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Market opened lower with the weak Services index and covid concerns and has traded in a tight range a low of 7,500 in the morning and a high of 7,520 in the afternoon. RBA’s Gov Lowe said it was likely the economy would suffer a recession due to the covid resurgence. Miners weak as iron ore prices were weak. News Corp had a strong year with high digital subscriptions stock was +5.6%. ResMed -3% despite good FY revenues and potential to capture market share.
Services Index Jul 51.7 vs 57.8 Jun (F/cast was 58)
Pre market data was weak but market is focused on earnings and despite opening lower the market rallied to 27,889 in early trades. But it was unable to hold and eased back to flat by mid morning. It then worked better into lunch. PM opened higher. Currently +90pts (+0.3%) @ 27,817.
I would expect the market to ease back with caution ahead of results, tonights US payrolls and the market being closed on Monday.
Topix traded in a similar pattern currently +1pt flat @ 1,930
Data out Pre Market
Household Spending Jun -3.2% MoM vs -2.1% May (F/cast was +2.2%)
Household Spending Jun -5.1% YoY vs +11.6% May (F/cast was +0.4%)
Ave Cash Earnings Jun -0.1% YoY vs +1.9% May (F/cast was +2%)
Foreign Exchange Reserves Jul $1386.5b vs 1376.5b Jun
Due Later Coincidence Index and Leading Economic Index.
KDCA announced 1,704 new covid cases (-72 DoD); and social distancing measures to be extended.
Market continues to focus on results. Pharma +VE as government to fund the sector to become a top global producer. Kakao Bank IPO debut strong +VE
Kospi opened higher and tested up to 3,288 but then reversed and sold down to 3,260 level around 11:20am and then worked sideways/slightly better. Currently -10pts (-0.3%) @ 3,267
Kosdaq similar pattern; support at 1,056 and currently -2pts (-0.2%) @ 1,058
Current Account Jun $8.85b vs $10.76b May (F/cast was 12b)
Taiex opened lower and sold down to 17,470 in the first 25 minutes then saw a rebound a trade around the 17,550 level for the rest of the session; currently -40pts (-0.2%) @ 17,563
CSI 300 opened lower with concerns over the covid resurgence likely to slow the recovery. China's National Health Commission reported 124 confirmed COVID-19 cases yesterday (5th), with 80 of them being local cases - VE. Also credit concerns as Evergrande credit rating downgraded. Market initially sold down to 4,910 level. bounced but trended lower into lunch; -36pts (-0.7%) @ 4,912
Data on Saturday Balance of Trade, Exports,Imports, Foreign Exchange Reserves.
Data on the open Monday Inflation Rate & PPI
Pre market opened @ 26,263 +58pts vs +42pts ADR’s but then sold down to test 26,000 support which held and market bounced and worked back to flat by 10am. Then sold down to 26,060 before seeing support and worked back to flat at lunchtime. +2pts unch @ 26,207. Tencent +3.6% seeing a rebound other Ecommerce names mixed. BabyFormula Milk names weak as media calls for more regulatory control. Kuaishou -7% calls for more control over ‘vulgar’ content and unlock of IPO shares. Evergrande -3.9% on credit rating downgrade
Expect market to open lower with no clear drection from Asia and concerns ahead of US nonfarm payrolls.
Germany Industrial Production
France Balance of Trade, Current Account, Private Non Farm Payrolls, New Car Registrations
UK Halifax House Price Index, BBA Mortgage Rate
Opened Dow-24pts, S&P and NDX flat.
Ahead Non Farm Payrolls, Average Weekly Hours, Average Hourly Earnings, Participtation Rate, Wholesale Inventories, Baker Hughes Rig Count.
Earnings: Liberty Broadband, Liberty Media, AMC Networks, Draftkings, Fluor, Gannett, Canopy Growth, Nuance Communiciations, Goodyear Tire
Fire and flood intensify crisis
Highlights the situation in Turkey
Apple plan to scan iPhone images raises fears over bulk surveillance
• Software targets child abuse • US rollout planned • Privacy lobby warns of ‘tectonic’ move.
Looks at the its intention to install software to check for child abuse imagery. Trying to try and apease child safety campaigners and law enforcement whilst also protect users privacy. The worry is that this is a step towards bulk monitoring by governments.
Key will be whether other phone makers follow suit.
India seeks to restore foreign investors’ trust by scrapping retrospective tax Trying to repair its global image after the legislation ensnared companies like Cairn Energy, Vodafone and others. Cairn won a international arbitration award against the Indian govt which it refused to honour. By amending the tax law it hopes to reverse the bad publicity and present itself as being more investible.
China tests Biden with rapid nuclear arms build-up
Concerns voiced that growing arsenal could signal move to a more aggressive posture.
An interesting read about how China’s policy on nuclear weapons has changed. It would appear that Beijing hopes that having a larger nuclear arsenal will enhance the country’s its geopolitical power. The Economist had an article on this subject last week.
US offers haven to Hong Kong residents
The administration saying “This decision to offer safety and protection to these individuals was made based on the ongoing assault on democracy, and rights and freedoms in Hong Kong by the People’s Republic of China,” Sec of Homeland Security said.
“This action . . . makes clear we will not stand idly by as the PRC breaks its promises to Hong Kong and to the international community,” White House press secretary Jen Psaki said.
The action is unlikely to prompt China to make any changes to its policy.
Companies & Markets
Investors try to extract stakes from Chinese tutor start-ups
• Crackdown leads to collapse in value
• Foreign funds seek get-out clauses
An interest read about the funds that had invested into companies that are now not allowed to have foreign owners are seeking to get their money back.
No doubt a lot of foreign investors are reviewing their holdings to ensure that they are inline with Government policy.
Today milk stocks are under pressure as there are calls in the state media for more regulation of product promotions. Other reports say that President Xi’s speeches are being reviewed to assertain if there are other areas that have been referred to in the past.
Sony’s cameras take gold in Olympic photo finish
Mirrorless development brings the shutters down on Canon and Nikon duopoly.
Looks at how Sony made a significant investment in the development of a professional mirrorless camera which has been launched at the Tokyo Olympics with great aclaim. The market was previously dominated by Canon and Nikon and their DSLR camera’s. They have been slow at developing a mirrorless camera’s not wanting to cannibalise their exising business. That reluctance has allowed Sony to develop an clear advantage.
Another positive move for Sony.
Evergrande effort to raise cash called ‘a drop in the ocean’ as pressure rises
With short-sellers circling, focus turns to $82bn of assets acquired outside real estate.
Essentially the company is exploring every avenue for raising finance. The article focuses on the sale of non-core assets to raise cash. But it is also out in the market trying to refinance existing projects. I was sent a term sheet for a refinancing of a bond that becomes due in August, the drawer wasn’t mentioned by name but it was clearly an Evergrande project.
Historically short sellers have not done well against the company which was often able to rely on the help of other tycoons when facing difficulty along with its good party connections. But it appears the landscape has changed.
It notes that in the past the company also pushed into new areas outside its core property development; having recognised that urbanisation had its limits. But in doing so it has increased its debt levels.
'The quality of Evergrande’s fringe assets has come under scrutiny. Its electric vehicles business, of which it owns 65 per cent, has yet to sell a car and operates in a highly competitive sector. Its market value has fallen from $63bn in March to $15bn.'
Many are now saying that its expansion was too aggressive and that it is being compared now with Anbang and HNA. The key difference seems to be that Chairman Hui Ka Yan still seems to be in the party good books. The problem is really the scale of asset sales needed to get its debt levels down to what the government sees as acceptable levels.
The key is really whether its non-core assest have enough value to bail out Evergrande and with people realising its effectively a forced seller it doesn’t have much of a negotiating position, hence why the term sheet I was sent did not have the drawers name.
If it manages to reduce its debts and survive it will clearly be a very different company going forward but you have to wonder; if it was diversifying because it did not beleive in continued urbanisation in China, why it doesn’t consider exiting the development business and favour one of the alternatives. I would imagine that is because all the sectors that it has dabled in are highly competitve too.
Retail traders hunt China bargains in focused funds
Looks to try and explain the recent inflows into funds that track Chinese stocks. Suggests that retail money is replacing institutional funds. It mentions that ‘Analysts cautioned that some of the recent influx of new cash could be the result of technical factors. Investors placing bets against ETFs can prompt inflows because the party on the other side of the trade often needs to purchase the shares, said Bartolini.’
An interesting read it is difficult to see why retail would be more inclined to Chinese funds at a time when most of the headlines are about regulatory uncertainty but it will be worth watching.
For interest Opinion
Could the Fed’s digital currency displace crypto? By Gillian Tett
An interesting read about the seriousness of the Fed’s investigation into the digital currency world.