June 1FT Thoughts China babies & covid, Inflation in Europe, US jobless..reasons


01 Jun

This and previous notes can be found on substack Asian Market Sense
Check out ERI-C.com  for your research needs

Asian markets at 12:45pm HK time
FTSE Bursa Malaysia KLCI Index -0.2% after Malaysia on Monday announced an additional 40 billion ringgit (about $9.7 billion) stimulus package, just hours before stricter lockdown measures to curb the Covid spread in the country kicked in.
Oil trading higher in Asian time
Australia
Market opened lower after mixed pre market data and trended lower on mixed data.  Found support at 7,120 and then worked better to 7,145 ahead of the RBA interest rate decision.  -19pts (-0.3%). Laggards were Banks and CSL.  Leaders were iron ore miners BHP, Rio Tinto, FMG and Woolies
Pre Market Data
Manufacturing Index May 61.8 vs 61.7 Apr (F/cast was 62) Manufacturing PMI May 60.4 vs 59.7 Apr (F/cast was 59.9) Building Permits Apr -8.6% MoM vs +18.9% Mar (F/cast was -6.5%)
Business Inventories Q1 +2.1% QoQ vs -0.1% Q4 revised (F/cast was +0.3%)
Company Gross Profits Q1 -0.3% QoQ vs -4.8% Q4 revised (F/cast was +4.9%)
Current Account Q1 A$18.3b vs 16.08b Q4 revised (F/cast was 17b)
RBA Interest Rate Decision unchanged.
Japan
Nikkei opened higher and tested to 29,050 in initial trades before selling back to 28,850 bounced but then sold down to 28,700 bounced but dropped again into lunch.  PM  opened higher and trading sideways;  currently   -104pts (-0.4%) @ 28,756
Topix traded in a similar pattern currently -2pts (-0.1%) @ 1,921
Data
Capital Spending Q1-7.8% YoY vs -4.8% Q4 (F/cast was -6%)
Manufacturing PMI May 53 vs 53.6 April (F/cast was 52.5).
S Korea 
Kospi opened slightly higher after mixed trade data, dipped into the red but then rallied to 3,230 level and traded sideways 3,220/233 for a couple of hours but then eased lower to trade 3,212/220 currently +14pts (+0.4%)@ 3,218
Kosdaq Initially sold down to 979 before bouncing back and traded 984/981; currently +0.5pt (+0.05%) @ 982
Data
Balance of Trade May $2.93b vs 0.4b Apr revised from $0.39b (F/cast was $3.2b)
Exports May 45.6% YoY vs 41.1% Apr (Consensus was 48.5%)
Imports May 37.9% YoY vs 33.9% Apr (Consensus is 40.5%)
Due 8:30am HK time Manufacturing PMI May (Apr was 54.6 F/cast is 54)
KDCA reported 459 new covid cases Tuesday, while health authorities are easing distancing rules for vaccinated people to speed up the inoculation drive. (Third day in the 400’s)
Taiwan 
Taiex opened higher 17,100 and rallied to 17,184 in early trades and then tested down to 17,078 around 9:40am. Then traded sideways 17,080/17,125. Seems to be rallying into the close currently +79 pts (+0.5%) @ 17,147
Data
Manufacturing PMI May 62 vs 62.4 Apr (F/cast was 62)
China 
CSI 300 opened lower @ 5,320 drifted lower for the first 45 mintes but then sold off to 5,280. Spent the rest of the morning working back. Closed at lunch -6pts (-0.1%) @ 5,325
Data
Caixin Manufacturing PMI May 52 vs 51.9 Apr (F/cast was 51.7)
HK Pre market opened @ 29,159  +7pts  initially dipped to 29,036 but then worked better through the morning to 29,330 before easing back into lunch +124pts (+0.4%)@ 29,276
E-commerce names firm along with Tech and Consumer names.
Chinese financials weak.
Europe
Ahead
EUROZONE 
Manufacturing PMI, Core Inflation Rate, Inflation Rate, Unemployment  
GERMANY Manufacturing PMI, Unemployment data
FRANCE Manufacturing PMI, New Car Registrations
UK Manufacturing PMI, Nationwide Housing Prices 
US Futures
Opened Dow -48pts, S&P -0.15% and NDX -0.1% and have eased slightly Dow -35pts, S&P -0.09%, NDX -0.03%
Ahead 
Manufacturing PMI, Construction Spending, IBD/TIPP Economic Optimism, ISM Manufacturing Data (PMI, Employment, New Orders, Prices) Dallas Fed Manufacturing Index, Logistics Managers Index Current, Total Vehicle Sales (after market).
Fed Speakers Quarles and Brainard
Earnings Canopy Growth, Hewlett Packard Enterprise, Ambarella, Zoom Video


Print Edition Front Page
China seeks baby boom

Full story on page 4 China allows couples to have three children
Policy shift comes after slowest population growth rate recorded in decades.
A remarkably swift policy change for China which I think highlights the seriousness of the problem. Especially considering the resistance to change the one child policy previously. The party has had a problem with the previous amendment to the policy which allowed two children; that of convincing people after years of saying that one child was right that now two was right as well, especially considering the ‘population control apparatus used to enforce a widely unpopular one-child policy, often employing brutal means, including forced abortions and sterilisations.’
But I think they may be too late a recent SCMP article noted that when the Government allowed for two children many patriots heeded the call but few are now likely to because of the costs involved.
It notes the announcement was met with ‘a swift backlash on social media, reflecting concerns that the measures would not address the underlying reasons why Chinese were not having more children.
“I recommend you first resolve the fundamental problems of child support plus . . . the unfair treatment of women in the workplace, before asking them to have children!” read the most-liked response under the Xinhua announcement on microblogging platform Weibo.
“So many of us were the only child in our generation. Back then [the government] fined us. Now they want us to raise four ageing parents plus three children . . . in your dreams,” read another.’
There is also other big issue in China; that women are not getting married preferring a career and maybe a pet. Much of that is likely due to the fact that under the one child policy many couples only wanted a son and there developed a generation of ‘little emperors’.
Like many countries but maybe worse because of previous policies China will face the same aging population problems that many developed countries do.
In recent years it has addressed this with its adoption of automation and robotics. That will become even more important now.
Worth noting Goodbaby (1086 HK) rallied strongly on the news yesterday but is -10% today.

EY Europe revamp sparks fears over sharing of Wirecard damage
• Resources pooled • Break from federated model • French ‘ballistic’ over contagion risk

Nestlé plans new diet after internal report makes for unhealthy reading.
'Nestlé has acknowledged in an internal document that more than 60 per cent of its mainstream food and drinks products do not meet a “recognised definition of health” and that some “will never be ‘healthy’ ”.'
An interesting read but hardly surprising. Personally I prefer more natural based products; I’ve been using Isagenix’s and would recommend it highly.

INSIDE
Consumer prices
German inflation rate hits 2-year high
Politicians and business sound alarm over ECB’s loose monetary policy. Although the rise has been largely due to energy prices which were +10% YoY. It notes that German inflation has also been ‘driven by a reversal of the temporary cut in value added tax, a new carbon tax and a reweighting of the basket of products used to calculate prices.’
It quotes Carsten Brzeski, head of macro research at ING who said ‘Rising prices “will cause concern for many Germans, and the bad news is — there is more to come. With supply chain disruptions, like higher container prices, delivery problems with semiconductors and elevated commodity prices, producer prices are set to increase further, possibly putting more pressure on consumer prices.”’
Interestingly Spain and Italy also reported higher inflation numbers.
The debate is ongoing about whether this is temporary or structural but it seems clear that inflation in here and rising. Key is not really about whether it is temporary or structural but how people react to it and how it influences there expectations. At the moment the bond market is telling us that people are believing the Feds view. But that could change with this weeks US jobs report and at the end of the month when the US home eviction moratorium ends and there is the potential for a rental housing reset in the US.

OECD upbeat on global economy’s recovery.
Link to the report https://www.oecd.org/economic-outlook/
A more up beat assessment but one that warns of an uneven recovery. Key is inoculation; ‘Unless everyone is protected, no one is protected’
Singles out Korea and the US as countries that are leading the recovery. Notes that China is doing well along with Germany, but that Countries that rely on tourism are struggling. Interestingly it worries about debt levels at the SME level within Europe because they have been given loans not grants. It supports the Fed theory that inflation would be transitory rather than structural.

EU sanctions against Belarus can work for five good reasons
Looks at the actions the EU and others could take to make a difference. Most importantly to show those that are opposing the regime are supported. An interesting read which suggests that more research and support for sanctions elsewhere should be considered.

Wuhan Covid lab leak theory gains traction with Biden
Reports by US intelligence put president under political pressure to find answers.
An interesting read, key point seems to be the fact that a number of scientists are concerned that the WHO investigation did not go far enough to give a certain determination.
It presents Biden not as seeking to blame China but to find out the truth. China’s lack of complete openness has long been a reason to doubt. Worth a read.
It concludes ‘“The community as a whole is far away from reaching anything that we could call even a halfway firm conclusion,” said Paul Pillar, a former senior CIA official. “The fact that many of the agencies involved have not reached a consensus even for a ‘low confidence’ judgment tells you they’re a long way away from anything conclusive.”’
But as has been written on numerous occasions the world needs to know with as much certainty as possible to prevent another occurrence.
Read also  China’s wolf warriors bristle at Covid blame  By Gideon Rachman  With the potential for China to be back in the spotlight over the source of covid, Beijing will need all the friends it can get.  But its Wolf Warrior diplomats have alienated many past allies. He concludes
‘There is a clear risk that if China feels newly cornered over Covid-19, it will once again respond with aggression — or with the search for some kind of international diversion. The drive to understand how the pandemic began is inevitable and necessary. It is also dangerous.’

US jobless benefits blamed for stay-at-home workers
Labour shortages put down to federal payments but reasons more complex, say economists. Another look at the current US benefits and something that will no doubt be in focus when the US jobs numbers are released on Friday.
An interesting read it quotes a poll by Quinnipiac University that found more than 50% of American’s supported cutting benefits. But notes that most people recognise that the US needs ‘more safe, higher-paying jobs, and economists say that a focus on unemployment benefits overlooks the real reasons many people have yet to return to the workforce.’
It also notes that there are other factors like childcare especially for workers in the leisure & hospitality sector; where the job vacancies are most pronounced. Which is largely low paid, has anti social hours (especially for parents) and involves a lot of personal contact (a concern until vaccinations are fully rolled out). ‘In other fields such as construction, arts, entertainment and recreation, jobseekers still outnumber open positions by two to one, according to BLS data’
I also think that there is a locational mismatch on jobs with people unable to relocate.

Beijing targeting NZ-Australia security ties, warns Morrison
Statement comes as the Australian prime minister held talks with his New Zealand counterpart yesterday.
'He was answering a question about whether the Five Eyes intelligence alliance, comprising Australia, Canada, New Zealand, the US and UK, could depend on Wellington.
Morrison chose not to name China directly when asked which forces “far from here” were attempting to divide the allies. Relations between Canberra and Wellington have been strained over how to respond to China, which has been criticised for its aggressive foreign policy and accused of human rights abuses in Hong Kong and Xinjiang.'
Key seems to be that both Australian and New Zealand seem to be presenting a uniform front to China on the both trade and human rights.
I think China will increasingly find that its efforts to single out countries will become less effective. Which could leave it increasingly isolated at a time when it needs to find buyers for its exports.

Cash shortage risks causing Myanmar bank crisis
Run on notes and coins underlines the fragility of the economy and financial system.
Further pressure on the junta but also on the people.
Worth a read as to how bad the situation is becoming but there is no sign of any change from the junta.

COMPANIES & MARKETS
Ardour for IPOs cools after red-hot first quarter
• Average US ‘pop’ declines sharply
• Waterdrop and Vaccitech disappoint
Interesting read says the market was ‘incredible optimistic’ at the beginning of the year but that has waned.

Endgame Coming of 5G sounds knell for consoles despite pandemic demand boost.
That is the expectation of  ‘Naoki Yoshida, a director at Square Enix who oversees development of the Final Fantasy and Dragon Quest series,’  He says “With home consoles, you need to sit in front of the television . . .  turn on the power and wait for the hardware to start up, so it was a  time-consuming entertainment,”
An interesting reflection that people today are not prepared to wait even a few minutes to play a game?
It is an interesting prediction; 5G will allow better better streaming to mobile devices but many of the games are far better suited to large screens in my view. There will also be the cost of using 5G over a console.
The death of the console has been predicted before and I suspect like most things die hard gamers will remain attached to the console, the screen and the many other accessories they have bought to add to their experience.

Top bankers escape strict Hong Kong quarantine
Key is that the restrictions on what can and can’t be done is it is meetings only no socialising, so the rules are still stringent and failure to observe them fully is a criminal offence punishable with up to 6 months in jail. It also requires a lot of form filling.
The real issue is that Hong Kong does not have a re-opening strategy. I doubt it will make much difference. The key will come when vaccinations are recognised as giving protection and freedom to travel.

Supervisors step up pressure on banks to tackle climate risk
Looks at the role of banks and central banks in climate change ahead of the ‘“Green Swan” virtual conference on how to tackle climate risks in finance.’
Worth a read, the key is whether this is something central banks should be involved in?

Vicious cycle Supply chain comes under heavy pressure
Looks at pressures within the cycling sector and the dependence on Japan Shimano (7309 JP) which ‘controls an estimated 65 per cent of the market for high-end gears and brakes.’ With delivery times of up to 400 days.
An interesting read. Shimano stock is off its highs but there looks to be opportunity for its competitors.

BHP approaches final decision on Canadian potash project
Prospects are bright but rivals have sophisticated logistics networks and large reserves.
An interesting read not only for the green elements of the projects and the risks involved but also because whilst not mentioned in the article Potash is a major export for Belarus and so if there are going to be sanctions it could impact the value of this project.
Worth a read.

Crypto. Regulatory reluctance
Bitcoin ETP takes Swiss route after scepticism in London
Listed securities that track digital currencies face tougher hurdles in UK, executives say.
More on crypto regulation and why there is a need for more international and domestic regulation. Looks at how ‘ETC Group, a UK provider of cryptocurrency-related instruments, has traded $5.4bn since launching its bitcoin-backed exchange traded product on the German stock exchange. It is poised to expand to the main Paris and Amsterdam markets this week.
From early this month, investors can also use an exchange in the UK to trade its debt securities. But the company said it hit a regulatory brick wall when it explored going to the London Stock Exchange. LCH, the LSE’s clearing house, does not accept crypto products. Instead ETC turned to another regulated UK market, Aquis Exchange’.
An interesting read because it shows how far behind the regulators are. It suggests that if Central Banks were to come up with a global digital currency crypto products would disappear.
I doubt both the ability in the short term for Central Banks to do that and that crypto products will disappear, with many linked to blockchain that is just not going to happen.

US junk bond trade loses steam on inflation fears
Worth a read because it could be the first indicator that the bond market is more concerned about inflation that the US treasury market is showing.

FT BIG READ. CLIMATE CHANGE
Picking up the bill for Europe’s carbon
The EU has an ambitious plan to introduce carbon prices for large swaths of the economy, a key part of its agenda for reducing emissions. But some politicians and activists fear that the poor will be hit hard.

Comments
* The email will not be published on the website.