This and previous notes can be found SubStack
Check out ERI-C.com for your research needsAsian markets at 1pm HK time
Market opened higher and broke above 7,200 for the first time but without conviciton and after an hour was flat and then traded sideways in the red. Currently -9pts (-0.1%) @ 7,170
Banks reversed course and are now a drag on the market. Leaders are retail and healthcare stocks. Gold miners +VE but Energy weak ahead of the OPEC meeting this week
Domino’s +4% but Nuix -17% after weak guidence.
Private Sector Credit Apr +1.3% YoY vs +0.4% Mar (F/cast was +2.3%)
Private Sector Credit Apr +0.2% MoM vs +0.4% Mar revised (F/cast was +0.3%)
Nikkei opened lower on disappointing pre market data. Market trended lower morning low was 28,910. PM opened lower and trading sideways currently -317pts (-1.1%) @ 28,833
Topix similar trading pattern currently -23pts (-1.2%) @ 1,925Data pre market
Industrial Production Prelim Apr +2.5% MoM vs +1.7% March revised from +2.2% (F/cast was +3.5% )
Industrial Production Prelim Apr +15.4% YoY vs +3.4% March (F/cast was +12%)
Retail Sales Apr +12% YoY vs +5.2% March (F/cast was +12.3%)
Retail Sales Apr -4.5% MoM vs +1.2% March (F/cast was +1.5%)
Due Later Consumer Confidence, Housing Starts and Construction Orders.
Kospi opened +22pts higher after mixed pre market data and some inflation concerns after the US PCE report Friday. Market initially sold down and has effectively traded sideways around flat in choppy trading currently -0.5pt (flat) @ 3,188
Kosdaq opened higher and worked better but hit resitance at 983 and then sold down to 980 and tradedsideways. Currently +3pts (+0.3%) @ 980
Construction Output Apr -1.8% YoY vs -5.7% March (F/cast was +2%)
Industrial Production Apr +12.4% YoY vs +4.4% March revised from +4.7% (F/cast was +12%)
Industrial Production Apr -1.6% MoM vs -0.9% March revised from -0.8% ( F/cast was +0.2%)
Manufacturing Production Apr +13% vs +4.5% March (F/cast was +15%)
Retail Sales Apr +8.6% YoY vs +10.9% March (F/cast was +8.1% YoY)
Retail Sales Apr +2.3% MoM vs +2.3% March (F/cast was +1.2%).
Taiex opened higher and traded higher but hit resistance at 17,100 which it tested a number of times before selling down after midday. Currently +133pts (+0.8%) @ 17,004
Heavy rain +VE for Tech names who were facing water rationing
Hon Hai confirmed Monday it has recently been "in contact" with Formosa Plastics Group (FPG); media speculation suggests is linked to the company's recent heavy investment in electric vehicle development.
CSI 300 opened lower as manufacturing PMI was weaker than F/cast and MoM. Market sold down to 5,282 before trending higher in choppy trading. At lunchtime was -23pts(-0.4%) @ 5,299
Manufacturing PMI May 51 vs 51.1 Apr (F/cast was 51.2)
Non Manufacturing PMI May 55.2 vs 54.9 Apr (F/cast was 54)
Pre market opened @ 29,225 +102 pts vs +22pts ADR’s
But market sold down to 28,980 in the opening minutes, bounced but then trended lower into lunch -147pts (-0.5%) 28,978. Chinese financials and Macau names weak, E-commerce and Healthcare firm.
Expect Dax and Cac to open lower following the mixed performace in Asia and weak Chinese manufacturing data
UK Market closed
EUROZONE Loans to Households, Loans to Companies, M3 Money Supply
GERMANY Inflation Rate
US Market closed for Memorial Day
Colombia reels from protests
Anti government protests demand radical reforms
See also inside Cali takes on mantle of Colombia’s ‘capital of resistance’ as protesters demand change
Cryptocurrency concerns push US watchdogs to take more active role
• Fears mount for investors • Bid to set ‘regulatory perimeter’ • Break with Trump era
The issue will be under whose authority the sector will come. Earlier in May there was an ‘ inter-agency crypto “sprint” team. It involves officials of the three leading federal bank regulators — Hsu’s Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation. Hsu said the team’s goal was not to make policy but to “put some ideas in front of the agencies to consider” as they try to catch up with the growth in cryptocurrencies.’ It notes the SEC and CFTC have also been discussing the sector.
It notes ‘By installing Hsu at the OCC, the Treasury has signalled a change in approach to crypto. Hsu previously worked at the Federal Reserve, the SEC and the IMF. His OCC predecessors under Donald Trump included Brian Brooks, a former chief legal officer of Coinbase, a crypto exchange, who is now chief executive of Binance.US, a rival crypto exchange.’
There appears to me to be a need for a new legislation to cover crypto rather than trying to stretch exising legislation and it may well need its own regulator. What will also be required is international co-operation. Worth noting the S Korea over the weekend made an announcement that the Financial Supervisory Service has been designated to man the main control tower overseeing the country’s burgeoning virtual asset market (crypto), putting an end to months of discussions on who would take charge, while major cryptocurrencies fell over the weekend. Ministry of Science and ICT will take the helm in leading the country’s blockchain technology industry and its development.
Israeli opposition parties forge deal to squeeze out long-serving Netanyahu.
If they can do a deal he’ll be out. But Netanyahu only needs one defection to scupper their plans.
It comes as Netanyahu’s court case for bribery, fraud and breach of trust gets under way in Jerusalem’s district court.
Lithuanian PM talks down Belarus fears
Simonyte says country is safer since Nato improved security in recent years.
Simonyte said that still more needed to be done in the Baltics, particularly with regard to beefing up air security.
“We are so much safer and better prepared, as never before,” she said. “But this is not the end of the story. This world, based on treaties, values and rules, is being a little rearranged. It means we still have the case before our Nato partners that it needs to be strengthened further.”
Read also Dissident’s arrest chills Lukashenko opponents
Strongman president has made clear activists should feel unsafe wherever they are.
Tenth of police officers draw third of complaints in US cities.
As with many things it is the small minority that spoil it for the rest. Highlights that more needs to be done which could start by better reporting.
Vietnam identifies new variant of coronavirus
A new concern as it ‘combines features of the variants first identified in India and the UK and is easily transmissible by air.’
Comes as Vietnam is facing a new wave of covid cases which worringly for the economy is focused on its ‘industrial parks at the heart of Vietnam’s export-focused, foreign direct investment-driven economy.’ That could impact production for firms like Samsung, Foxconn and others.
COMPANIES & MARKETS
European and UK funds show little appetite for Deliveroo
• Shares still a third below debut price
• Concerns over dual-class structure
An interesting read, with US investors, who are more used to the dual class voting structure willing to invest whilst Europeans remain sceptical. That ‘share structure excludes it from London’s premium listing, leaving some investors unable to buy the stock.’
Interestingly it notes how online food delivery has held up well despite the lifting of lock down restrictions but in part due to promotional activities by the firms.
Stick or twist? Investors weigh up whether to cash in on stock profits as summer kicks off.
Looks at the question of whether to follow the adage of ‘sell in May’.
Interestingly it notes ‘Data suggest that in some markets, taking some chips off the table before the summer revs up has been a successful strategy. Swiss bank UBS found that while a “sell in May” strategy, compared to staying fully invested, delivered outperformance in Europe over the past 15 years, it did not in the US.’
Key I think is to remember that past performance is no guarantee about future performance and after a unqiue year of action from the Fed and other Central Banks I would not expect the markets to perfrom in line with historic norms.
Schroders is recommending against the traditional hedges (government bonds, gold and cash) and suggesting increasing exposure to value stocks, financials and commodities.
HSBC is going with ‘increase their exposure to UK and continental European equities and south-east Asian stock markets.’ State Street expects ‘European equities to outperform but thinks Chinese stocks also “deserve consideration” because valuations are below their long-term averages and Beijing is tightening monetary policy.’
I think its interesting that Chinese shares should be recommended on the basis of PBoC tightening. I think China is facing a huge number of issues that could have very different outcomes. The tightening is in the face of asset bubbles but is comes as firms are increasingly facing credit issues at a time when they need cash to finance the increased global demand that is occuring as lock downs ease and countries look to stimulate their economies. That has already tiggered a surge in demand and prices for a number of commodities both hard and soft. The other big consideration for China is the strengthening Rmb which is I think more about USD weakness than Rmb strength. There are opportunities in China but one has to be selective.
US LNG groups look to boost carbon capture
An interesting read because ‘carbon capture remains costly and has not yet been deployed widely, making the US LNG proposals a key test for the technology.’
Stores rush to secure holiday season stock
Surging demand, high cargo rates and logistics issues hit US inventories. Follows the warnings that a number of US firms have made during their results announcements. Current bottlenecks are a concern and the key thing is that it will take time for the logistics to return to normal, not least because the shipping industry is still being impacted by coivd and the fact that new ship orders are constrained because owners are trying to work out what sort of engines to install to meet new emissions standards.
Notable that electronics remain the dominant items in demand.
But with shipping costs up significantly those costs will be passed adding to the inflationary pressures in the system.
Week ahead. Market questions
US jobs picture draws into sharper focus;
How severe is the US labour shortage? This weeks jobs report is expected to give insight into that question. Last months number was a surprise and many expect that the distortions it revealed should be resolved in this months numbers.
Key distortions are thought to be ‘employee concerns about catching Covid and broad labour shortages stemming from overly generous government benefits’. Those are expected to reduce as government benefits are reduced/phased out, stimulus cheques are spent and inoculations rolled out.
Additionally companies in need of staff are also raising wages as an incentive.
I still think there is a locational element to the shortages. Friday will reveal much.
See also Where are all the workers and will they come back?
How fast will prices rise in Europe as the recovery gathers pace? The Eurozone CPI data is due out Tuesday and is expected to have risen which means its likely to be on the agenda at the next ECB meeting on June 10. The debate remains whether the inflation id merely due to supply chain bottlenecks or is of a more perminent nature. The answer is of course that it is a bit of both but the proportions at this stage remain unknown.
Will Opec+ change its oil production targets? This weeks meeting will answer that question; most expect little change to the existing production levels. Key issues being the surge of covid cases in India hurting demand, potential for Iranian oil to come back on the market. I also think that until we see a significant return of air travel the oil producers will be happy to see the oil price creep higher.
FT BIG READ. HONG KONG
‘Either you shut up or you leave’
A crackdown on dissent by Beijing has led thousands in Hong Kong to apply for visas to Britain in what could be the biggest humanitarian resettlement in the UK for more than 50 years.
Looks at situation of some Hong Kong residents with a focus on those who have been involved with the pro democracy activity. But also covering others who have the means to and job flexibility to move.
It looks at the pros and cons. A key point being that some don’t have the money required to relocate. But for those with money they are being equally cautious because they are aware that China can use the new legislation to freeze or even sequest their assets now.
A key aspect being ‘For most of those interviewed for this article it was not about selecting between visas, it was weighing up the cost of leaving behind the city they love and people who made it home.’
It concludes ‘Catherine, a 35-year-old lawyer thinking of applying for a BNO with her two-year-old daughter, says: “No one wants to leave a place that you’re so familiar with, what will happen to my family here?” But the political situation has become so bad, she says, that, “either you shut up or you leave”.’
It is amazing and shocking that in under two years the situation has changed so dramtically. An interesting read.
Retail & consumer. Platform sharing
Traditional retailers bet on online marketplaces to aid recovery
High street names are adding third-party brands to their websites in scramble for sales.
An interesting read focused mainly on the European model.
Getting to the bottom of the Wuhan lab theory
Understanding the origins of this pandemic is vital to prevent another.
Makes the point that it is not about apportioning blame but vital to understanding the nature of the virus that has killed over 3.5m people and to ensure prevention of similar outbreaks in the future.
Stresses the need for the investgation to be carried out by ‘credible experts chosen by a multilateral body, and given access to all the data, people and locations it needs.’
It concludes ‘In its professed support for free trade in the face of Trump-era protectionism, and in its vaccine diplomacy, however, Beijing has tried to portray itself as a responsible global citizen. It may fear loss of face if proven conclusively to be Covid’s source. In fact, China would gain respect if it did switch, belatedly, to transparency and co-operation.’
Curtailing Big Tech means regulation and break-ups
‘Policymakers need to disaggregate the Big Tech debate into its constituent parts and give greater focus to the digital age’s novel challenges. The response should not be to resist progress and reject the benefits it can bring, but rather to impose guardrails that channel progress constructively — and plan for replacing whatever it sweeps away.’