to solving the worlds power needs.

Lex Airlines: slot machine
Slot allocation at capacity-constrained airports is a source of constant discord
‘Slots are, in effect, free — though airlines invest in accompanying infrastructure and marketing services.
But a secondary market gives a glimpse of their inherent value. Air New Zealand last year sold its slot at London Heathrow for $27m. Kenya Airways sold a pair of slots at the same airport to Oman Air in 2016 for a reported $75m.
Industry body Iata argues that the global, connected nature of flights rules out alternative means of allocation.
But it is worth persevering. Auctions work in other areas, like spectrum allocation. At the very least, they beat sending ghost planes up in the air.’
An interesting read. Also interesting to note that whilst economy fares have dropped significantly on a lot of routes Business class fares are a pre pandemic levels.

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