Feb 1 FT Thoughts and Asian market lunchtime update.

01 Feb

MARKETs at 1:30pm Hong Kong time.Asian markets rebounded on good PMI data for most markets.  Miners seeing interest as Silver spot prices rose more than 5%. Pharma stocks also seeing good interest.

Nikkei 225 opened slightly lower but rallied to 200pts in early trading and then traded sideways around the 27,9000 level for the rest of the morning. PM opened higher and working slowly higher, currently +395pts (+1.4%) @ 28,059
Topix followed a similar patter rallying 19pts in early trades and then trading sideways around 1,823 into lunch with 1,825 a resistance. PM opened higher resistance was 1,830 but being tested. Currently +23pts (+1.3%) @ 1,832
Manufacturing PMI Jan 49.8 vs 50 Dec (F/cast was 49.7)
Press reporting that the Govt will extend the State of Emergency Declaration.
Trade data on the open showed a ninth month of surplus, Exports continued to surge whilst Imports rose at a more gradual pace. PMI data 30 minutes later rose to the highest since Feb 2011 showing a sustained recovery underway. Backlogs increases as did raw material and logistic prices. Pharms stocks seeing big interest, Tech saw some initial weakness but now investors turning more positive.
Kosdaq opened lower and dipped 5pts in early trades before working better with resistance at 950 late morning but market pushed through that at lunchtime currently +25pts (+2.7%) @ 954 Kospi traded in a similar pattern hitting working slowly higher. Currently +72pts (+2.4%) @ 3,047
Balance of Trade Jan $3.96b vs $6.94bn Dec (F/cast was $6.3b)
Exports Jan +11.4% YoY vs +12.6% Dec (Consensus was +9.8%)
Imports Jan +3.1%YoY vs +2.2% Dec (Consensus was +1.9%)
Manufacturing PMI Jan 53.2 vs 52.9 Dec (F/cast was 52.5)
Opened higher but dipped -50pts in early trades to 15,100 before working higher with resistance around 15,250 level in the morning. Market pushed higher continued to work higher from about 11am as investors reacted to the good PMI data this morning and good GDP data after market Friday. Currenrtly +277pts (+1.8%) @ 15,415
Manufacturing PMI Jan 60.2 vs 59.4 Dec (F/cast was 59)
CSI 300 opened flat and initially dipped before rallying 50pts to 5,390 level. It eased back to 5,380 before rallying to test 5,400 but unable to break above and sold down to 5,365 before working back higher into lunch. PM opened higher and working higher; currently +52pts (+1%) @ 5,403
Caixin Manufacturing PMI Jan 51.5 vs 53 Dec (F/cast was 52.5)
Pre Market opened at 28,458 +174pts vs -17 ADR’s squeezing recent shorts.
E Commerce names seeing interest. Most Financials +VE except CCB. Pharma, Miners and Consumer names all as the market sees a broad rebound.
It then traded in the range 28,500/28635 for most of the morning before rallying 28,700 before lunch. PM opened higher and working higher currently +582pts (+2%) @ 28,866
Compulsory testing a Laguna City blocks completed but finds zero covid cases as local press reports the HK administration is likely to extend social distancing measure to after Chinese New Year to prevent a new wave.
Macau January GGR -64% slightly better than forecast.
LUYE PHARMA (02186.HK) announced a placement of 292m new shares to Hillhouse NEV (8.26% of the issued share capital of the Company as enlarged by the Subscription Shares) The Subscription Price is HK$4.28 per Share; a premium of 10% over the closing price as quoted on the Stock Exchange on the last trading day.
Expect markets to open higher following the lead from Asia, having closed lower on Friday as the US sold off. The reversal of US futures from -80pts to +100pts bodes well fro a rebound.
EUROZONE Unemployment Rate
GERMANY Retail Sales, Manufacturing PMI
FRANCE Manufacturing PMI, New Car Registrations
UK  Manufacturing PMI, Consumer Credit, Mortgage Approvals, Net Lending to individuals
US Futures 
Opened lower in Asian time Dow -107pts, S&P -0.5% and NDX -0.8% but reversed through the morning to Dow +123pts, S&P and NDX both now +VE.
Manufacturing PMI, ISM Manufacturing Data (New Order, Prices, Employment, PMI) Construction Spending. Senior Loan Officers Survey.
Earnings : Cirrus Logic, Rambus, ON Semiconductor, Vertex Pharmaceuticals, Otis Worldwide, Thermo Fisher, Nintendo, NXP Semiconductor, Warner Music, Cabot

Biden shows his hawkish side on China
New US administration signals it will act tougher against Beijing than Republicans claim.
It is a hot topic in Washington and whilst the details of the policy as still being worked on there have been hints about the policy from its reaction to recent events in Asia and answers to questions at Senate nominee hearings.
A clear sign was giving by inviting Hsiao Bi-khim the Taiwanese representative to the US to attend a presidential inauguration; that was a first. Three days later the State Department warned China about intimidating Taiwan with flight sorties.
Antony Blinken said Trump had been right to be tough and agreed that China’s repression of Muslim Uighurs in Xinjiang was “genocide”.
Mr Sullivan in a speech at the US Institute of Peace 'said Mr Biden would work with allies on China. But he said he was prepared to “impose costs for what China is doing in Xinjiang, what it is doing in Hong Kong, for the bellicosity and threats that it is projecting towards Taiwan”.’
Much stronger language than that seen in the Obama era when the aim was to make China a responsible stakeholder. That didn’t work and so a new approach is being taken. But there are some mixed signals:
Regarding Huawei; Gina Raimondo, the nominee to head the commerce department, refused to commit to keeping Huawei on the entity list. Which suggests some easing possible ahead. That to me makes a lot of sense it means the Biden team is proving itself with negotiating options; although a number of Republican’s said it was “remarkable and frankly disturbing” that she wouldn’t commit to keeping it on the entity list. That may mean delays to her appointment and the article says possible vocal opposition from career bureaucrats.
Extending the time limit for the ban on investing in Chinese companies with links to the PLA being another. But most think that is merely to clarify the policy and present a clearer policy that is better understood by the markets.
Many view the more coherent and unified approach to policy as being a sign that Biden will be tougher on China because the policy will be co-ordinated between departments and its allies; as seen in the appointment of Kurt Campbell as co-ordinator of overall policy who is known to be a China hawk. Easing the concerns that John Kerry (International Climate tsar) might try as go soft on China to get climate concession, although he has himself said “I know some people have been concerned. Nothing is going to be siphoned off into one area from another,”
Other so called next generation hawks include 'Laura Rosenberger at the NSC, and Kelly Magsamen and Ely Ratner at the Pentagon.’ Seen as being more competitively minded in their approach to China.
For investors it certainly looks like Biden wants to engage with China but is willing maintain the tough approach Trump started. But the more united front is likely to mean it will be more effective. The problem for China will be deciding whether it is prepared to make concessions; those might not just be to the US but its other allies too.
In Asia that is going to include Japan, Australia, S. Korea and most importantly Taiwan. That for China is going to be the most difficult pill to swallow. President Xi has made unification a key point and having to step back from that policy is difficult to imagine.
China has in the past managed to reverse some key policies in the past; like the one child policy but it has not been easy. Changing the policy on Taiwan would be much more difficult because President Xi has linked it so closely with his personal leadership and has even gone as far as to approve the use of military force to achieve it.
So far it is only the US that appears to have changed its policy on China if other countries follow suit it might make it easier on China to change policy but that does not make it more likely that China will change its policy.

Companies consider writing Hong Kong out of legal contracts
International corporations are concerned Beijing’s growing influence will damage rule of law in the territory. Referring to the use of Hong Kong law as a means of settling disputes with regard to arbitration clauses , joint venture agreements and conducting business in the Hong Kong. The ‘governing law’ clause means the parties can decide under which law disputes are settled. Hong Kong has for many years been a first choice due to its close similarity to UK law. But following Beijing’s clamp down on Hong Kong and the imposition of the National Security Law many firms are now questioning whether its safe to keep the Hong Kong option; especially when considering that many of these agreements will run for 10 or more years.
The major beneficiary is likely to be Singapore which has rise in cases electing to have disputes decided there.
Many who still promote Hong Kong cite the fact that on enforcement the agreement between Hong Kong and China means awards at their respective orbital centres will be upheld. Although if the change in the law or the way the law is interpreted means you don’t get the award you were expecting, that is not of much use!
It notes that historically firms knew they could enforce contracts on Chinese SOE’s and companies linked to mainland communist party officials. But with more Chinese influence the concern is that Hong Kong becomes like the mainland where the law is subservient to the Communist Party and hence often makes party official and companies above the law.

Joe Biden’s ‘Buy American’ isn’t bad, it’s necessary
The US president’s plan is more than just Trump’s MAGA slogan with a kinder face.
It makes the point that Biden’s plan is aimed at helping create employment and the ordinarily people not just those who own the stock market.
The key is that the policy is about more than just straight economics. Biden has 18 months before the mid term elections; in that time he has to show the American people that he is serving them and serving them better than Trump did.
It notes that low cost imports have made the middle class richer because the gains have been eaten up by education, healthcare and housing costs. So the government has to show it is about helping people. It notes that Janet Yellen gave a 'pledged to move beyond textbook economics and stay focused on the “humanity beneath the data”. Interestingly, she also referred to the need to address not only immediate challenges but “an economic crisis that has been building for 50 years”. It was a nod to decades of falling working-class wages.’
The US is not alone in putting home affairs first; Germany has with the new trade deal with China and its Nord Stream pipeline project. Those raise questions about labour and human rights standards. Such actions may make getting an agreement on digital regulation harder. A key point is that ‘One good thing the Trump administration did was to acknowledge publicly what many people have thought privately for some time — that current trade patterns and agreements aren’t equipped to deal with the messy economic and political realities of the world today.’
The growth of internationalisation in the early 20th century put in place rules to curb nationalism, that has benefited some but not all.
It finished by saying ‘Mr Biden’s “Buy American” plan isn’t some silver bullet solution to the economic woes of this new world. But it is a politically smart nod to the fact that we are in one.’
For investors getting the US economy firing on all cylinders again is going to be key to getting almost every other economy going again too. If Biden’s new policies can do that then the global outlook should improve too.

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