March 9 FT BoJ policy- no change? SBI to quit HK, China in correction? Jardine changes


09 Mar

MARKETs at 2:15pm HK time
JAPAN 
Nikkei 225 opened flat and initially dipped after the mixed premarket data. Key being that Household spending fell more than expected and GDP data was a little bit light. Market then trade sideways in choppy trading through the morning.PM saw the market open higher just about 29,000, and currently trading sideways +267pts (+0.9%) @ 29,011
Topix Opened higher and saw more morning volatility. PM opened at 1,915 but failed to break above and currently +20pts (+1%) @ 19,13
Data
Household Spending Jan -7.3% MoM vs +0.9% Dec (F/cast was -2.8%)
Household Spending Jan -6.1% YoY vs -0.6% Dec (F/cast was -1.8%)
Average Cash Earnings Jan -0.8% YoY vs -3.2% Dec (F/cast was -3%)
GDP Growth Rate Final Q4 +2.8% QoQ vs +5.3% Q3 (F/cast was +3%)
GDP Growth Annualised Final Q4 +11.7% vs +22.9% Q3 (F/cast was +12.7%)
GDP External Demand Final Q4 +1.1% QoQ vs +2.6% Q3 (F/cast was +1%)
GDP Capital Expenditure Final Q4 +4.3% QoQ vs -2.4% Q3 (F/cast was +4.5%)
GDP Private Consumption Final Q4 +2.2% QoQ vs +5.1% Q3 (F/cast was +2.2%)
GDP Price Index Final Q4 +0.3% YoY vs +1.2% Q3 (F/cast was +0.2%)
Just out Machine Tool Orders Feb +36.7% vs +9.7% Jan (F/cast was 10%)
S KOREA  
Pre market Current account was weaker than expected. Govt warns of further volatility as bond yields and inflation risks are rising. Tech, Chems and Pharma stocks seeing continued weakness.
Kosdaq opened slightly lower as current account missed and trended lower for the first hour to 880 level. Then traded sideways until mid day when it started to trend higher. It just saw slight spike currently -6pts (-0.7%) @ 899
Kospi traded in a similar pattern, opened at 2,990, sold down 2,930 and now -8pts (-0.3%) @ 2,989.
Data
Current Account Jan US$7.06bn vs 11.51b Dec (F/cast was 9.1bn)
The expansion was mainly driven by the goods account surplus, up to $5.73 billion from $2.07 billionJan 2020, as exports grew to $46.66 billion from $42.78 billion, while imports remained practically unchanged at $40.93 billion (vs. $40.71 billion). Meanwhile, the services account gap narrowed to $0.61 billion from $2.99 billion. The primary income surplus widened to $2.36 billion from $1.63 billion, whereas the secondary income deficit narrowed to $0.42 billion from $0.13 billion.
TAIWAN 
Opened lower but initially rallied to test Monday’s closing level on good Consumer Confidence reading but unable to break above and sold down to 15,660 level before finding support. Then rebounded back to Monday’s closing level and traded sideways around there before closing +33pt (+0.2%) @ 15,853 After market we get Balance of Trade, Exports, Imports, Inflation Rate, Wholesale Prices
CHINA 
CSI 300 opened lower and sold down to 4,918 in early trades but then rebounding and worked back to flat at lunchtime. Rumours Team China active in the market. PM tested higher but without conviction and currenty trending lower -30pts (-0.6%) @ 5,050
Markets in correction territory with investor cautious about Government plans with NPC and CPPCC still ongoing.
HONG KONG 
Pre market opened @ 28,665 +124pts vs +179pts ADR’s but initial sold down (margin call selling in my view) but then rebounded and tested to 29,000 but unable to break above. A rebound in Ecommerce names driving the market higher but Xiaomi weak on exclusion from FTSE Russell global index. Rumours ‘Team China’ active and T/O increased which would suggest their presence.PM opened slightly lower and fell to 28,800 level which is providing good support. Currently +262pts (+0.9%) @ 28,803
At lunch Wharf (0004.HK) announced annual results ended December 2020. Group revenue +24.4% yearly to HK$20.997 billion. Group profit attributable to equity shareholders reached HK$3.864 billion, up 14.1%. EPS equaled HK$1.27. Second interim DPS was HK$0.2. Full-year DPS was HK$0.4.
EUROPE 
Futures indicating a higher open London’s FTSE is seen opening 8 points lower at 6,716, Germany’s DAX 7 points higher at 14,403, France’s CAC 40 up 9 points at 5,919 and Italy’s FTSE MIB80 points higher at 23,741, according to IG
Data due 
EUROZONE Employment Change, GDP Growth Rate
GERMANY Balance of Trade, Exports, Imports, Current Account.
FRANCE Non Farm Payrolls data
Earnings Leonardo, Deutsche Post, Continental, Standard Life Aberdeen, ITV and Domino’s Pizza Group.
US Futures 
Opened higher in Asia but have eased back slightly; Dow +130pts S&P +0.45% and NDX +0.55%The treasury selling $120bn of new bonds today will be watched carefully and nervously in case it triggers another round of selling. Key is that investors are trying to gauge a how much higher rates can go before the Fed shows concern.Demand likely to be lighter with Japanese buyers pull back ahead of their year end. Also the potential ending to the changes to the SLR at the end of this month may make banks more cautious.

FT Front Page
Women’s day. Pandemic hits mothers more
A global survey of Financial Times’ readers has found that two in five working mothers have taken, or are considering taking, a step back at work as the pandemic forces parents to juggle their careers and childcare.
Apollo moves to end Athene feud with merger creating $30bn group
• Tensions over fees defused • Insurance unit to be transformed • Buyout firm’s shares fall
Agnelli family takes further step into luxury sector with Louboutin stake Has bought a 24% stake for Euro 541m and also gets two board seats.

Inside 
Royal fairy tale turns sour and splits opinion. (Page 2)
Embrace of race was too much for some in the palace, Sussexes say in TV interview. Looks at the Oprah Winfrey interview which was aired on Sunday night in the US.
ECB’s bond purchasing slows despite jitters over recovery (Page 2)
Slowing for a second week and despite bond yields rising. Indicating that at present the ECB does not think yields aahve reached at level at which it needs to step in and defend them. It will make this week’s ECB meeting and press conference more interesting to see what Lagarde has to say on the matter.Unlike the US the Eurozone is still hampered by restrictions to contain covid and so its recovery is slower and signs of inflation are muted. Some wonder if it reflects disagreements within the ECB.
Japan maintains monetary easing as jab rollout falters (Page 3)
Looks at the speech by Masayoshi Amamiya, 'regarded as the chief monetary strategist, signalled the central bank wanted to leave the yield curve unchanged when it announces the outcome of a “comprehensive review” next week.’
It supports the comment made by Kuroda last week suggesting that immediate changes to policy at the BoJ are unlikely. It also means that the BoJ is not likely to allow long term bond yields to rise which would have made it easier for banks, insurers, pension funds and savers to earn a return on their money.
The last review in 2016 introduced ‘yield control curve’ which was the tool for the BoJ to buy bonds and keep 10 year yields at zero.
In the speech he said 'goals of the review were to continue monetary easing, reduce the side effects of BoJ policy and make its response to changing conditions more “nimble and effective”. He implied that changes to the range for bond yields had been under consideration. “Fluctuations within a certain range could have positive effects on the functioning of JGB markets without losing the effects of monetary easing,” he said. That suggests the BoJ could revisit the policy this year if the recovery from Covid-19 is strong.
Amamiya also hinted at a change in the BoJ’s approach to buying equity funds, which has been criticised for mechanically stepping in whenever equities fall, and thus distorting the market. The central bank’s policy is to buy a maximum of ¥12tn ($111bn) in equities every year.’
It is surprising that after years of pursuing the same policy and not achieve the required results that the BoJ is still delaying change. Low yields have not helped businesses but has hurt pensioner incomes. Many Japanese companies are currently doing well although the impact of covid has hurt many consumer related businesses there is a renewed interest in the country. A change in BoJ policy could be the accelerator that it needs to see real change.

Working mothers bear brunt of pandemic parenting (Page 4)  
Division of household labour during the crisis has largely fallen back on old patternsA worrying read about the impact of covid on domestic life and especially on women and children.

Companies & Markets 
Freedom fears Japan’s SBI plans Hong Kong withdrawal on concerns over security law.  Looks at comments from the CEO about why he is pulling SBI out of Hong Kong; citing the lack of freedom as the main one.  He also makes the point that with the new National Security Law and uncertainty over how it will be implemented it makes Hong Kong less attractive than some other Chinese cities where you have more certainty about how the laws are applied.  As a result he is looking at Shanghai or Singapore as alternatives.
He also says that other Japanese companies are questioning their presence in the City but unlikely to make a move in the short term.
He also mentioned about London post Brexit, noting at present it was OK.

It highlights the impact of the new security law and the fact that many businesses are considering their options. I would also think the recent covid experience of remote working means that many are aware that many businesses and operations do not need to be physically located in a centre.
It follows yesterdays article on Standard Chartered that highlighted the difficulties of balancing business in Hong Kong/China and the recent increase in political control over Hong Kong by Beijing. I expect that as long as investors believe that the Hong Kong legal system is independent and able to protect their investments in Chinese companies the city will remain important. Should that protection decrease then investors will worry.

IWG upbeat on flexible office outlook after bumper deal
It has signed a deal with Japan’s Nippon Telegraph and Telephone to provide its 300,000 employees access to IWG’s global network of offices under an ‘all access’ plan. It follows the signing of a deal with Standard Chartered recently for a 12 month trial.
For NTT it notes 'Mark La Neve, chief executive of NTT Global Sourcing, said the deal with IWG would reduce employees’ commuting times and travel costs as well as shrinking the company’s carbon footprint. Although, NTT will retain some of its existing office network.’
IWG is also working with a biotech company to be able to carry out covid testing in some of its offices.Whilst its good news for IWG it is still due to close 200 offices world wide costing GBP300m and is pushing land lords to more favourable leases. The deal show how remote office working will have a part to play in the post pandemic world but a lot of functions still work better in a centralised office. We Work is also looking at rolling out a similar option so that staff from companies can work at any of its offices rather than at a specific location.
The future of office life post inoculation is still unclear. Lots of functions still work better in a Central location but some can work equally well remotely. The ‘added element’ of having everyone together or at least in teams is another element that us hard to quantify. There will be change but I think over time a lot of people are going to work to return to central offices.

Worker deaths overshadow Coupang IPO
South Korean ecommerce group prepares for New York listing as pressure builds over its employment practices
Looks at the company’s track record which is not as bad as some of its local rivals but more importantly it looks at ho S Korea companies can get around the country’s labour laws. Typically those laws only apply to full-time workers so by employing ‘temporary’ staff it can get around the laws.
The article says the company was subject to a government investigation last September which made recommendations but again only applies to full time staff.
The article looks at the deaths that have occurred and highlights comments from staff about the poor conditions and suggests that the company has a high staff turnover rate; which is not generally a good thing.It also makes clear that the company declined requests for interviews from the FT; again not a good sign.
With the current ESG trend it will be interesting to see how many institutions take up the issue once they are shareholders following the IPO to if any decline to take part because of the issue.

Hong Kong’s Jardine simplifies share structure
It will delist Jardine Strategic and unwind the structure that was designed to protect the company from hostile takeovers. It is expected to remove a substantial discount from the net asset value of the holdings and be very positive for the minority holders. It does mean that the management are going to have be a lot more pro active if they wish to keep running the company.
It could also signal a further withdrawal from Hong Kong; where it owns Hong Kong Land, Mandarin Oriental and Dairy Farm. With increasing pressure on businesses in Hong Kong to aline themselves with the administration or suffer the consequences the company may have decided that it will focus on operations in the result of Asia where is has been increasing its presence. A couple of years ago it shut down the Excelsior Hotel and was looking to try and sell the site but felt the offered price too low and so is currently undertaking its own redevelopment. I think that reflected how the upper management had lost touch with Hong Kong.
I wonder if they would still need to fire the Noonday Gun they left or whether the Beijing` would want to forget the whole thing.
See also LEX Jardine Matheson: trading up.
Thinks the change makes sense and gives the buyer a good revaluation profit and helps the businesses. It also notes 'Longer term, however, the group’s position in south-east Asia’s growing car sales businesses looks more positive. Demand for luxury cars started to recover late last year, led by sales in Asia. Grocery store chains also offer diversification and growth prospects in north Asia and Singapore.Jardine Matheson and Jardine Strategic shares rose more than 15 per cent yesterday, reflecting hope that the deal will help the group to get through the pandemic with limited damage. It has survived worse over the centuries.'

China stocks enter correction territory after biggest one-day fall in 7 months
A number of factors coming to play, probably most focus on rising US bond yields and concerns about inflation. But there have also been comments from the regulator about ‘bubbles’ in the China system and the impact of global stimulus. Together with the low rate of growth targeted by China.
The drop came on the same day that the market reacted to record Trade data from China although I would discount some of the as restocking and the fact that due to covid a lot of factories did not close over the lunar new year; rather than it being new demand.
Another key factor is the recent changes to the landscape for Ecommerce stocks which has been strong drivers of the markets.
This morning stocks saw initial selling but have rebounded into lunch. The outlook I think still could see a further correction as investors reposition for inflation. As I have mentioned many times recently portfolio asset managers typically revise their asset allocations in March.

Investors fear new Treasury auctions will hit bond prices
Grim $62bn sale of seven-year notes at the end of February sent shivers through US debt traders.
Looks as the prospects of the US Treasury auction today and the possible ramifications if there is limited interest. On sale today $120bn of new bonds; $58bn of three-year notes, $38bn 10-year debt and $24bn at the 30-year mark.
A poor showing would push yields higher and comments from Powell last week did little to encourage investors that the Fed was willing to act. Also notes that Japanese investors are traditionally quiet at this time of year ahead of the Japanese fiscal year end on March 31.
What also might influence the auction is the end of the temporary changes to the supplementary leverage ratio; which expire at the end of the month. Those measures allow banks to exclude Treasuries and cash reserves when calculating how much additional capital they need to hold. It could be the banks hold back in order to demonstrate to the government why the measures s should be extended. Although in recent interviews some banks indicated it would not make much difference to their operations.
Still likely to mean more caution in the US markets tonight.

Fed shuts most Covid crisis emergency facilities
Ending all but the Paycheck Protection Program Liquidity Facility in recognition that companies have managed to access the funding they need via private markets. Another sign of the strength of the recovery in the US markets. It does rather vindicate Mnuchin’s decision last year on the matter.

LastPass login app triggers backlash with demand for payment
New private equity owners have told users to pay or face restrictions on their access. The app was bought by Elliott Management and Francisco Partners as part of their $4.3bn buyout of internet software group LogMeIn in September last year. Now they want to charge for the full service; being able to login from any device although you can still use the partial version (login from one device only) for free. Users of the full service can be changed unto $36 a year. Not a huge amount but shows that the new owners are keen to make as much money as possible from their acquisition.
The problem is that there are other free applications; like BitWarden; which has seen a five fold increase in users since LastPass announced its intention to charge users.
It notes that LastPass, which claims over 25m users last year, 'said it had given 30 days’ notice of the change and was not deleting any user data. It added that the free version of LastPass still offered functions that rivals lacked, and that “a healthy number of users” had taken up its discounted subscription offers.’
Seems it is not going to get the maximum $36 a year, it has risked the trust of users and in the face of alternatives. It does highlight how increasingly difficult is for apps to make money.

Markets Insight. Hard to see concrete examples of rigged stock trading system
Many think the markets are rigged but there is no evidence of foul play. There are levels of complexity and the ability to some systems to act quicker than others but the key thing is that the rules are the same for everyone.
Nice quote 'Should a “fair” market mean that ordinary, individual investors have the same chances to succeed as amply resourced investment companies stuffed with professionals that have dedicated their entire lives to trading and investing? That would be like saying a pub football team should be able to compete with a Premier League side.’
Conclusion is that the system doesn’t need drastic change. It maybe that it ordinary Americans need better financial literacy. The other problem being that a lot of ordinary Americans don’t have money to put into the stock market and so can only watch at how other make money while they are excluded.

Opinion Inflation risk from Biden’s stimulus plan is exaggerated by Chen Zhao chief global strategist of AlpineMacro
Looks at how the stimulus will be spent; 40% on helping the inoculation programme which will have little impact on GDP but may reduce local government layoffs.
US$1tn on direct household subsidies, $150bn to help struggling businesses; which would be similar to a tax cut but the one off nature means the benefit are usually saved not spent. Compares that to the $3tn stimulus package of 2020 where most American’s saved the money and increased other saving too.
So its unclear how much of Biden’s package will be actually spent. The writer notes 'some of the funds will translate into final consumption. Supply constraints have also led to price rises in some goods. Together, these may cause a one-off rise in inflation.’Goes onto to say 'But assume, say, that consumers save half of the amount they receive from government. That would represent about $500bn in additional consumer spending. This would not be enough to offset the negative output gap, or the difference between current and potential economic activity, which is estimated at about $1tn. It is premature to claim that Biden’s stimulus package will overstimulate the economy and push up general price levels at a continuing rate.’
Compares that to the Trump tax cuts which amounted to a similar size; they were permanent cuts and aimed at increasing spending and corporate investment but did little except ‘lift corporate earnings and stock buybacks and helped to create a stock market boom. But they did not boost corporate capital expenditure.'Concludes 'More generally, subsidies to low-income families are certainly necessary at times of economic difficulty. But the government should divert more resources to public sector investment. This adds productive capacity, generates growth, and is better way to boost demand and fight an economic crisis.’

Makes a lot of valid points but I still think that the US stimulus combined with the stimulus from other countries will mean higher inflation in due course and a lot of it is about inflation expectations; which seem to be rising.
Equally I am not convinced that there will be a huge surge in spending post pandemic as many families are still struggling to survive. Many are benefiting from the restrictions on foreclosure and evictions but when those end we could see another crisis in the lending/housing markets.
Those with money have continued to spend, just on-line; which may change the face of retailing going forward. Additionally a lot more US households have started their own businesses, more than has previously occurred which again is going to change the economic outlook going forward.
For investors I think it is prudent to factor into their portfolios the increased risk of inflation rather than ignore it.

For Interest
Life in the UK is not easy for former Hong Kong residents
Looks at what may befall those ordinary people who decided to leave Hong Kong for the UK. Those who haven’t already invested large sums in UK property and maybe don’t have large sums of money full stop.It mentions the details about the need for a UK bank account and permanent UK address in order to secure a UK tenancy or a phone landline (something I found out a few years ago when buying a house in the UK). There are also a lot of other small items and paperwork that can make the initial stages of moving to the UK difficult. As contrasted with the ease of moving to Hong Kong even now and especially 24 years ago.
It concludes 'The government estimates there will be about 300,000 arrivals from Hong Kong over five years — roughly 10 times the number of Asians who landed in Britain from Uganda in the early 1970s. But there are signs that some of these would-be immigrants, spooked by tales of difficult resettlements, are already having second thoughts. Their fears mean the true number of those who take up the UK’s offer could be far lower than thought.'
Much of it will depend on the harshness of Beijing’s clamp down on Hong Kong. At present most people in Hong Kong can continue their lives as before but the perception of Hong Kong by those in the west are changing and quickly. Moving to a new country always involves change and the need for adaption but most important for support networks. The size of the UK can present problems but internet can reduce it too. As with most things prior research and local friends will be the key to a successful move.

LEX State digital currencies: defence of the realm
You thought cryptocurrencies were disruptive? Wholesale adoption of digital euros issued by the European Central Bank could force it to step in to bolster banks in an extreme scenario wargamed by analysts at Mediobanca.
Historically central banks outsources handling retail money flows to banks but digital could cut out the middle man. It could also mean the eradicate the USD privilege and protect against crypto and rival central bank digital currencies. China is already experimenting and the Euro looks set to follow a similar rollout.Notes that'Current plans for the digital euro would limit its use to retail payments. If interest rates stayed negative or very low, digital euros held directly with the ECB could drain the deposit accounts that help fund lending. Mediobanca estimates that, if eurozone households and non-financial corporations each held a capped amount of €3,000, almost €1tn would switch.
This would increase funding costs only modestly. But if households and businesses moved the bulk of their deposits in a crisis, costs would balloon. The prospect of market disruption and a collapse in profits would force the ECB to step in to support banks.
Conspiracy theorists may find validation for fears of a European superstate in such wargaming. In reality, central bankers must be equally scared of scenarios that lumber them with such responsibility. But if cryptocurrencies show any signs of supplanting fiat money, you can be sure that CBDCs will be widely touted as an alternative.'


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