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Market opened higher but saw resistance at 7,280 in the first ten minutes and then trended lower for the rest of the morning. Around midday it sold down in the red. Some support at 7,220 but only short term and then the market sank to 7,190 level before seeing a bounce. Currently -45pts (-0.6%)@ 7,203
Tech and Energy +VE but Financial and Travel weak
NewZealand raised rates to 0.5% raising concerns of more rises ahead
Nikkei opened higher and traded up to 28,200 in early trades following the rebound overnight in US Tech but then revesed and sold off down to 27,290 level before a slight bounce into lunch.
PM opened lower and trading around 27,400 level
Topix traded in a similar pattern -14pts (-0.7%) @ 1,934
Inflation concerns after the S Korean inflation data and rising energy prices.
Leaders Miners, Oil, Pulp&Paper and Utilities
Laggards Airlines, Shippers, Auto and Pharma
Pre market inflation data was higher than expected -VE
Foreigners continued sellers especially in Tech. Local Institutions and Retail quiet. Broadbased selling.
Insurers and Internet seeing some interest
Kospi opened higher following the US initially dipped to 2,980 but bounced to 2,993 in the first hour before selling down to 2,920 by midday. Currently -42pts (-1.6%) @ 2,916
Kosdaq traded in a similar pattern -28pts (-2.9%) @ 928
Inflation Rate Sept +2.5% YoY vs +2.6% Aug (F/cast was +2.4%)
Inflation Rate Sept +0.5% MoM vs +0.6% Aug (F/cast was +0.4%)
Taiex opened higher and tested 16,550 in early trades but then reversed down to 16,370 level before bouncing back to flat, only to sell down again to 16,350 and then trade sideways. Currently -101pts (-0.6%) @ 16,363.
Leaders Energy, Consumer Staples and Utiilities
Laggards Industrials, Tech, Healthcare
After market we get Inflation Rate, Wholesale Prices
Market closed re-opens Friday
Pre market opened @ 24,259: +155pts vs +19pts ADR’s Led by ECommerce and HSBC but sold down to 23,810 in the first 30 minutes. Then traded sideways until around 11am when Carrie Lam started her policy speech and worked slightly better into lunch
Key being a new 300sq km town near the border; which will take around 10years; having minimal impact on the HK developers today
Currently -114pts (-0.5%) @ 23,991
Leaders Energy, HK Developers, also +VE HSBC and BABA
Laggards Consumer, Tech and Chinese Developers
Futures indicate a lower open FTSE -40 points at 7,039, DAX -103 points at 15,092, CAC 40 -42 points at 6,530 and Italy’s FTSE MIB -175 points at 25,453, according to IG data.
Opened Dow +55pts, S&P and NDX +0.1% but have reversed and now Dow -113pts, S&P and NDX -VE
Gas squeeze hits bonds as investors fear wider damage
• European prices soar 23% to record
• UK gilts hit hard amid winter fears
Notable that Russia continues to only supply contract amounts whilst Norway has increased supplies. The concern being that Russia is seeking to have the Nord Stream 2 route adopted which would undermine Ukraine. The significant increase in demand underlines the pressure on supplies as governments move away from coal fired power stations to alternative sources.
Short term this is adding to inflation concerns and the potential for stagflation; something that is getting increased coverage recently.
See Central banks haunted by fears of stagflation
Fed and BoE reach for the rates lever but BoJ and ECB decide to sit tight
Facebook chose to target engagement at users’ expense, whistleblower says. The testimony comes as Facebook also suffered a huge outage. This is further garnering bipartisan support for tightening control over Facebook and other social media platforms.
Shoot for the stars Mission possible as Russian film-maker makes space his set. Looks at how the film maker is making history by film part of a film in space. Taking space travel to a new level but it does make you wonder whether the money could be better used?
US and China senior officials to hold talks
Biden’s national security adviser to meet Beijing’s top foreign policy aide.
A slight positive for the relationship between the US and China that has been on a frosty footing for sometime and it suggests that this could result in a virtual meeting between Xi and Biden.
It is not revealed who made the first move but it could mean that China is coming under increased pressure with commodity prices rising as global and Chinese growth slows.
Seoul plays ‘shy girl at prom’ as US corrals allies to counter China
Country struggles to adopt a course acceptable to both Washington and Beijing.
Whilst it has economic might its proximity to China combined with China’s influence over North Korea puts it in an awkward position. It also has experienced China’s displeasure, when it accepted a US missile defence system in response to missile threat from N Korea. That resulted in a number of its companies being forced out of doing business in China. It notes that S Korea’s ‘military build-up was driven as much by fear of US abandonment and suspicion over the long-term intentions of Japan as by any desire to join Washington’s efforts to confront China.’
It’s summary is that S Korea has similar intentions as those of the US and Quad countries but would prefer to follow its own path.
Companies & Markets
Semiconductor squeeze points to radical rethink of supply chains
Looks at the difficulties of governments trying to control supply chains. Companies are now looking to make their supply chains more resilient and are adding suppliers. But underlying the current shortage seems to be the fact that it takes huge investment and time to increase the supply capacity. In that regard it seems the industry has been caught out by the significant increase in demand from many diverse industries. It also notes that ‘The supply-chain spasms could also incentivise manufacturers to move away from a production footprint overly concentrated in one country. This would inadvertently help bring about the decoupling of supply chains from China that the US government has long pursued.’ That may be true but a bigger issue is that most of the chips made in China are not at the cutting edge of design but use older technology.
There is the influence of design to be considered too and the fact that new chips are being designed to meet new requirements or to be able to do more.
One thing is clear and that the solution will be costly and take time.
Read also Chip order tally points to record output for carmakers
Beijing’s property sector crackdown casts shadow over London projects
Chinese developers curbed by ‘three red lines’ as high-end flat sales slow and pandemic takes toll.
Looks at how the Chinese developers have struggled to make a success of home building in the UK market; despite a lot of investment by Chinese and HK buyers.
Nice quote “Most mainland Chinese developers I’m aware of that have come to the UK have had pretty disastrous results,” said the boss of a big London homebuilder. They had “paid an awful lot for the land, struggled with construction costs and really struggled with sales”.
I think a key point to consider is that pre sales in the UK are less common than in Asia. Finding the skilled labour needed to build the tower blocks is not as easy as in China and the as the quotes says; costs have been higher too.
Worth a read. It concludes ‘R&F and CC Land were only able to buy the Nine Elms site in 2017 after Dalian Wanda pulled out. The next wave of investors are now facing their own challenges.’
An interesting read.
Fears mount as Fantasia fails to repay $206m bond
Concerns are rising that more property companies are facing difficulties and that will impact the Asian bond markets. The big problem seems to be the control of selling prices. Developers are not allowed to sell below a certain price because that would undermine earlier purchasers but in doing so they are removing the normal market clearing mechanism.
The situation is made worse by the fact that many of the units have been pre-sold that reduces the incentive for other developers to buy in or take over projects.
Whilst everyone is hoping for a controlled unwinding of the situation the potential downside I think remains huge and as Bloomberg has reported we probably don’t know the full extent of off balance sheet debt.
It quotes Dickie Wong head of research at Hong Kong-based Kingston Securities who says “There’s nothing investors can do . . . the worst is yet to come,”. I think he’s right.
LEX Evergrande: suspension of disbelief looks at how Chinese companies often use the suspension of their shares as a circuit breaker in the hope of stabilising the share price.
It concludes ‘Many investors, aware that suspensions can lock them into a cratering asset, will exploit first-mover advantage to sell while trading goes on.’ well worth a read
Read also Opinion Threats from China’s real estate bubble
Property’s great boom has reached its limit — the economy now needs new drivers of demand By Martin Wolf
Makes the point that China needs a new driven of growth. Not mentioned but Xi has outlined how he wants the new driver to be advanced manufacturing and domestic consumption. Martin Wolf suggests China should be able to prevent a financial crisis but that is not certain and there are risks to local government finances and the banks, not to mention the ordinary people who have put their savings into property.
He concludes ‘Crises are also opportunities. The Chinese government is well aware that the great investment boom in property has gone far beyond reasonable limits. The economy needs different drivers of demand. Since the country is still relatively poor, a prolonged economic slowdown, such as Japan’s, is unnecessary, especially when one considers the room for improved quality of growth. But the model based on wasteful investment has reached its end. It must be replaced.’
US-focused ETFs at mercy of revenues from China
Funds invested in American businesses still rely on sales in the second-largest economy.
‘Up to a quarter of the revenues generated by the constituent companies of exchange traded funds focused on US stocks are derived from sales to China, according to Bank of America research.’
An interesting read and underlines how coupled economies are.
China unloads Australian coal imports in apparent loosening of trade embargo Underlines the impact of the power shortage in China.
It notes ‘Yesterday, China’s banking and insurance regulator called on financial institutions to increase their risk tolerance for loans to coal plants “to ensure that the people live warmly through the winter”. It also banned banks from withdrawing loans to plants and mines that were otherwise in compliance.’
Japan stocks stumble on new premier’s tax rise talk
‘Japanese stocks suffered a “Kishida shock” sell-off yesterday as foreign funds and retail investors bet the country’s new prime minister would step back from efforts to make the third-biggest economy more shareholder-friendly.’
An interesting read about the reaction to the new Japanese PM; all of which could make the forthcoming general election more interesting. That could impact the leadership of the LDP who chose him over the more popular Taro Kono.
Biden’s China trade policy lacks ambition
US retreat from shaping global system could hand Beijing a victory
A good read that outlines how, whilst Biden is prepared to work with its allies in confronting China on defence and security it seems to be avoiding the economic dimension.