March 12 FT US rebukes China over HK, US job losses slow, China on Coal funding, HSBC and more

12 Mar

This and previous notes can be found at

MARKETs at 2pm HK time
ASX 200 rallied initially and then worked higher to 6,780 where is hit resistance and sold down to 6,750 level before bouncing back then trading sideways for the rest of the day to close +53pts (+0.8%)@ 6,767.
Energy +1.8% and materials subindexes +1.7% as oil stocks and major miners mostly advanced.
Nikkei 225 opened slightly higher but tested yesterday’s closing level in early trades before working higher into lunch. PM it resumed working higher to the day high 29,744 before easing slightly, currently +487pts (+1.7%) @ 29,699
Topix traded in a similar pattern, with resistance at 1,950 currently +24pts (+1.2%) @ 1,948
BSI Large Manufacturing Q1 1.6 QoQ vs 21.6 Q4 (F/cast was 10)
Tech shares bouncing +VE Kospi Samsung Electronics, SK Hynix and LG Electronics all positive
Kosdaq opened higher and rallied to 924 in the first hour, then eased back to 919 before working higher currently +17pts (+1.8%) @ 925
Kospi opened higher and tested 3,060 in early trades then pulled back to 3,040 and has traded in that band since, currently +41pts (+1.4%) @ 3,055
Opened higher and tested to 16,300 in early trades before pulling back to 16,200 and bouncing again but the trend through the morning was lower, hitting yesterday’s close around 11am, which was the day low. Then rallied to 16,227 and traded sideways until a spike in the last few minutes to close +76pts (+0.5%) @ 16,255
CSI 300 opened slightly higher at 5,153 but sold down in the first 80mins to 5,087, but then worked higher to 5,140 at lunch. PM opened slightly higher but eased back to trade around yesterday close Currently +10pts (+0.2%) @ 5,139
Data No data yet but could get FDI (YTD) and on Monday we get House Price Index on the open and NBS Press Conference, FIA, Industrial Production, Retail Sales, Unemployment
HSI Pre market Opened @ 29,550 +164pts vs -95pts ADR’s with Ecommerce +VE but AIA -2% after results.
Markets sold down with support at 29,200 which it tested a few times before a bounce to 29,300 and closed for lunch at 29,311. PM opened higher but trended lower with the morning support at 29,200 holding. Chinese Financials weak along with AIA, Ecommerce +VE except Meituan. MTR and UNICOM weak after results. HK Developers +VE
Expect markets to open higher following Asia and the US overnight.
Data due
EUROZONE  Industrial Production
GERMANY Inflation Rate
UK Balance of Trade, GDP Data, Construction Output, Industrial Production, Manufacturing Production, Goods Trade Balance, NIESR Monthly GDP Tracker
US Futures
Opened flat in Asian time but working higher Dow +60pts, S&P and NDX both +0.2%
Data due PPI, Core PPI, Michigan Data Prelim (Current Conditions, Consumer Sentiment, Inflation Expectations, Consumer Expectations, 5 year Inflation Expectations), Baker Hughes Rig Data, US Budget Plan.
Earnings Buckle

A few thoughts going into the weekend.The week the NDX started weak but has rebounded from recent low I think likely to consolidate for a while before pushing higher.
USD strength worth watching DXY as an indicator now the latest stimulus has been passed, its weakness gave Gold and other metals a boost overnight. Platinum looks to be in an upward channel and Silver seems to be bouncing off the support trend level. Gold producers worth accumulating here on the prospect of rising inflation. Zhaojin Mining in HK worth a look along with HK EX which is benefitting from Chinese companies not wanting to list in the US
Qantas and Air NewZealand look to accoumulate on the basis of renewed tourism as Australia Govt announced to subsidies domestic flights and New Zealand may follow. Australia banks also worth accumulating at these levels on the basis that domestic stimulus indicates that a lot of the provisions will not be needed. Also look at Japanese Banks worth revisiting as yield curve steepens. Nintendo has seen recent weakness now finding support at the technical channel level
LG Household again recent weakness now on the trend support level and has seen good interest today.

Jack Ma’s private jet records show billionaire is down but not out
Alibaba founder appears to have spent January and February at home, in Beijing or in Hainan. An interesting look at his possible schedule and may indicate that his fall from grace is not a bad as was first thought.
German towns braced for €500m in losses from Greensill Bank collapse
Municipalities did not have to pay negative rates at lender but were not covered by deposit insurance. FT says 'Greensill’s German municipal depositors include the Hesse state capital of Wiesbaden (€20m), the university town of Giessen (€10), the Cologne opera (€15m), and the sewage plant of a suburb of Hannover (€8.5m). They also number one of Germany's 16 federal states. Thuringia, in eastern Germany, deposited €50m.’

A decade on Fukushima pain lingers. 10th anniversary yesterday of the Japanese earthquake and tsunami that killed thousands and triggered the worst nuclear accident since Chernobyl.
EU vaccine woes deepen as clouds gather over AstraZeneca supplies
• Delivery targets set to be missed • Safety fears over batch • Hopes fade of deal with US
ECB to step up pace of bond buying in bid to keep eurozone recovery on trackThe announcement led to a rally in eurozone bond markets, reassuring investors that the ECB was willing to intervene to limit rises in the cost of finance for governments, businesses and households, which economists worry could derail the single currency bloc’s already-stuttering recovery.

Bipartisan reaction US legislators condemn China over HK law (Page 2)
Move to reduce territory’s democratically elected officials meets with anger
As expected the move by China prompted quick and stern criticism but there was really no doubt that China was going to pass the legislation. The fact that everyone (except one absentee) at the NPC voted for the changes was testament to the fact that ‘Xi's will be done’.
I think it sets the stage for a tense first meeting in Alaska. Biden I think needs to take a hard line because there is bipartisan support in Washington and because he has to be aware of the potential impact on the mid term elections. His first days are looking good, they have control of the Senate, they have got their stimulus package through; largely intact and so give ground to China so soon would be a mistake.Much of this is covered in the piece I wrote yesterday.
The key to me is that so many US politicians want to seen to be standing up to China the Biden can’t give ground at this stage.
It’s worth noting that Premier Li said at the press conference, after announcing the law change, that he hopes the two sides can work to build trust after it was confirmed that senior officials will meet next week in Anchorage. That shows that China is not currently looking to compromise on anything rather it is hoping that it can get Biden to compromise.
But US Secretary of State Antony Blinken has downplayed the prospect of restarting the dialogue between the two without concrete action from Beijing.
The article notes that 'Carrie Lam, the city’s leader, said she was unable to answer some questions about the latest law because it was in the hands of the central government, saying: “I don’t have the details.” She denied it was about making Hong Kong's legislature less critical of the executive government or to “screen out” the opposition.’
It seems beyond belief that Carrie Lam didn’t know the details and again that denial is likely to heighten the resentment and disbelief in the Hong Kong administration. If She doesn't know the details then, as Hong Kong CEO she should have found then out. If she does know them and is just lying then it exemplifies why a lot of ordinary Hong Kong people do not trust the administration.

Brussels attempts to win over critics of Beijing trade accord (Page 2) Was in the on-line edition yesterday. Detail of agreement due to be published in face of fierce opposition from rights groups with ratification not assured
'Brussels sees it as a breakthrough that “will give European businesses a major boost” and put them on a level playing field with US rivals.’ Other are not so sure and key is the stance on human rights. It notes
'A coalition of 36 civil society organisations, including trade unions, wrote to EU chiefs earlier this year calling for the investment agreement to be reopened to add “enforceable human rights clauses”. However, Brussels argues it has already secured unprecedented commitments.’
It concludes ‘ For MEPs, the fate of the investment treaty may lie as much in the EU and China’s actions between now and the ratification vote as in the content of the deal itself.’
Clearly it is not a given and I would think after passing the law changing Hong Kong’s election procedure there are likely to be more questions to be asked.It shows again how a few policy makers within the EU weird a lot of power without much immediate responsibility. The safety net is that although the negotiators have signed the deal it still needs to be ratified and the details made known and clear before it becomes EU law.

Slowdown in US job losses helps cut assistance claims (Page 3)
Looks at yesterday’s US jobs number and notes the slow down in job cuts as the inoculation programme is rolled out.
New filings were better than expected although 'The Pandemic Unemployment Assistance programme, which provides benefits to the self-employed and others who would not get regular benefits, took in about 478,000 new claimants on an unadjusted basis, up from 436,000.’
Whilst the job market has a long way to go to get back to pre-pandemic levels the fact that businesses are no longer cutting jobs and many, especially in the F&B trade thinking about re-hiring could be a further accelerant for the US economy’s recovery.

Belt and Road Initiative China shuns Bangladesh on coal mine funding (Page 4)
First steps in seeing China acting to achieve its sustainability promises. FT cites a letter from China’s embassy to Bangladesh which told the local finance ministry that “the Chinese side shall no longer consider projects with high pollution and high energy consumption, such as coal mining [and] coal-fired power stations”.It refers to loans that were agreed in 2016 and that Dhaka now wishes to repurpose.
It also notes 'It remained unclear, however, whether the embassy’s letter was merely a reflection of conditions in Bangladesh or a broader move from coal, he added. Bangladesh government support for the sector has become a financial burden amid overcapacity of power plants and the rising cost of coal imports.’
Beijing has yet to publicly declare its intent to curb overseas coal power development and is at home building a record number of coal fired stations; justifying it by saying that they are cleaner than the old ones and therefore reduce emissions; that will largely depend in whether the old ones are closed.

Companies & Markets 
Leads with another article in Greensill
Credit Suisse risk managers overruled on Greensill loan.  
Notes that Credit Suisse is quickly reviewing its exposure and working hard to get outstanding loans repaid as well we trying to work out why things went so wrong. Overruling risk managers would be one mistake. It also draws into question the cross selling to clients which can be very lucrative as long as the rules are observed and limits are not exceeded. Key is that the model is a good one the as long as the rules on credit limits and exposure are observed.

HSBC avoids investor revolt over fossil fuel loans
Looks at yesterdays news about HSBC announcing that it put forward a proposal at the AGM, pledging to overhaul its financing of coal and committing to set targets to reduce its exposure to carbon-intensive assets. This was to head off a shareholder revolt on the banks policy on climate change. Evidently 'Amundi, Man Group and 13 other large investors in January filed a resolution for HSBC’s May AGM calling for the bank to curtail its financing of fossil fuels. Asset managers including Black-Rock had already come under pressure to back the proposal.’
After much negotiation it was decided they pull their resolution and HSBC file its.An interesting read because it shows how concerted efforts by shareholders can effect change. The investors say that they will monitor progress and could take further action if they aren’t satisfied with HSBC’s implementation.
A key element is going to be how the bank performs without exposure to that sector of the market and whether investors will be satisfied with that too?

Japanese investors buy gilts at record pace this year
Reduced Brexit risks and fading likelihood of negative rates lift appeal of UK debt. Contrasts with their exposure during the Breixt negotiation process and the fears of a sharp move in sterling.
It cites Derek Halpenny, head of research for global markets at Japanese bank MUFG, who says the ' large inflows showed investors returning to a “more normal balance” of gilts after a “long period of under-investment”.’
It notes 'Rising gilt yields, prompted in part by diminishing expectations that the Bank of England will deploy negative interest rates, may now provide another boost. While higher yields are negative for current holders of UK sovereign bonds because they indicate prices have fallen, they mean new investors are able to garner juicier returns from holding the debt.
Foreign government debt is a popular choice for Japan’s vast life insurance and pensions sector, since many international jurisdictions offer higher returns relative to low or even negative-yielding Japanese sovereign bonds.’
Good news for the UK as it looks to GBP296bn in the next financial year beginning in April.

Europe looks to bridge global chipmaking gap an interview with Reinhard Ploss the Infineon chief who says the continent has to rebuild its tech sector to make localised production pay.
Ploss is faced with the acute chip shortages for autos; which is Infineon’s largest market. The reason is the lack of capacity at the contract manufactures like TSMC; which has re-ignited the debate about local production.
Consolidation in the sector in Europe is taken place with 'Germany’s Siltronic is about to be sold to Taiwan’s GlobalWafers, while Frankfurt-listed Dialog Semiconductor has been bought by Japan’s Renesas.
Meanwhile Apple announced this week that it would invest more than €1bn over the next three years in building a major chip design facility in Munich.
The EU has earmarked a portion of its €750bn Covid-19 recovery fund to “strengthen Europe’s capabilities to design and eventually fabricate the next generation of trusted, low-power processors support”, while Germany is funding 18 homegrown semiconductor companies, and has pledged further help.’
Ploss thinks it will take more than cash to compete with the US and Asia. The domestic market doesn't justify the onshore production because Europe no longer has a domestic computer industry or consumer electronics; without having enough base clients having local production does not stack up.
Key being the solution is more likely to be getting TSMC and Samsung to build plants in Europe than to get Infineon to change its outsourcing model for items that are not in its premium range; effectively anything below 90 nanometres.
It’s all about cost and being about to run foundries at full capacity and prosecuting the right type of chips. The EU is considering funding foundries making 2nm nodes which would be of limited use to Infineon, whose products tend to use larger structures.
That illustrates the complexity of the issue.Infineon focuses on higher margin auto chips it is also a leader in the power sensors segment and makes roughly every second security chip used in credit cards.It acquired US rival Cypress last year and talk of a tie up with STMicro but Ploss notes that talks of creating a European champion are a distraction.
It concludes 'Once a penny stock, it has benefited from the boom in semiconductor demand to become one of the biggest success stories on Germany’s Dax. But in a notoriously cyclical industry, its heady growth “cannot continue forever”, warned one lead investor.
Ploss, who has pushed the company to experiment with nascent technologies that could help with the exploration of other planets — such as time-of-flight chips that measure distance by how long it takes for photons to travel between two points — is similarly cautious.
“Infineon is in a very good position,” he said, but “if you assume you are the greatest, the next step is the downfall”.’
An interesting read and to me it highlights the benefits and problems that China is likely to encounter in developing its own chip making business. Whilst China is likely to have the economies of scale from domestic companies a lot of that will be at the lower end of the chip business. The specialisation of the premium products requires huge amounts of Capex combined with years of design and manufacturing skill; something that China lacks.
Meantime from what Ploss says it looks like the outlook for TSMC and Samsung looks good.

Lex. Coupang/Amazon: compare the mark-up. Concludes 'Coupang succeeded in increasing its share of South Korean ecommerce from 18 per cent to just under 25 per cent last year amid the pandemic. But Amazon had an estimated 47 per cent share of the US market last year, according to Statista. It expects Amazon’s share to reach 50 per cent this year. Amazon changed the way in which Americans shop. Coupang has not. Why then is Coupang valued at a 5 times multiple of trailing sales — higher than that of Amazon? The comparison is a flawed one.'

For Interest 
FT BIG READ. FINANCIAL SERVICES Amsterdam springs early Brexit surprise
The Dutch city has taken some business from London since the start of the year, helped by sophisticated regulators and strong IT. But Frankfurt and Paris are also well placed to take long-term advantage.

Opinion Mood and emotion drive market swings by Gillian TettLooks at the recent volatility in some stocks and expects it continue as stimulus cheques go out in the US and ties to explain why.
Concludes'Therein lies a tragedy, not least because savvy players are undoubtedly feeding off retail players “fast” thinking mistakes. But there is a wider lesson here, too: if you want to understand share prices today, look beyond valuation models or trading algorithms.
Attention matters deeply, now. So does emotion, particularly since spring weather (in the northern hemisphere) could soon blend with lockdown relief and that $1.9tn American stimulus package, which some recipients may yet use in ways that Biden may never have expected — or wanted.'

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