This and previous notes can be found at SubStack Asian Market Sense
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Asia at 1:15pm HK time
Watch for lighter international volumes on Friday ahead of long weekends in the UK and US.
Market opened higher and tested 7,110 a couple of times but failed to break above so tested down to 7,080 before working higher and breaking through 7,110 to 7,119 before easing back to 7,110 and trading sideways. Private Capital Expenditure beat
Costa Group weak after earnings, Fisher & Paykel Healthcare slipped despite good earnings and Ramsay lower after making an offer for Spire in the UK
Private Capital Expenditure Q1 +6.3% QoQ vs +4.2% Q4 revised (F/cast was +1.8%)
Weak ahead of key US PCE data tonight and the exepctation that the Govt will extend the State of Emergency as covid cases remain elevated and there is increased pressure to cancel the Olympics.
Nikkei opened lower ticked higher initially but then trended lower to 28,360 mid morning before working better into lunch. PM opened higher and trading sideways around 28,500 level.
Topix traded with a similar pattern support at 1,910, currently trading around 1,914
Stock investment 22 May ¥-223.5B vs ¥-471.4B prior
Bond investment 22 May ¥-551.5B vs ¥+600B prior revised
BoK left rates unchanged but raised its growth forecast to 4% (from 3%)for next year and was cautious when asked about a rate hike "depends on the pace of recovery." KDCA reported 629 new covid cases (vs 707 Wednesday)
Kospi opened slightly higher but trended lower found support at 3,142 level around 10:30am and traded around that level until 12.20pm before working better but saw resistance asit approached yesterday’s close. Currently -5pt (-0.2%) @ 3,163
Kosdaq opened hgiher traded down to 960 level bounced around at that level for anhour then worked better. Currently +3pts (+0.4%) @ 970 and meeting resistance.
Taiex opened lower and sold down to 16,420 level in early trades. Bounced and traded sideways around 16,475 until 11am. Worked higher to 16,580 where it met resistance and drifted lower.
Industrial Profits YTD Apr +106.1% vs 137% Mar (F/cast was +52%)
CSI 300 opened lower and tested 5,285 level a couple of times in the first 30 mins but then rallied strongly to 5,378 around 11am only to sell down to flat at lunch. PM opened slightly higher but trading sideways around flat +5pts (+0.1%) @ 5,325
Pre market opened @ 28,998 -168pts vs +95pts ADR’s
Tested lower initially to 28,950 then rallied effectively traded slightly better in the range 29,000/29,150. Closed at lunch 29,078. PM opened higher but sold down to 29,050; currently -77pts (-0.3%) @ 29,088
Xiaomi strong on confirmation that its off the US blacklist +VE Tech names. E commerce names weak and Chinese Financials mixed.
Futures indicate a mixed open FTSE +2 points higher at 7,023, DAX -6 points at 15,444, CAC 40 +3 points at 6,393 and Italy’s FTSE MIB +14 points higher at 24,745, according to IG.
Earnings come from Johnson Matthey, Pets at Home, Daily Mail & General Trust, United Utilities, Tate & Lyle and Ted Baker.
EUROZONE No data due, ECB’s Guindos, Elderson & Schnabel Speeches
GERMANY Gfk Consumer Confidence, Bundesbank Weidmann Speech
FRANCE Unemployment Benefit Claims, Jobseekers Total
UK Car Production, BoE’s Vlieghe Speech
Opened flat Dow +20pts initially but have eased to -73pts S&P & NDX were flat but now slightly -VE
AHEAD Durable Goods Orders, GDP (Price Index & Growth Rate), Corporate Profits,Initial Claims, 4 week Average Claims, Continuing Claims, Core PCE Prices, PCE Prices, Pending Home Sales, EIA Natural Gas Report, Kansas Fed Manufacturing Index,
4 & 8 week Bill and 7year Note Auction,
Fed Speakers None
Earnings: Best Buy, Salesforce.com, Costco, Dell Technologies, Box, Ulta Beauty, VMWare, Autodesk, Lions Gate, Canadian Imperial Bank, Toronto Dominion, Burlington Stores, Dollar General, Dollar Tree, Royal Bank of Canada, Medtronic eased to -10pts S&P & NDX flat ahead of Jobs and PCE data.
Tesla set to pay for chips in advance in bid to overcome shortage
Electric-car maker also explores buying foundry but analysts warn of high costs
Beijing faces scrutiny over clout at Latin American development bank
Lender’s chief calls on US to boost financial support as Chinese companies hoover up contracts
HSBC withdraws from US retail banking
Sales effectively bring to close 40-year attempt to run full-service lender in the country
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Ex-aide turns on Johnson
Former adviser Dominic Cummings appeared before a hearing into the UK government’s mishandling of the pandemic and said about the PM and senior ministers that they “fell disastrously short of the standards the public have a right to expect in a crisis like this”.
Also on the topic Johnson unfit for office, says UK premier’s ex-adviser in stinging attack The statement seem to be revenge after losing the power struggle and Mr Cummings is not well liked because he was one of the first ministers to flaunt the lockdown restrictions.
Climate pressure rises on Big Oil after setbacks for Shell and Exxon
• Court tells Anglo-Dutch major to slash emissions • Investors press US producer for action
A couple of years ago the Economist ran an article that highlighted how big oil companies where saying they were for change but then spending more money on lobbying for fossil fuels; now they have been called to heel. The real question now is whether shareholders and the wider public are prepared to pay the cost of moving to more expensive and in some cases less reliable energy sources.
The court ruling has wider implications for all heavy emitters but it will also raise concerns about companies operating in countries outside the scope of the court decision. They will still have an advantage until global standards are agreed and implemented.
Amazon snaps up James Bond movies with deal to buy MGM for $8.45bn
Willing to pay reportedly about 40% more than other prospective buyers such as Apple and Comcast were willing to stump up. That may also indicate how much free cash Amazon has but raises questions about why it was prepared to over pay by so much?
It gets a great catalogue but it only holds 50% of the franchise, with the other being held by Barbara Broccoli and her brother, Michael G. Wilson. They have special rights on creative control and effectively call the shots, including who plays title roles. On the positive side they have vetoed proposals for TV spinoffs reportedly, preserving the brand value.
Worth noting that Disney and Netflix shares didn’t move significantly on the news.
Also read Amazon views MGM as ticket to film stardom
US group hopes studio will give Prime streaming service the leading role in battle for content with Netflix and Disney
Lukashenko blames western ‘provocation’ for diverting flight
He claimed in a statement to parliament that ‘he had “acted legally, protecting people according to all international laws”.’
Obviously from the international reaction not all international laws.
Worth a read just to see the sham of lies being produced to try and justify an illegal act. But it highlights how little western governments can do and one has to worry about the health and safety of Protasevich and his girlfriend Sofia Sapega; who have allegedly confessed to crimes.
Read also Notebook Belarus hijack echoes events in Libya 50 years ago
by Victor Mallet ‘The Belarus incident is particularly sinister because it shows how far some governments are prepared to go to neutralise their opponents. Russia, Iran, Israel and the US have frequently assassinated their enemies in foreign countries, while China has kidnapped its opponents and brought them home to be punished. People on commercial flights are an easy target for an unscrupulous state.’
An interesting read.
Swiss abandon talks on closer ties with EU
Bern pulls out following strong political doubts domestically about pact.
I would say a blow for the EU but it highlights that maybe Brussel’s needs to be more reasonable in its demands on others. The Eurozone is an important market but it is not the only market. Its demands that infringe on sovereignty will I think slowly isolate a number of current partners.
Worker shortages raise fears of higher wage costs in developed economies
Pressure is greatest in US as companies reopening after lockdowns struggle to rehire staff
The reasons being rolled out:
‘In the US, some politicians and economists argue that a combination of generous unemployment benefits, health concerns and childcare issues may be keeping people out of the workforce.
In the UK, employers say they are finding that many EU citizens have left and some people are wary of leaving the relative safety of furlough for a new job, until the threat of further lockdowns has lifted.’
At present the main shortages are in the low paid leisure and hospitality sector. The bigger question for most is whether this leads to wider wage inflation.
The article looks at how the problem should present differently in Europe from the US due to different wage bargaining systems and also different age profiles. In the US it suggests many will retire early. I would be surprised by that as a lot of data suggests that the years of low interest rates have sabotage many Americans retirement plans.
An interesting read I think a lot of low paid jobs in Europe will be unfilled until cross-border travel restrictions are eased. Then there is the skills mis-match and location issues to be addressed. In the US with the recovery accelerating we are already seeing wage inflation as McDonalds and Amazon offer more money to get staff. That is a trend I can see continuing.
India lockdowns and growing levels of antibodies contribute to infection slowdown Some positive news for the continent and whilst the official numbers may be suspect the trend is improving.
Iran stirs concern at UN nuclear watchdog
IAEA chief says country’s uranium enrichment is nearing weapons grade.
An interesting read because of the impact that Iranian oil coming back onto the international market could have. Key is that since Trump backed out of the deal the Iranians have stepped up their activities. A good quote “You cannot put the genie back into the bottle; once you know how to do stuff, you know, and the only way to check this is through verification.”
Tehran bans bitcoin mining as power cuts grip country
A four month ban in an effort to reduce power shortages.
‘Demand for digital currencies in Iran has risen as people try to hedge their savings against the economic damage of US sanctions, with annual inflation of 46.9 per cent, a plunging stock market and stagnant house prices.’
An interesting read with doubts about whether bitcoin mining is really responsible for the power shortages as it only accounts for about 10% of the country’s output. That would then lead to questions about what is the real reason?
Worth noting that a Iran has been a big ‘miner’ of crypto with many international companies setting up operations there.
A interesting read.
China boosts North Korea’s battered economy
Increased shipping activity between China and N Korea, suggesting that China has resumed fuel transfers along with other essentials.
An interesting read; Biden is taking a much less pro-active stance than Trump did reflecting the fact that Biden views China as a more important element to focus on. But in the recent meeting with S Korean President Moon was willing to make some concessions to keep S Korea happy.
I really doubt there will be any major changes unless China changes its stance. Similar to Myanmar; China has its own agenda.
Brussels accused of being too soft on Big Tech
Another warning that the regulatory pressures on the likes of Google, Facebook etc are going to increase. Interestingly countries are asking for Brussels to give them the power to act locally; another small sign at frustration with Brussels.
Read also Brussels ready to open probe into Facebook ads business
Companies & Markets
Nissan in talks over building UK battery gigafactory
• Sunderland site lined up under plan
• Envision AESC would run operation
An interesting read and worth remembering that with Electric Vehicles the battery being such a crucial part and heavy needs to be build near the factory. The key question will be how much support the UK government gives the project.
Pinduoduo shares extend $100bn slide after further losses in first quarter.
Revenue grew but still loss making.
There is a change in the business model; from just selling ad spots to direct on line sales which accounted for 23% of revenue Q1 (was 20% in Q4). It explained the change as to '“temporarily meet the demand of our users [for] products which our merchants cannot obtain”.'
The change of direction and lack of clarification is likely to worry investors especially coming at a time of increased regulatory pressure.
Boom spills over to milk as Fonterra forecasts record prices on China surge.
A sign of the continued recovery in China and wider of inflation.
Worth a read as it also underlines that Chinese consumers still have a wariness over Chinese food products and so when they can they prefer to buy from safe sources.
US banks voice caution over dealing in crypto
Chief executives of several leading US banks expressed caution about dealing in cryptocurrencies in testimony released ahead of their scheduled appearances yesterday before a Senate committee.
‘Financial groups are simultaneously facing pressure from consumers and companies that want a piece of the action — and from regulators who have openly fretted about a trading environment that “could benefit from greater investor protection”, in the words of Gary Gensler, chair of the Securities and Exchange Commission.’
Key for crypto is that it is being discussed at all levels now. It is here to stay the question now is in what form? Worth noting that BoA said that it holds 60 patents involving blockchain but hasn’t found a use at scale for them. The fact that they are aware and involved I think means that cryptos are going to become more mainstream.
Sony chief Yoshida says studio not for sale
‘In an interview yesterday, Sony’s chief executive Kenichiro Yoshida said Sony Pictures is crucial to the group’s strategy to become a global provider of content for music, films, games and animation.’
An interesting read. Sony has set out its strategy and it has its PlayStation pipeline; the key will be whether that strategy can survive and be financially viable if there is more consolidation in the sector.
Equities. Bullish outlook
Investors bet eurozone stock rally will gather momentum
Pandemic recovery lures fund managers to region’s bourses that are seen as ‘overlooked’
A good read about expectations and relative valuations. The zone has been out of favour but that is changing as re-opening takes place and the EU recovery fund comes into play. But as ever the performance in Europe is linked to what happens in the US and FOMC actions being key.
Nice quote “When I look at fundamental valuations there is still catch-up room for Europe,” said Kasper Elmgreen, head of equities at Amundi. “But in times of market stress, Europe is not a haven.”
Also read European bonds rise as ECB cools taper talk
Fed faces tricky pivot to avoid risk of greater damage By Mohamed El-Erian
An interesting read. Notes from the 2008 financial crisis banks and others were ‘full risk on’ into the crisis. No one wanted to be the first to de-risk because they worried about under performance. Currently that mind set is still in play although more restrained because of regulation changes but has spread to the non-banks.
He notes that markets this year have survived 3 wobbles (Surging US yields, GameStop and Archegos) whilst there has been some opportunistic positioning.
So he sets out the risks are there; the BoE has warned as has the ECB who ‘last week of “remarkable exuberance” in markets, adding to earlier small signs of something many deemed unthinkable: the possibility of the ECB tapering QE before the US Federal Reserve.’
Whilst Fed speakers continue to talk down inflation the last minutes show they are prepared to talk about tapering. But without clarity on when and what it is proposing there is a big risk.
‘Having already waited for too long, the Fed faces a tricky policy pivot — especially as it is now hostage to a “new monetary framework” that is ill-suited for the pandemic-related structural changes to the economy.
As such, the pivot involves the twin risks of market volatility and loss of Fed credibility. Yet the alternative of dogmatically holding on to a backward-looking policy stance would threaten far greater damage.
For their part, investors should be encouraging the Fed to pivot rather than just focus on the joy of surfing the liquidity wave. Learning from the experience of banks in the financial crisis, it is better to risk some short-term discomfort than the durable larger damage that a bigger policy mistake would inflict on asset values, the functioning of markets, and economic and social well being.’
Worth a read.
Clearly the Fed needs to discuss tapering, or reducing the massive monetary stimulus but also an “exit strategy” and lay this out for the markets. The longer the Fed leaves monetary settings and refuses to taper the huge bond buying program (around $120 billion a month) the harder it will be to exit without upsetting the financial markets.
There is a growing risk that a wrong comment from a Fed speaker could trigger significant market moves. The personal consumption report is due out today and with the S&P500 sitting less than 1% away from its record high, there is not much room for a “bad number”.
Markets have become dependent on QE and Central banks seem to have gone from looking out for inflation and ways to prevent it to a stance of waiting for it to arrive and then deal with it! That leaves scope for huge mistakes; especially to the status of the Fed and the position of the US dollar (see yesterdays FT Big Read Threats to the dollar’s hegemony)
FT BIG READ. CLIMATE CHANGE
Net-zero’s high price for fossil fuel economies
Many national oil and gas producers will struggle to diversify despite intense pressure to hit 2050 emissions targets. And those countries likely to be hit hardest are the ones who can least afford it.
A good read. Outlines that many poor countries will be suffering from these moves, denied that same road to prosperity that many in the west took because the west was not more thoughtful.